By Kavinda Ratnapala
This week saw commodity prices cool off from their recent surge, with the invasion of Ukraine, also known as Europe’s breadbasket. Commodities analysts from around the world agree that the demand for cereals and grains will stay elevated with Ukraine’s decision to impose wartime security measures that ban the export of many of its staples amongst which wheat is included.
With this decision since the start of the invasion on the 24th of February, the benchmark prices on the Chicago Commodities exchange has jumped 50% with prices from around the world touching 14$ per bushel -which is the standard price for a 30kg bundle of wheat. With peace seeming very unlikely in the short-term, and planting seasons assuredly disrupted over a much longer-term, including the upcoming May season in Ukraine. The UN World Food Programme (WFP) and The UN Food and Agriculture Organisation along with commentators from around the world expect food prices to soar, reaching levels “approaching or even surpassing levels not seen since the 2008 food and fuel crisis”.
The collateral damage from the disruption to world food supplies, however, will not be felt equally the world over. While inflation will drive up food prices across the board, increasing the cost of living in the developed world. The “collateral hunger” from the war as estimated by the WFP is going to be mainly felt by those who are in global crisis zones; as the programme buys more than half of its wheat stocks from Ukraine.
This has led to other secondary exporters such as Indonesia imposing export controls to prevent local price spikes and more critically preventing locals from prioritising export order fulfilment over local sales. With the world taking a headlong dive in the direction of export bans. Enter India and the Modi government’s moonshot to try and make the difference.
Reuters, citing unnamed government sources have claimed that the Modi government has expedited efforts to become the dominant exporter of high-quality wheat. Now, this claim is critical for historically Indian wheat has been overlooked on international markets due to its lower quality when compared to its competitors (for a nuanced discussion of the intricacies of Indian wheat see the paper by Dr. Prabina Rajib).
According to unnamed sources, the government has focused on 3 primary measures to become the supplier of choice in the global wheat trade both in government to government exchanges as well as on the free market. The first measure has been the approval of 213 laboratories to test the wheat to ensure they meet export requirements. Second, local logistics are a major concern both to enable adequate supply and prevent damage to the goods on-route. To meet these concerns extra rain wagons are being made available through the Union railways. Third, all relevant authorities have been instructed to increase warehousing facilities and prioritise port facilities for the export of wheat.
Through these collective efforts, India hopes to export an estimated 10 million metric tonnes (mt) of wheat in 2022 to make up for the shortfall in supplies from both Ukraine and Russia. The economics of wheat has been the primary driver of this change; for between the 17th of February and the 10th of March, the price for a ton of wheat saw a Rs.265 rise. Reaching Rs.2,365 before levelling off at about Rs.2,220 per ton on the Indian National Commodity & Derivatives Exchange as at the publication of this article. It is important to note that while India’s share of the global wheat production stands at about 14% which in interestingly equates to the sum of Russian and Ukrainian wheat production, only 3% of it is exported as the supermajority of its production is geared for the citizenry.
The challenges that India face in attempting to meet this shortfall is not insignificant. While the Indian farmer grows more than 100 varieties of wheat to meet the varying requirements on the local markets- the wheat used to make wafers is different from that which is used to make pasta, to that which is used to make the gastronomical delight that is Kerala Paratha. It is as of yet unknown if the Indian farmer will be able to produce the quantities of wheat required at the required standards. Historically incentivizing farmers to produce for the exchanges has been trying. This has been due to a combination of incidental costs incurred via exchange listing which includes but is not limited to the ability to produce at exchange mandated standards. While it is hoped that the higher price which may be offered for future cultivations will be adequate to incentivise farmers. The export goals the Union government is aiming for is considerable. For example, in January 2022, which was at the time a period of high demand, India exported less than 1 million tonnes. Together with similar limitations such as the fact that only 2 ports on the western coast of India are capable of exporting wheat as terminals on the eastern coast are dedicated to its national staple- rice.
Another limitation that the Union government will have to watch out for on this moonshot is its position as a leading importer of fertilizer a trend which is expected to hold for at least the coming decade. While the war in Ukraine has set up a unique market opportunity for India- which has thus far towed the middle line and refused to criticize the Russian government even as the Japanese government dangled $43 billion in investments. In 2021 India consumed roughly 40 million tons of fertilizer and it is only expected to grow by about 2 million tons annually in the coming years. And this estimation was before the invasion.
Lastly, the most critical question surrounds the minimum guaranteed price the union government sets for wheat farmers. As the supermajority of its production is geared towards local consumption. Should the mould be broken and the country’s farmers re-orient towards the export market which brings with it the boon of higher quality produce, will the government be able to continue offering a guaranteed price?
If as reported by various media outlets, both local and international, holds, India may be already gearing up to supply the world’s number one importer of wheat: Egypt along with other big wheat consumers such as China, Turkey, Iran and geostrategic allies such as Israel and South Africa. This is on top of established wheat export markets such as Bangladesh (3.6 million mt) and to a lesser extent the UAE and Sri Lanka.
India’s willingness to embrace this opportunity is a welcome development and much needed good news for the most marginalized populations of the world. However, if this is to be realized sustainably over the long-term India has a long way to go and must sure up its domestic limitations and supply chain exposures before becoming a proverbial ‘Food Power’.
