Ukraine war: Grain trade disruption and India’s role

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Ukraine war: Grain trade disruption and India’s role

Friday, 07 October 2022 | Rituparna Kaushik/ Arpan Ganguly/ Yashobanta Parida

Russia and Ukraine were breadbaskets of the world, but they have now created a global shortage of wheat

Since the war broke out in Ukraine, the international order of trading has experienced a severe jolt in terms of grain trade. Food production and export supply have rapidly decreased due to crop failures and supply chain disruptions which have failed to meet the growing global demand, further adding to global food insecurity, particularly in Africa and West Asia.

In recent years, Ukraine, along with Russia, have emerged as major players in the world grain market and are commonly considered the breadbasket of the world. Prior to the war, Ukraine and Russia accounted for 14 per cent of world wheat production and around 25 per cent of world export of wheat. Prior to the Russian invasion of Ukraine on Feb 24, 2022, grain exports rose by 8.5 per cent between 2021 and 2022. Thereafter, grain exports are estimated (as of July 29, 2022) to have decreased by 53.2 per cent for 2022-23.

The ongoing war continues to reshape geo-political relations between nations, exposes fissures in the global supply chain, and the dominance of nations strategically situated to take advantage of the food crisis.

Continuous imposition of new Western sanction packages, blockade of Black Sea ports, loss of human life and destruction of Ukrainian agricultural fields have severely disrupted the global wheat supply.

Nations in Africa, West Asia and Southeast Asia, sourcing their wheat from Ukraine or Russia, are facing dire shortages of grain and are in urgent need of finding alternative sources to meet their grain requirements.

On the other hand, grain shortages have also led to an increase in the price of wheat in the international market. Given this growing shortage in the world supply of wheat and rising prices (which further adds to food insecurity in developing countries), to what extent can India fill the growing void in grain trade?

India is the second largest producer of wheat in the world economy, with a share of around 13.5 per cent (107.59 MT) of total world production in 2020. However, it accounts for a very small proportion of total world exports of wheat (1-2 per cent) with its share increasing from 0.14 per cent in 2016 to 0.54 per cent in 2020.

Nearly the bulk of wheat production is either for domestic consumption or for storage. More recently, based on a notification dated May 13, 2022, India imposed a temporary ban on wheat export due to the destruction of wheat crops caused by unprecedented heat waves in the country.

The ban was intended to ward off domestic farmers and consumers from the global grain shortage, enhance food security, and thwart inflationary pressures. This was met with criticisms from several advanced nations who urged India to contribute to addressing growing food insecurity and fulfil its responsibility as a G20 nation. However, India has sought to maintain its trade ties with neighboring nations as it continues to export wheat to countries such as Bangladesh, Sri Lanka, the United Arab Emirates and Indonesia.

To export more wheat or not is a dual-edged sword. In terms of benefits, firstly, India can enter new and potential markets by filling the void left by Ukraine

and Russia in Africa and West Asia. Secondly, greater wheat exports can potentially increase the prices

wheat traders or farmers receive. Thirdly, wheat exports can help stem the massive volume of grain wastage every year.

However, even if the Government seeks to fill the void, it should plan the move in such a way that it does not hamper local consumption but also, more importantly, ensure that wheat farmers are protected from the vagaries of global competition. The extent to which gains from wheat exports will trickle down to farmers in terms of higher MSP or higher profitability remains unclear.

Outcomes will significantly vary for farmers from richer agricultural states like Punjab (who benefited from access to large-scale production technologies during the Green Revolution) vis-à-vis those from poorer agricultural states where agricultural networks (in terms of access to markets, input costs, irrigation facilities, or technology) remain disjointed and weak.

The equitable distribution of gains from wheat exports to the farming community will remain a potent challenge moving forward.

Moreover, the role and intervention of FCI (Food Corporation of India) add an additional layer of complication, as an increase in exports might end up drawing out stocks from the FCI (in the absence of a bumper season), which would lead to conflict with other developed nations at the World Trade Oorganisation stage (as FCI stocks are meant for domestic consumption and welfare programs only).

(Authors are Assistant Professors in Economics at FLAME University, Pune)

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