SynopsisThe warring countries, Russia and Ukraine, are the world’s leading producer and exporter of wheat and other agri commodities. As their supply lines get disrupted, India has a chance to widen its export basket.
GKC Fresh, a Mumbai-based exporter of fresh fruits and processed agri-commodities, has been in a quandary since the Russia-Ukraine crisis began. While the firm is excited about the growth prospects the conflict has created, it is worried that the clash has thrown its export plans awry.
Marketing Specialist at the outfit, Neil Pednekar, explains that they export 80-90 containers worth $30,000 each of grapes this time of the year. Their business was not affected for about 60% of the grape season, which lasts from November to April, but the fate of the remaining 40% is under a cloud now. “Russia is the largest consumer of the Thompson seedless grape variety. About 100-120 containers of 20 tonnes each were shipped to Russia from India weekly. So approximately 1,000 containers more were likely to be exported before the war began. We had committed to buy the goods from farmers but don’t know how to pay them now as the export orders are not materialising or have fallen through,” he says.
The exporter was also disappointed that shipping lines had cancelled fresh bookings to the region. They got some relief later when Maersk agreed to negotiate and said it would carry all containers in transit. “At least 300 containers were in transit and 80% of the volume was via Maersk. After a lot of meetings, our concerns were eased a bit as we don’t have to find an alternative market now for grapes,” Pednekar adds.
The exporter’s views give an insight into how agri exports from India are faring amid the ongoing war. For some, it is a wait-and-watch situation, where they hope that shipping lines can help them get back to business as usual.
Beyond the risks, agri exporters are also staring at business opportunities galore. For example, both Russia and Ukraine are the biggest exporter of wheat, a commodity in which India is also a key player. To tap into such segments, the Agricultural and Processed Food Products Export Development Authority (APEDA) says it has formulated a strategic action plan for pushing India’s exports of agricultural products. It insists the evolving crisis may give India a chance to export more wheat to at least Bangladesh, Egypt and Turkey and eggs to West Asia.
Winning via Wheat
India competes with Ukraine for a larger share of the egg market in the Middle East, while Russia is the world’s largest exporter of wheat. The crisis has given India a window of opportunity to increase its agri exports, the industry body insists.
As the second-largest producer of wheat, India has about 14% of the world’s wheat production, says the government. The country produces around 107.59 million tonnes of wheat annually and most of this is consumed domestically. However, the resulting business opportunity due this war is increasingly pushing policymakers to formulate strategies to tap the addressable global market demand for wheat. Fortunately, the country is well positioned to tread this path without much glitch this time. This is because the country’s central pool of the grain, at 24.20 million tonnes, is twice more than its buffer and strategic needs, says APEDA Chairman M Angamuthu.
Russia and Ukraine cover over 70% of the imported wheat demand of Egypt, the world’s biggest importer of the commodity. In crop year 2021-22, Turkey was the largest buyer of Russian wheat, purchasing 4.50 million tonnes as on December 30, 2021, while Egypt bought 3.20 million tonnes, APEDA says. In 2019, Russia and Ukraine together exported 25.4% of the world’s wheat. “Thus, the Russia-Ukraine crisis might give India an opportunity to export more wheat. Exporters should tap this opportunity,” says APEDA.
The organisation is already coordinating with various Indian missions to compile industry data and trends in each country. APEDA is then sharing the information and leads with its members to export agri products where Russian and Ukrainian presence dominates. It asserts that India has a surplus in wheat, rice, fresh fruits, fresh vegetables, cereal preparations and processed food products.
Angamuthu adds that the APEDA is also trying to push miscellaneous preparations like noodles, pasta, pickles, chutneys, ready-to-cook/eat products into Turkey, Egypt and Nigeria. Russian agri products have a strong presence in these countries. The association is also trying to push maize, wheat, poultry products, cereals and miscellaneous preparations into China, South Korea, the Netherlands, Spain, Egypt, the UK — places where Ukrainian agri products traditionally have a strong presence.
What works in India’s favour, the PHD Chamber of Commerce and Industry points out, is that despite the disruption in global supply chains and logistical challenges posed by the pandemic, India’s exports of agricultural and processed food products rose by more than 23% in dollar terms in the first 10 months of April-January 2021-22 over the year-ago period.
President of the chamber Pradeep Multani maintains it demonstrates the Indian economy’s enormous productive capacity, which can meet both external and internal demand. In his view, at this crucial juncture, India should strengthen the global value chains to capture emerging opportunities in the world. Diversification of the product basket would scale up the export volumes, Multani suggests.
