Agri trade beyond the Ukraine war
India’s chances of becoming a stable supplier of wheat are limited in the absence of a long-term policy on foodgrain exports
The conflict in Ukraine has created an opportunity for India’s agricultural exports, particularly wheat. However, there are two questions on agricultural exports and imports. These are: (a) Can India become a stable supplier of foodgrains, particularly wheat? (b) While India has done well in foodgrain production, it is still dependent on imports for edible oil. Can policy interventions be made to improve India’s production mix of edible oils, reduce imports and vulnerability?
Out of the around 200 million tonnes (mt) of global wheat exports, Russia and Ukraine export 60 mt. India exported nearly 7 mt last year. In the middle of March this year, everyone thought that India could export 15 mt and soften the impact of the disruption in global wheat trade caused by the war. However, now there are pressures on wheat stocks in India due to a possible decline in production and procurement, an increase in public distribution and the rise in exports.
Wheat production is estimated to be around 111.32 mt in the rabi season. However, the production could be lower by more than 10 mt due to the heat wave in the second half of March. Last year, the government procured 43 mt of wheat. 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. The government needs around 32 mt or more wheat for welfare schemes like the National Food Security Act and the Pradhan Mantri Garib Kalyan Anna Yojana. Rice can be substituted for wheat in these schemes. India is still capable of exporting wheat this year. But, there is a need for caution on exports due to pressure on stocks. The increase in fertiliser prices will put pressure on the next kharif rice crop.
The question is whether India can become a stable supplier of foodgrains beyond the Russia-ukraine conflict. An analysis by Devesh Roy and Neelkanth Mishra showed that the prospects for sustained wheat exports are limited. India can substitute only a small part of the 60 mt of wheat exports by Russia and Ukraine. They also indicate that “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.
However, 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. The provisional data showed that agricultural exports have grown by 20 per cent during FY22 to touch $50 billion. This higher growth was achieved in spite of logistical challenges posed by the pandemic.
Note that sanitary and phytosanitary measures, or SPS, may not be a major issue for Indian grain exports, although there were some cases of rejections. Of greater concern is the global competitiveness of wheat prices. 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 charges. However, India has been exporting rice in huge quantities for more than a decade. It is possible to be a stable supplier of rice and wheat to other countries if there is a longterm policy on exports of foodgrains. Of course we have to keep in mind the environmental costs of these crops particularly in the production of rice.
The second issue is imports of edible oils and the rise in prices. India is the biggest importer of edible oils at around 15 mt. Palm oil constitutes 60 per cent 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. As a result, palm oil prices moved north. Indonesia has banned export of palm oil from April 28. It has a significant impact on India as Indonesia has a large share in the country’s import basket.
What are the policies needed to improve edible oil production, reduce imports and prices? In the short run, 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. Production of oils like sunflower, soyabean, sesamum, groundnut and mustard has to be encouraged and consumers should get them at affordable prices. 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. As an editorial in this newspaper noted, there is scope for significant increase in yields of major oilseeds. Investment in research and development has to be increased for these crops. Similarly, marketing infrastructure, development of value chains, price incentives, direct benefit transfers have to be given to farmers to shift cropping patterns from rice and wheat to oilseeds in several states, including Punjab and Haryana. A NITI Aayog report on “demand and supply projections towards 2033” shows that the demand and supply for oilseeds would be 99.6 mt and 59.9 mt, respectively, in 2032-33. In other words, there will be a massive deficit of 40 mt for oilseeds even after 10 years. Therefore, there is a need for a two-pronged strategy of increasing domestic production and engaging with other countries to have reliable imports.
Lastly, India will face higher food inflation in the near future whether one looks at the wholesale price index or the consumer price index, due to domestic and global factors. It 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.