Opinion Express View on grain prices: War and wheat

Global grain prices hardened on Tuesday after Russia fired cruise missiles targeting Ukraine’s Odesa port as “retribution” for the latter’s attack damaging a key road bridge to the Crimean Peninsula. The day before, Russia terminated a deal allowing Ukraine to export produce from designated Black Sea ports. The markets seemed to have then shrugged off Moscow’s announcement that it would no longer guarantee safe passage for vessels moving through the specially-created maritime corridor under the Black Sea Grain Initiative. The deal, brokered by the United Nations and Turkey, had enabled Ukraine to ship out nearly 33 million tonnes of corn, wheat, sunflower (including oil and meal), barley, rapeseed and other grain in the last one year. By striking, Russia has conveyed a clear message.

That being said, the world is better positioned than a year ago to absorb any fresh supply shocks from the Ukraine-Russia front. One reason is that Ukraine’s corn and wheat exports are anyway expected to fall 30-40 per cent this year over 2022-23. The war has taken a toll on the country’s production, which the markets have already factored in. Secondly, the reduced supplies from Ukraine should be more than covered by Brazil, US and Argentina in corn and Russia in wheat. The latter has, in fact, become the world’s biggest wheat exporter, much of it going to the Middle East, North Africa and Central Asia, even as Ukraine’s own grain has been increasingly moving via the Danube River and land route to Europe. Thirdly, even with respect to vegetable oils, enhanced availability of soyabean (from Brazil and Argentina), palm (from Indonesia and Malaysia) and rapeseed (from Canada) should help stave off any disruptions from the expiry of the Black Sea agreement. Moreover, Russia has indicated willingness for the deal’s renewal if the rules for selling its own produce and fertilisers in the international market were eased. That’s a call the West would have to take.

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Simply put, the world is relatively awash with grain today. As far as India goes, the threats to food inflation are likely to be more from domestic than global factors. While the monsoon has been good so far, its performance over the next one month will matter, especially in a scenario where the Food Corporation of India’s warehouses aren’t overflowing like before and supply pressures are building up in vegetables and pulses. The government should closely monitor the kharif crop’s progress, while keeping the window open for imports as insurance against any production shortfalls.