Can Russia-Ukraine conflict benefit Indian agri exporters?

Date:05-05-2022

This article was written by Sanjiv Das and was originally published on agrospectrumindia.com

The Russia-Ukraine turmoil has had and in future will have a lot of repercussions on the global food sector. Many developing and developed nations could be impacted by it, including India. However, this unfortunate chaotic situation could turn out to be a silver lining for Indian exporters. Let’s see if that is possible and how.

Be it natural calamities, or war between different nations, the first thing which comes to one’s mind is the disruption of trade which in some ways lead to the food crisis in certain parts of the world. Though the Russia-Ukraine war which is now going on for the second month has not only taken its toll across various sectors around the world, however, the main worry remains on the import of food grains to various countries including India.

According to the Food and Agriculture Organization (FAO), prices of wheat, corn and cooking oils have all increased to record high soaring prices. Food commodities are likely to expose several million people to hunger as the supply of key staple crops such as wheat, corn and sunflower could be affected. FAO states that countries like Australia, Argentina, India and the US could make up for a portion of the grain shortfalls from Ukraine and Russia. However, the FAO’s preliminary assessment is that, due to the war, 20 per cent to 30 per cent of wheat, corn and sunflower seed crops will either not be planted or go unharvested during Ukraine’s 2022-2023 season.

Lingering crisis

According to the United Nations, the war has led to a giant leap in food prices last month to another record high. Ukraine is a major producer of cereals such as maize and wheat which have risen sharply in price too. The UN says that the war in the Black Sea region spread shocks through markets for staple grains and vegetable oils. The Food and Agricultural Organisation of the UN warned last month that food prices could rise by up to 20 per cent as a result of the conflict in Ukraine, raising the risk of increased malnutrition across the world. The world’s wheat projection has been cut for 2022 from 790 million tonnes to 784 million tonnes, because of the possibility that at least 20 per cent of Ukraine’s winter crop will not be harvested because of direct destruction.

The India story

The pandemic followed by the political imbalance between Ukraine and Russia has resulted in the advent of inflation, resulting in rising costs for critical commodities such as cooking oil and largely the food sector. India imports around 90 per cent of sunflower oil from Russia and Ukraine, hence, the crisis is likely to impact prices and supply in the country. A report from Reuters states that the Government of India has halted sunflower oil imports from the Black Sea region as about 3,80,000 tonnes of sunflower oil shipments from the region are stuck at ports amid the conflict. As per the Department of Consumer Affairs website, the prices of six edible oils — groundnut oil, mustard oil, vanaspati, soya oil, sunflower oil and palm oil — have risen between 9 per cent and 56 per cent at all-India levels in the last one year and with the war in full swing, the price will head north.

However, according to the All India Edible Oil Merchant Federation, the import price of edible oil has seen around 12 to 15 per cent corrections in the last two to three weeks and will be reflected in the retail market in the coming month.

Piyush Goyal, Commerce Minister, Government of India said, “Sunflower oil imports have been affected as it largely came from Ukraine, it has a smaller proportion in our edible oils basket. But, whenever there is a situation like this it has an impact all over the world and almost all edible oil prices in the entire world have shot up today because of the Russia-Ukraine war.” Crisil in its report mentions that the supply disruptions caused by the Russia-Ukraine conflict could lead to a supply shortfall of at least 4-6 lakh tonnes of crude sunflower oil for India next fiscal. The report further mentions that Russia’s major banks are severed from the SWIFT system after the sanctions imposed by the US and European nations. Although trading of food products with Russia has not been prohibited, trade settlement has become difficult, leading to supply disruptions.

An opportunity for Indian exporters

Amidst the crisis, the Russia-Ukraine war created an unlikely opportunity for some of the Indian agri-exporters who trade in wheat, maize, millet and processed foods. Since the war began, Indian wheat has been in huge demand among European countries. It may be noted that Ukraine is the top wheat exporter in the world and Russia and Ukraine together have a 25 per cent share in the global wheat market.

Says Food Secretary Sudhanshu Pandey, “Wheat exports from India, the world’s secondbiggest producer of the grain, have picked up after global prices surged due to Russia’s war
against Ukraine, and total shipments from the country have already touched a record of 6.6 million tonnes this fiscal so far.”

He added, “It is an “opportunity” for Indian exporters as the new wheat crop will be available early from March 15 onwards when compared to other global wheat producers.” Not only wheat but sugar exports are also expected to touch 7.5 million tonnes in the 2021- 22 marketing year (October-September), much higher than 2 million tonnes in the last year buoyed by strong global prices.

Agricultural and Processed Food Products Export Development Authority (APEDA) mentions, a ban on Russian flights to Europe has also resulted in an opportunity for Indian exporters of processed foods like say nuts, fruit juices, confectionery, pulses etc.

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