Here's how Russia-Ukraine war coulds bring good news for Indian farmers
If the crisis persists, officials say the wheat exports will easily touch 10 mn tonnes next year. It is expected that wheat farmers this year will be able to get a relatively higher price in the open market
The Russian invasion of Ukraine has opened the chest for Indian agriculture commodity exporters. With grain exports from Russia as well as Ukraine stifled as a result of the ongoing war, it has opened up immense opportunities for India to export wheat.
As a Reuters report talked of contracts for 5,00,000 tonnes of wheat exports already signed by Indian exporters recently, a question I am being frequently asked by the international media is whether India will be able to sustain wheat exports in the years to come. Another question that is being raised is whether India will be able to replace Russia and Ukraine as the world's biggest supplier of the golden grain in the years to come. Together, these two countries meet about 28 per cent of the global wheat supplies.
Soon after the war erupted, Indian exporters have been keeping a close eye on the rally in global prices. With global prices having already crossed $350 per tonne fob (which comes to about Rs 27,000 per tonne) news reports say the trade expects to increase wheat exports this fiscal to 7.5 million tonnes. As per an explainer in Indian Express, the country had already exported 6.2 million tonnes of wheat between April 2021 and Jan 2022. Similarly, India also expects exports of maize and barley to increase.
Another news report says currently Indian exporters are contracting wheat supplies at about $400 per tonnes, but deducting the expenses in logistics and transportation etc, the effective price at which exports are being contracted comes to about $350 per tonne. This is much above the MSP of Rs 2,015 per quintal at which the procurement within the country was made last year. For the 2022-23 wheat harvesting season, expected to be at its peak in another month's time, wheat procurement price has been fixed for Rs 2,050 per quintal. The upswing in international wheat prices will be certainly cheering for Indian farmers.
Whether India will be able to sustain such high exports in the years to come, well the short answer is yes. Given the high production levels achieved in the past few years, and also with the monsoon rains expected to be normal, wheat production will look up. In 2020-21, India had produced 107.9 million tonnes of wheat, and this year the production estimates are still higher. In 2021-22 the Food Corporation of India made a record procurement of 44.34 million tonnes of wheat, which was higher by 11 per cent from what was purchased a year earlier.
If the crisis persists, officials say the wheat exports will easily touch 10 million tonnes next year.
But to the question whether India will be able to replace Russia and Ukraine as the major wheat supplier is unlikely to happen. Even though India has the potential to increase wheat exports for some years, but eventually will find it difficult to compete in the global markets. Further, once the shortages arising from the conflict comes down and the international markets revert to competitive prices, India will find it difficult to sustain the export tempo.
Moreover, the World trade Organisation (WTO) has been breathing down India's neck demanding the subsidies under the Aggregate Measure of Support (AMS) – which is limited at 10 per cent of the product-specific support – to be reduced. Already, the US, Canada, Brazil and some other countries are accusing India of breaking the AMS ceiling, saying that India has exceeded the limit by 65 to 70 per cent in case of wheat and rice. Although this is denied by India, but the rich developed countries are keeping the pressure on.
The AMS comprise the subsidies (MSP is counted as subsidy) that are provided for food procurement under public stock holding of grains. Although India has an exemption for food procurement made for meeting the needs of nutritionally-poor people, the issue of public stockholding of food grains has been under scanner for long. The exemption under the Peace Clause refrains India from being dragged to the dispute panel, Brazil has only last week asked the WTO not to provide India with a permanent waiver for public stockholding. Member countries want the exemption given to India to be withdrawn. One of the conditions for the public stockholding provisions that India is allowed for, restricts any exports from the procured food stocks as it distorts the global markets.
Given that global food prices are now on an upswing, with the Food and Agriculture Organisation of the UN (FAO) estimating that international food and feed prices have jumped 22 per cent, and the demand for wheat is increasing given the shortage in supplies, the WTO is unlikely to raise any questions about how Indian wheat exports increased. Given the rising demand for wheat at a time when more people are slipping into hunger, WTO may simply overlook the contentious issue at this crucial juncture. But once the supply demand shock is over, member countries will begin to question the reasons behind wheat exports.
Nevertheless, the rising international prices is good news for farmers. It is expected that wheat farmers this year will be able to get a relatively higher price in the open market. With trade eyeing the APMC mandis in Punjab and Haryana, farmers are expected to sell less at MSP for procurement. Farmers who have the holding capacity with them are expected to keep a sizeable quantity of the grain with them expecting prices to rise at a later stage. In any case, experts feel the higher price offered outside the mandis will mean less of procurement this year.
This brings up another question. If wheat farmers can get a higher price this year, then what was wrong with the farm laws is a question that is being raised. Well, the fact is that procuring wheat (or for that matter rice) at the MSP does not mean that farmers are averse to higher market price. It is only when prices slump, MSP provides a price assurance to farmers. MSP is a price assurance, and the demand for providing a legal sanctity to MSP means that the farmer does not have to distress sale. At the same time, it does not mean that the provisions for procurement at the MSP need to be diluted.
(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)