5 War in the World’s Breadbasket: Prospects Facing the Indian Farmer

War in the World’s Breadbasket: Prospects Facing the Indian Farmer By: Ashish Ranjan (The Aryan International School, Varanasi)

When Vladimir Putin launched his ruinous invasion of the border state of Ukraine on February 24th, food markets were already at their least stable in 32 years. The Food and Agriculture Organization’s Food-Price Index (FFPI) had hit an all-time high of 140.7 by then, while the global food inflation maintained a double-digit streak at over 20%. While Covid and the subsequent severe supply crunch claim credit for much, two other factors, namely climate, and conflict, also play a role. On the one hand, increasingly common climate-driven famines have, for instance, pushed over 1.3mn Malagasy people to the cusp of crisis. On the other, 500,000 poor residents of northern Ethiopia suffer critical food insecurity as a direct consequence of a roller-coaster civil war. Under such dire circumstances, by-product opportunities have also emerged, particularly for the farmers of India.

The United Nation’s World Food Programme estimates that an unprecedented 283mn people across 80 countries are now acutely food-insecure. The figure, which counts those surviving on so little nutrition that their lives or livelihoods are in jeopardy, has roughly doubled in the last two years. Many of these live in regions such as sub-Saharan Africa, where 40% of the consumer-price basket comprises food. Already, they face surviving on grain stocks a third below the five-year average.

How exposed to the war is the food market?

Russia and Ukraine account for 29% of wheat sales internationally, standing as the largest and fifth-largest exporters of the widely-consumed grain. Prices of wheat have surged 35% since Russia attacked Ukraine in February, over and above the prior increase of 49% in the 2017-21 average. Economists demonstrate the massive impact of this dominance in the fact that the two warring nations supply 86% of Egypt’s wheat imports or over half of the 21mn tonnes its population needs every year. Russia and Ukraine also export 12% of all global calorie trade through a considerable supply of oilseeds, barley, corn, and especially sunflower oil. Further, Russia, along with Belarus, produces 38% of the world’s potash. With such essential components required to make fertilizers set to become scarce and costly, an alarming situation looms over agriculture worldwide with respect to local production.

Many primary avenues now stand either debilitatingly sanctioned or bombed, therefore inaccessible to a starving world. Since March 9th, Russia and Ukraine have banned a range of exports, and nearly all available alternatives remain too dear for countries like Egypt, which canceled two tenders for wheat supply in a row over scanty offers. As well as imports, the implications of the disruptions mentioned above include reduced agricultural production or less nutritious sustenance in many regions. On the backdrop of an increasingly precarious economic structure, global wheat futures spiked over 55% to $14 a bushel, a record, before mildly cooling down. A similar spike has been seen in India, though horrifyingly volatile to a lesser extent. Traders are willing to pay a shocking ₹2,700

for a quintal of wheat (inclusive of freight cost) at the Kandla port, up from ₹2,200 within a matter of days and as opposed to the Minimum Support Price of ₹2,015 per quintal. However, this occurrence does not correspond to the choking of global supplies as is the case elsewhere, at least not directly. Instead, it represents an opening.

India’s position today: Small, but Growing

India ranks as the second-largest wheat producer with a 14.14% share of the total global production in 2020, only surpassed by China (Russia is third), as per the FAO. The government expects to touch a new record of 111.32mn tonnes in 2021-22, up from 109.59mn tonnes in 2021-22. Wheat produced on Indian soil is valued as highly competitive in international markets, inducing ever more agents to switch over as flow from Russia and Ukraine halts. Strikingly, the country’s share in world wheat export stands at just 0.54%, up from an even more meager 0.14% in 2016. The value of wheat exported by India during the April-October period surged 546% year-on-year to $872mn.

To achieve the desire of maximizing the potential that Indian agricultural exports hold, careful coherency in long-term policy must prevail to facilitate smooth overseas sales of the commodity. That, says Madan Sabnavis, chief economist at Bank of Baroda, is lacking among Indian policymakers. “It is a political issue about whether we should be exporting wheat or not ... One can say that we always had the option of exporting wheat into the market, especially beyond what buffer stock norms mandated,” Sabnavis points out.

India produces significantly surplus wheat and rice. Against the buffer norm of 13.8mn tonnes of wheat and 7.61mn tonnes of rice for January 1st, a much larger pool of wheat up to 33mn tonnes and rice roughly 22.4mn tonnes reached FCI godowns. However, India will not export the central pool stocks of wheat because of a series of commitments agreed to under the Peace Clause at the WTO Bali conference in December 2013. A number of other restrictions further limit the export infrastructure in place. Consequently, the possibility of unmediated direct business between private players and farmer organizations is conceivable. Deals made on private accounts will likely prefer to source wheat from Uttar Pradesh and Madhya Pradesh, as in the past, and Punjab and Haryana. This would lead to lower central procurement figures as well.

The path ahead

Among the many advantages gracing Indian farmers’ position, one is that the rabi crop reached mandis weeks ago, while agricultural schedules of other global producers must wait till June-July for their harvest. Most players will also be reluctant to export much on account of domestic shortages, but India maintains significant stockpiles. At its latest meeting on March 17th, the Agricultural and Processed Food Products Export Development Authority (APEDA) directed concerned organizations to take measures aimed at boosting exports to markets with significant shipment potential. Experts say the government is truly scrambling to ensure adequate infrastructure for competitive exports. According to statistics from the Directorate General of Commercial Intelligence and Statistics (DGCIS), the countries that received India’s exports of wheat in 2020-21 were Bangladesh, Nepal, the UAE, Sri Lanka, Yemen, Oman, and Malaysia. Both by volume and value, these top 10 importers took up nearly 99% of the wheat exported by India.

Now, a much broader market of nations looking to compensate for the hole left by the Ukraine war will turn to India. The government claims it is in final talks to start wheat export to Egypt, while discussions are ongoing with Turkey, China, Bosnia, Sudan, Nigeria, Iran, and several others. The Philippines is another potentially large importer of Indian wheat. In 2021-22, wheat export to Afghanistan, Qatar, and Indonesia was also initiated or boosted.

Concluding thoughts

Amid the cataclysm brought upon by the war ravaging the world’s breadbasket, India is uniquely positioned to leverage agriculture. Though even India’s vast strategic stockpiles would hardly substitute imminent shortfalls, the supply chains and trade partnerships established in the coming weeks and months will allow India to assume the commanding heights over food markets in the long term. Some decisions made by Indian policymakers today may very well prove central to what the world eats tomorrow.