India should take advantage of higher global food prices
Amid the wide-ranging economic fallout of the Russian invasion of Ukraine, the resultant spike in international prices of agri-commodities seems to have a positive upshot for India. It has created the much-needed export outlet for the country’s surplus farm produce, particularly for the wheat piled up in official grain coffers. The other foodgrains, notably rice and corn, are also set to gain from this as their prices, too, have soared, though not as much as those of wheat, which have surged by nearly 60 per cent since the beginning of the war on February 24. The prices of corn have gone up by 16 per cent and those of rice by 6 per cent since then. Many analysts now view India as the emerging “food bowl” in Asia because it can meet the immediate needs of grain-importing countries in its neighbourhood, as also in North Africa. In fact, Indian grain exporters have begun receiving inquiries from these countries and regions. However, part of the gain for India on this count might be offset by the escalation in the prices of edible oils as a result of the stoppage of sunflower oil shipments from the Black Sea region. But the Indian farmers, on the whole, stand to benefit as the uptrend in domestic prices of agri-commodities has come just ahead of the anticipated bumper rabi harvest.
Wheat, undoubtedly, is likely to be the biggest gainer from the emerging supply and price trends in the global bazaar. Russia and Ukraine together normally account for 30 per cent of the global wheat supplies. Part of the gap created due to their absence from the market is likely to be filled by India, which currently holds a huge wheat inventory of around 26 million tonnes. This is far in excess of the needed buffer stock (operational stock plus strategic reserves) of 7.46 million tonnes on the eve of the fresh wheat harvest. Significantly, wheat exports have already touched 6.6 million tonnes in the current fiscal year, surpassing the previous best of 6.5 million tonnes in 2012-13. The total exports during the year might cross 7 million tonnes. More importantly, these are projected to swell next year to at least 10 million tonnes, if not more, thanks to the anticipated all-time high wheat output of over 111 million tonnes. The new crop has already begun trickling into the grain markets in Madhya Pradesh and Gujarat, where the traders are picking up the produce at rates higher than the government-fixed minimum support price of Rs 2,015 a quintal. They hope to export these stocks with a profit margin of Rs 300-400 a quintal.
On the downside, however, India might be hard-pressed to meet its requirement of edible oils (for which it is heavily dependent on imports) because of the suspension of sunflower oil supplies from Ukraine and Russia. This has pushed up the prices of palm and soybean oils as well. Though India, no doubt, has some established channels of sourcing edible oils, the costs are bound to soar, fuelling the already high inflation. Besides, price-conscious consumers of cheaper palm oil may find it hard to shift to relatively costly soybean oil. Therefore, the real need today is to craft well-judged strategies to capitalise on the emerging export opportunities and blunting the impact of costlier agri-imports.