Russia’s invasion of Ukraine has disrupted global commodity markets. It now threatens to drive up farming costs and skyrocket food prices. Food inflation in India could therefore soon enter double-digit territory. Mint examines the impact.
How will the conflict affect India?
The war in the Black Sea region, which is both a hub of production and trade, has pushed the prices of crude oil, wheat, corn, cooking oil and fertilizers to high levels. new heights. On Monday, crude prices hit a high of $139 a barrel, the highest since 2008. World wheat prices climbed 91% year-on-year (yoy), while corn prices rose 33% year-on-year. With India heavily dependent on imports of edible oils and fertilizers, consumers could see prices for these soar to painful levels. In addition, an impending shortage of fertilizers in the country ahead of the Kharif planting season may cause unrest in rural areas.
Can government grain stocks protect consumers?
As of mid-February, the central grain stock comprising rice and wheat was a staggering 54 million tonnes (mt), a surplus of over 30 mt, which is more than is needed for the public system (PDS) of the country. With a record wheat crop expected to hit markets later this month, the government may liquidate its wheat stocks to control prices. However, if world prices rise further and the conflict in Ukraine escalates, India could end up exporting more wheat, pushing up retail prices. Along with rising edible oil and fuel prices, food inflation could hit double-digit highs.
How will rising prices affect the farming community?
Farmers can now expect prices above the minimum support prices (MSP) announced by the government. Wholesale wheat prices are now above the MSP, while mustard prices, at ₹7,000 per quintal, are already 40% higher than the MSP and could cross the ₹10,000 brands. However, high input prices will increase the cost.
What is the impact of high crude prices?
Historical data shows a close correlation between a rise in crude oil and food prices. Crude prices have more impact on food prices than even on food production. Crude prices fluctuate between $120 and $130 a barrel. Even if this were to cool down to the $100-110 level, it would have a significant impact on fertilizer prices and shipping costs. High crude prices are also driving the diversion of food crops to produce biofuels, driving up crop prices. India has not raised fuel prices since November and a significant hike is expected soon.
What measures can the government take?
In addition to liquidating its public grain stock, the government can restrict exports to contain grain price inflation. As for edible oils, import duties have already been considerably reduced. Retail food inflation, which hit a 13-month high of 5.4% in January, is expected to rise further. To ensure that the hunger situation does not worsen, it can expand the PDS and enroll many more households. On the fertilizer front, the government may need to secure supplies from Canada, Israel and China.
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