Agri trade beyond the Ukraine war

Context: The conflict in Ukraine has created an opportunity for India’s agricultural exports, particularly wheat.

But, India’s chances of becoming a stable supplier of wheat are limited in the absence of a long-term policy on foodgrain exports.

Is India facing a pressure on its wheat stocks this year?

Yes. Presently, India’s wheat stocks are facing pressure due to the following reasons:

A possible decline in production and procurement: 

• Production could be lower by more than 10 mt due to the heat wave in the second half of March.
• Due to a decline in production and private sector purchases, the government procurement of wheat this rabi season is expected to be around 20 mt or less (it was 43 mt last year). Govt needs
  

An increase in public distribution and the rise in exports

Can India become a stable supplier of foodgrains beyond the Russia-Ukraine conflict?

An analysis by experts shows the following –

The prospects for sustained wheat exports by India are limited

– India can substitute only a small part of the 60 mt of wheat exports by Russia and Ukraine.

Exporting for a year and then banning exports is bad for trade relationships.

Non-price factors like food safety, quality and the variety of wheat may also constrain exports.

Similarly, wheat may not be competitive globally in most years for exports. Although India is competitive in the cost of production, it may not be so if we consider the minimum support price, which is 50 per cent over cost and other mandi charges.

What is the overall situation wrt agricultural exports by India?

India has exported more than 17 mt of rice both in FY21 and FY22.

Wheat exports were 2.1 mt in FY21 and 7 mt in FY22.

The country has done well in total agricultural exports in the last few years. As per data, agricultural exports have grown by 20% during FY22 to touch $50 billion. This higher growth was achieved in spite of logistical challenges posed by the pandemic.

Way forward

It is possible to be a stable supplier of rice and wheat to other countries if there is a long-term policy on exports of foodgrains. Of course, the environmental costs of these crops must be considered, particularly in the production of rice.

Imports of edible oils and the rise in prices. India is the biggest importer of edible oils. Palm oil constitutes 60% of the imports (9 mt) followed by soyabean and sunflower.

– The prices of sunflower oil increased due to the conflict in Ukraine, while soyabean oil prices rose because of dry weather in South America.

India will face higher food inflation in the near future. This is an opportunity for farmers to increase their incomes. But vulnerable consumers have to be protected with safety nets like in-kind and cash transfers.

What are the policies needed to improve edible oil production, reduce imports and prices?

Short term

– India is planning to engage with Indonesia on palm oil imports as there are limited alternatives. It is also trying to reduce cess charged on edible oil imports to soften prices.

– The government is promoting the production and productivity of oilseeds through the national Food Security Mission: Oilseeds (NFSM-Oilseeds) from 2018-19 onwards in all districts of India.

– In August 2021, the prime minister announced the National Mission on Edible oils-Palm oil to make India self-sufficient in cooking oils.

Alternative sources have to be found to reduce dependence on palm oil imports.

In the medium to long term, there is a need to have atmanirbharta in edible oils, as the demand for them will rise with urbanisation and increase in incomes.

Investment in R&D in oilseeds has to be increased for these crops.

Similarly, marketing infrastructure, development of value chains, price incentives, etc have to be given to farmers to shift cropping patterns from rice and wheat to oilseeds in several states, including Punjab and Haryana.

Hence, there is a need for a two-pronged strategy of increasing domestic production and engaging with other countries to have reliable imports.

Source: This post is based on the article “Agri trade beyond the Ukraine war” published in Business Standard on 4th May 22.