Growing protectionism: Threat or opportunity?
One trend that all experts are worried about is that the regional conflict has led to growing instances of protectionist tendencies across the globe. With little or no supplies from these two destinations — the world’s top agri producers or exporters — countries dependent on them want to safeguard their stocks of agri products.
Notably, Ukraine’s government has already banned the export of wheat, oats and some items. Hungary had banned grain exports. Similarly, Bulgaria, Argentina and Turkey are also reportedly mulling protectionist measures. The UN has observed that most food prices are rising and have exceeded the peaks recorded in 2008, when the world saw a major food crisis.
The latest industry reports reveal that the Ukraine-Russia conflict has spiked agri supply chain disruptions from the Black Sea region, the source of about 30% of global wheat exports. Industry figures state that Russia and Ukraine together account for almost a quarter of the global wheat supply. Thanks to the conflict, global wheat prices soared to a 14-year high last week, selling at over $11 a bushel (over $400 a tonne). While this is an uncomfortable position for many nations, it bodes well for countries like India that are agri producers and exporters.
“This is a golden opportunity for Indian exporters to grab a big share of the Russian and Ukrainian agri export markets,” says Angamuthu. “APEDA is sensitising potential exporters to push their products into the markets where both countries have a presence.”
Industry figures state that Russia and Ukraine together account for almost a quarter of the global wheat supply.
Don’t forget the domestic needs
However, many experts point out that the country should not blindly rush to capture global markets. They say extensive homework is required before deciding on this issue.
Vijay Kalantri, Chairman, MVIRDC World Trade Centre Mumbai, stresses that export of food items in this uncertain situation is a sensitive issue. It calls for a judicious policy decision based on the available buffer stock, production and domestic demand estimates. This is critical as nearly 30% of an average Indian household’s spending is on food items and the food basket has a 45% share in retail inflation, which has implications on monetary policy stance and economic growth, he says.
“India should also consider the monsoon forecast for the upcoming kharif season before taking any decision on food exports. We have more than adequate buffer stocks and this gives us some headroom to offload excess. India has a foodgrain stock of 53 million tonnes, which is way above the mandatory buffer stocking limit of 21 million tonnes. In wheat, we have 28 million tonnes against a mandatory buffer stocking norm of 13 million tonnes,” adds Kalantri.
The country has also seen surplus stock or production in sugar and pulses such as Bengal gram, kabuki chana and pigeon pea, states WTC Mumbai. But, Kalantri adds, we should be careful when it comes to vegetables as domestic shortage in these items can raise inflation.
India has far higher reserves of wheat as against its mandatory buffer stocking norms.
Anand Ramanathan, Partner, Deloitte, lists tea, sunflower oil, fertilisers, fresh fruits and vegetables and flowers as the commodities that would be affected by the crisis — both in imports and exports. “The impact is going to be two-pronged. On one side commodities like rice and tea will see disruption. On the other hand, we will have to find markets to meet our needs.”
Exports would take a hit because of the disruptions in Black Sea. This will inflate prices of commodities like wheat, giving India an opportunity to sell globally, he adds.
Getting past the ‘pay wall’
Despite the apparent growth prospects, a payment issue is dampening the enthusiasm of exporters. The sanctions on Russia imposed by the US make it impossible for exporters to get payments. Some of them are struggling to route payments for goods delivered before the sanctions were imposed.
“Payments can’t be processed anymore,” says Pankaj Khandelwal, CMD of INI Farms, an exporter of fruits and vegetables. “Exporters are trying to divert shipments they have already dispatched to Russia. They want to offload these at other countries’ ports because if the goods enter Russia, they will not get their money.”
Shipping lines are still undecided about berthing at Russian or Ukrainian ports. So that puts a large quantity of goods at sea. Nevertheless, Khandelwal says this presents an opportunity that India should try and capitalise on. “We have excess production and our buffer stocks are full. So, the crisis is an opportunity for us.”
India is a world renowned agri producer. But the war could give it a unique chance to gain a foothold in newer markets. Besides, if agri exports rise because of this, the government may be able to encourage modernisation of farming and also use this opportunity to fulfil its goal of doubling farmers’ income.
(Edited by Ram Mohan. Illustrations by Sadhana Saxena)
(Originally published on Mar 22, 2022, 10:17 AM IST)
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