Don’t rush into export ‘opportunity’ presented by Russia-Ukraine conflict 

News: Recently, the Russia-Ukraine clash and the resultant sanctions have pushed India to face a strong headwind to growth and Indian exports. This is due to surge in energy costs, elevated geopolitical uncertainty.

However, the clash has come up with a number of opportunities which require deep analysis. 

What are the opportunities? 

India gets an opportunity to fill the shortage of commodities in the global market. Russia and Ukraine together account for 30% of global wheat exports. At present, they are unable to export.  

However, India is a wheat surplus country. The Food Corporation of India (FCI) possesses good buffer stock. Therefore, India can export wheat to meet global demand. 

What are the issues with India’s rush to “encash the opportunity” for agricultural exports? 

There are limited prospects for sustained wheat exports for India. India has an available surplus of around 25 million tons. It was accumulated over five years. This is not a big number. Russia and Ukraine annually export nearly 60 million tons of wheat. 

In addition, exporting all the surplus stock would push up domestic wheat prices. Further, it would lead to tariff hikes on future exports like in case of palm oil in Indonesia.  

In agricultural trade, India has the dubious distinction of being an unreliable trading partner.  India is the second-largest producer of wheat in the world. But has only 1% share of global wheat exports.  

Indian’s wheat export is not globally competitive. The government’s Minimum Support Price (MSP) and Procurement regime makes its less competitive. The MSP often rises every year. It normally exceeds global prices. Thus, exports would be difficult. 

India’s lack of export competitiveness can be seen from the consideration of the export parity price (EPP). The cost of getting the produce from the farm or factory to the border or the port is high in India. It is due to high domestic logistics costs (like road transport costs). India’s domestic logistic cost is over 13% of GDP as compared to the global best practice of 8%. In addition, India’s ports are inefficient.  

The FCI cannot sell procured grain for commercial gains as a result of India’s commitments under WTO. It would be difficult to bring in intermediary. 

India had adopted a “heterodox” approach for opening up trade. It aims to open on the export side while being restrictive on the import side. This creates political difficulties in trading relations. 

India’s non-price attributes like food safety, quality, and variety of wheat consist of a lot of issues. It restricts the sustainability of Indian exports. The food safety and quality of wheat are highly preferred in the global market.  

As per recent study, India has the highest number of consignment rejections in both European and US markets in comparison to other developing countries.  

Ways Forward 

The crisis can be an opportunity for India to fix the fundamentals, like its “time to trade”, “costs to trade” among others 

A long-term sustained export strategy is needed. The strategy must incorporate the changing nature of global trade.  

There is a need to deliver on quality or honouring commitments. India can expand trade through new products, varieties and new trade agreements. 

Source: The post is based on an article “Don’t rush into export ‘opportunity’ presented by Russia-Ukraine conflict” published in the Indian Express on 21st April 2022.