Russian-Ukrainian war could be ‘disaster’ for India’s rural economy

The ongoing war between Russia and Ukraine is about to be “aapda mein avsar(disaster opportunity) for the country’s rural economy. There could be a silver lining for India with an upsurge in rural sentiments as the Rabi crop harvest is in full swing and prices are at an all-time high above the minimum support price (MSP) on the open domestic markets as well as in world markets. The MSP for wheat is Rs 2,015 per quintal, while the selling price on the open market is between Rs 2,200 and Rs 2,300 per quintal.

In April 2022, the prices of wheat on open markets increased by 17%, mustard by 30%, barley by 67% and soybeans by 36%, compared to April 2021. Mustard, the second India’s largest Rabi crop, has seen a 30% increase in plantings in FY22 compared to FY21 and will be the second largest contributor to farm income this year.

It is widely estimated by well-known international brokerage firms that due to the conflict between Ukraine and Russia, high commodity prices in domestic and global markets could inject additional revenue of Rs 31,000 crore into the rural economy thanks to the cultures of Rabi.

Ukraine is one of the world’s largest exporters of wheat with a 12% share, sunflower 47%, barley 17%, rapeseed 20% and corn with a 14% share of world exports. Russia is also very present with world exports of sunflower at 25%, wheat at 18% and barley at 14%. In the case of maize, Ukraine accounts for 13% of world trade, with half of its exports going to the lucrative European Union market.

“A ban on Russian flights to Europe and the United States also means opportunities for Indian exporters of processed foods, nuts, fruit juices, confectionery, pulses and cereal preparations,” he said. an analysis by the Agricultural and Processed Food Export Development Authority (APEDA). , an agency under the Union Department of Trade and Industry.

There is huge scope for increased wheat exports in the current scenario. The protracted conflict is an opportunity for India to create a market for itself in the world of wheat exports by exporting quality wheat like Basmati rice so that Indian wheat will remain in demand even after the crisis.

We must not explore a new market for temporary gains from the Russian-Ukrainian crisis. Instead, we want to forge a long-term relationship with each of the key markets.

The total wheat market in the world hovers around 2,100 lakh tons. After China, India is the world’s second largest producer of wheat with around 1,008 lakh tonnes in 2020-2021, contributing about 15% of the total global production, while a large part of it is devoted to sustaining food stocks for strategic domestic consumption.

At present, warehouses are overflowing with over 230 lakh tonnes of wheat stocks against a buffer norm of 70 lakh tonnes and the new crop will start arriving within a week. While having 400 lakh tons of wheat stock in 2016, India was hardly a wheat exporting country.

In 2016, India’s global share was only 0.14% and increased to 0.54% in 2020; even today it is less than 1% with global export, and had exported about 78.50 lakh tons in 2021-22, 21.55 lakh tons in 2020-21 and only two lakh tons in 2019-20.

The share of Russia and Ukraine in the wheat export basket was 30%, or 420 lakh tons and 240 lakh tons, respectively, for 2021-22. To fill this void in the global market, India is formulating a strategy to boost the country’s wheat exports to a record high of 100-150 lakh tonnes in the financial year 2022-23. To achieve these goals, the logistical bottlenecks in the international freight markets must be well controlled.

Challenges for Punjab and Haryana

Gujarat and Madhya Pradesh have been exporting wheat since last year to neighboring South Asian countries, but exporting from other wheat-producing states, especially Punjab and Haryana, will be difficult due to the lack of required transport infrastructure, the higher cost of transport to seaports in the Western region and higher levies on the purchase of cereals.

While the Madhya Pradesh government has extended the Mandi fee waiver and other levies totaling 3.5% on grain purchases, in a bid to boost wheat exports, Punjab has made no announcement. conducive to export.

The high tax rate here is another disincentive. Punjab’s tax system is daunting as exporters will have to pay 8.5% levies including 3% market fee, 3% rural development fund and 2.5% commission more than any other state.

Opportunities

Now, the whole world is betting on India for wheat supply, adding that the price of the commodity in the international market has skyrocketed, which will help exporters, as well as farmers, to earn quick cash. money. By July, no fresh wheat arrivals are expected from anywhere in the world except India.

Although Ukraine and Russia’s wheat crops will ripen in August and September, no one knows the extent of the damage to wheat fields and godowns, and ports in war-torn countries will remain isolated for quite a long time.

Australian wheat, which competes with Indian wheat, will not arrive until November, so wheat grown in Indian states must be ready for export. We must meet the challenge with a global dimension. It is high time that the green revolution led by Punjab and Haryana in the late 1960s led to the agricultural export revolution to catch up with the world’s demands for wheat supply.

State cooperative agencies like Markfed Punjab and Hafed Haryana can explore the benefits of exporting wheat this time rather than selling wheat flour domestically. It can save logistics and wheat processing expenses and the same dividend can be shared with farmers as a special bonus of Rs 250-300 per quintal on the MSP.

In this macroeconomic context, the war has created an unlikely opportunity for Indian agro-exporters who sell wheat, maize, millet and processed foods. Since the onset of the crisis last month, the world has turned to Indian wheat to fill the huge gap in stocks caused by the turmoil in Europe’s breadbasket.

The path to follow

India is unlikely to bid to capture all the markets vacated by Russia and Ukraine this year. Earlier in March, Ukraine had banned the export of wheat, oats, millet, sugar, cattle and cattle by-products, mainly to ensure that the nation, destroyed by Russian missiles , has enough stocks to feed its population as the country’s supply chains are being severely disrupted.

If we go by the 2020-21 figures, the lion’s share of Russian and Ukrainian wheat was exported to countries like Egypt, Indonesia, Turkey, Nigeria, Italy and Bangladesh. India must focus on these nations. The creation of a special task force on agricultural exports with representatives from the Department of Commerce, CFI and state supply agencies, railroads, shipping, ports and exporters will significantly boost the country’s rural economy.

The author is Deputy Chairman of the Punjab Planning Board; Chairman of ASSOCHAM’s Northern Region Development Council. The opinions expressed in this article are those of the author and do not represent the position of this publication.

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