How is Russian War Affecting Indian Farmers and Economy?



Russia’s invasion of Ukraine has put the world commodity market at a difficult juncture. The situation is threatening to push up farming costs and send food prices on a rocketship. Export demand for Indian wheat, corn, and spices has shot up after Russia launched a military operation against Ukraine, forcing the international trade of agricultural commodities to shift sourcing to India since supplies from the two nations have come to a grinding halt. Global commodity markets were thrown into turmoil when Russia sent troops to Ukraine on February 24 in the face of repeated warnings and threats of stricter sanctions from the West. The invasion sent prices of commodities ranging from oil and gas to wheat higher, while stock markets across the globe plunged. Trade will be further stifled as fund flows dry up following sanctions on Russian banks by the US and UK for Moscow’s ‘unprovoked’ attack. Some European banks have imposed restrictions on finance for commodity trade from Russia and Ukraine.

The world calls Ukraine the ‘breadbasket of Europe’ for a reason. It is blessed with fertile black soil, known as ‘chernozem.’ Apart from being among the world’s leading sunflower oil producers, this region is also a major producer of corn, barley, rapeseed, wheat, poultry, and meat.

How will the War Impact India?

The war in the Black Sea region, which is both a production and trade hub, has pushed prices of crude oil, wheat, corn, cooking oil, and fertilizers to new highs. Global wheat prices have shot up 91 percent year-on-year (y-o-y), while corn prices rose by 33 percent y-o-y. As India is acutely dependent on imports of edible oil and fertilizers, consumers may see prices of these soaring to painful levels. Besides, an impending shortage of fertilizers in the country ahead of the Kharif planting season can lead to unrest in rural areas.

High export demand for wheat – India has already shipped out 5.04 mt of the cereal in April-December 2021 – could result in lower government procurement this time, compared to the record 43.34 mt and 38.99 mt from 2020-21. A lot of wheat from western and central India may end up getting exported rather than in the Food Corporation of India’s warehouses and, in turn, putting pressure on public stocks: These, at 23.66 mt as of February 28, were the lowest for this date in three years.

“The government might, sooner than later, have to impose some kind of a tariff or other restrictions on exports,” says S. Pramod Kumar, senior vice president, Roller Flour Millers Federation of India. Whether or not required, the situation in Ukraine is a far cry from FCI’s overflowing granaries that enabled, if not forced, free distribution of this excess wheat and rice to some 81 crore people. The free grain scheme, introduced in April 2020 following the Covid-19-induced lockdown, will end this month with the conclusion of state elections in UP. According to Kumar, the government would need to carefully manage both its own stocks and the overall domestic availability position in wheat.

The Other Oil 

The Ukraine crisis has also led to skyrocketing prices of vegetable oils and oilseeds. That includes not just sunflower and its immediate competitor, soyabean. Palm oil in Malaysia has hit an all-time-highs, even scaling 7,000 ringgits-per-ton levels briefly in the past few days. The benefits of it should flow to mustard growers in Rajasthan and UP, who are set to market their crop in the coming weeks. Mustard prices are ruling at Rs 6,500-plus per quintal, which is again above the MSP of Rs 5,050.

Brent at $110-115/barrel is also helping lift the prices of cotton (because of synthetic fibers becoming costlier) and agri-commodities that can be diverted for production of ethanol (sugar and corn) or biodiesel (palm and soyabean oil). High prices (above MSP) and a good monsoon can induce farmers to expand acreages under cotton, soyabean, groundnut, sesamum, and sunflower in the upcoming Kharif planting season. That will serve the cause of crop diversification – especially weaning farmers away from paddy, if not sugarcane.

But there is a flip side. The ongoing Black Sea tensions are impacting fertilizer prices as well. Take MOP, a nutrient that India wholly imports. Out of the total 5.09 mt that was imported in 2020-21, nearly a third came from Belarus (0.92 mt) and Russia (0.71 mt). With supplies from there virtually choked, more quantities would have to be procured from other origins such as Canada, Jordan, and Israel.

International prices of other fertilizers (urea, di-ammonium phosphate, and complexes) and their raw materials/intermediates (ammonia, phosphoric acid, sulfur, and rock phosphate), too, have gone up in the past one month and more. These commodities essentially track crude and gas prices. It doesn’t help when China is also India’s largest urea supplier (Ukraine was No. 3 in 2020-21, after Oman) and second-largest of DAP (after Saudi Arabia).

In short, the challenges that Ukraine will present in the coming days will be vastly different from those in the aftermath of Corona. This war and the associated sanctions are also different from those experienced vis-à-vis Iraq, Libya, and Iran. The effects are not confined to oil.

Nirmala Sitharaman, Finance Minister, India, says, “on the larger issue of the situation prevailing in Ukraine and about India's position in the UN Security Council and so on. It is widely open and I went through the press releases and press commentaries which the external affairs ministry is making,"

“We are already looking at an emergent situation but I will have to have a complete assessment done through the various various concerned ministries and then only be in a position to comment on it, the government in seized of the matter and would ensure that people are not affected.” adds Sitharaman.

World Bank Chief David Malpass has said that the war in Ukraine is an 'economic catastrophe' for the world at a time when inflation is already rising, and this will surely cut global economic growth.