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Ukraine war: Can India help offset the global wheat shortage?

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New Delhi: India wants to fill a large gap in global wheat supplies caused by the Ukraine war, as it is one of the few countries to currently hold surplus stocks, while anticipating another bumper crop in the world’s second-largest grower.

The government is banking on robust exports to lift farm incomes. Soaring global prices, which are higher than government-ordained domestic minimum support prices, have offered a never-before chance to private traders to profitably send shipments abroad.

As the wheat harvest season is underway, trends point to more sobering conclusions, which could upend the country’s export ambitions. Hot weather across north India has cut wheat yields at a time when the country is counting on a bumper crop to tap export markets as supplies from Russia and Ukraine, which account for 29%of global exports, dwindle.

Traders and analysts say it is clear that the country will have a smaller crop this year than previously predicted. In February, before a damaging heatwave took hold, the government forecast wheat production would be a record 111.32 million tonnes this year, against 109.59 million tonnes the previous year.

An early summer marked by nearly a month of above-normal temperatures in March now threatens to cut that estimate.

This could give rise to a spectre of domestic inflation in cereals and potentially a supply crunch with the onset of autumn months, analysts say.

The main winter staple is currently being harvested in major grain-bowl states of Punjab, Haryana, Uttar Pradesh, Rajasthan and Madhya Pradesh. Cultivators said their per-acre yields (one acre equals 0.40 hectare) have fallen 10-15%.

The Ukraine war has changed the dynamics of how the staple is bought and sold. Usually, the government takes the lead in wheat procurement, or the buying of wheat at federally fixed minimum support prices.

This season, however, the government’s procurement has been slow, as private traders buy record quantities because they expect higher exports and domestic prices to rise in the coming months.

Till April 24, the government and its agencies have procured 13.69 million tonnes from 1.19 million farmers, offering an MSP value of 27,592 crore, according to official data. Last year as of date, the government had procured 6% more.

Here’s what the math looks like. The government needs approximately 25 million tonnes of wheat annually to meet requirements under various programmes, including subsidised grains under the public distribution scheme, available for 800 million people or two-thirds of the population.

Another 10 million tonnes is needed for the Pradhan Mantri Garib Kalyan Anna Yojana, the Covid-relief scheme which provides 5kg of additional grains per person per month. This scheme has been extended till September 2022. The government’s opening stocks as on April 1 stood at 19 million tonnes.

Traders and analysts say, under this scenario, if India ends up exporting up to 10 million tonnes, a widely cited target, it could stoke cereal inflation by the onset of the winter months.

“Prices currently are 200-400 more than the minimum support prices of 2,015 per quintal. Traders expect prices to go up further,” said Ashok Agrawal of Comtrade, a commodity trading firm.

Traders are rushing to stockpile wheat because they expect robust exports and higher domestic prices in the coming months. If output due to the heatwave falls by even 10% and prices go up by 8-10%, then the country might have to clamp an export ban by October-November, Agrawal said.

As Russia’s invasion of Ukraine has dented wheat supplies globally, India’s wheat exports hit 7.85 million tonnes in the fiscal year to March, an all-time high. This is a sharp rise from 2.1 million tonnes the country exported in the previous year.

At 14%, India’s share in global wheat output is roughly equal to the combined share of Russia and Ukraine. Yet, Indian wheat is otherwise not very competitive globally because international prices are usually far lower than MSPs. The Ukraine war has changed this trend.

Wheat prices domestically have already shot up 15% year-on-year on March 22 on the back of higher exports. These are signs of possible wheat inflation, Agrawal said.

The impact of the Ukraine crisis on India is a mixed bag, analysts say. “It’s both a boon and bane,” said economist Pushan Sharma of Crisil Research Ltd. India will gain from wheat and maize exports and cheaper Russian oil but will pay higher import bills for edible oil it imports from Russia and Ukraine.

If Indian wheat exports rise by 45-50% this calendar year, it will “expectedly push up the price of the grain 8-10% from a year ago in the first quarter of next fiscal,” Sharma said.

ITC Ltd, the country’s largest wheat exporter, has publicly said India is on course to export nearly 21 million tonnes of wheat in FY 2022-23, while the ministry of commerce expects 10 to 15 million tonnes of export in the fiscal year.

By how much India’s wheat crop will fall due to the heatwave is as yet unclear. “The bottom line is that if India’s what crop is significantly lower than expected due to damage because of heat stress, then cereal inflation could be a pain point in 2023,” Agrawal said.

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