Russian conflict and the impact on food, farming

Tue Mar 1, 2022

Russia’s invasion of Ukraine has put global commodity markets in a tizzy. It is now threatening to push up farming costs and send food prices soaring. Food inflation in India may thus soon enter double-digit territory.

How will the conflict 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. On Monday, crude prices touched a high of $139 per barrel, the highest since 2008. Global wheat prices have shot up 91% year-on-year (y-o-y), while corn prices rose by 33% 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.

Can govt grain stocks shield consumers?

As on mid-February, the central stock of grains comprising rice and wheat was a staggering 54 million tonnes (mt), a surplus of more than 30 mt, which is more than what is required for the country’s public distribution system (PDS). With a record harvest of wheat set to hit the markets later this month, the government can liquidate its wheat stocks to keep prices in check. However, if global prices rise further and the conflict in Ukraine worsens, India could end up exporting more wheat, thereby pushing retail prices higher. Together with higher edible oil and fuel prices, food inflation could touch double-digit highs.

How will the price rise affect the farming community? 

Farmers can now expect prices at a premium to the minimum support prices (MSPs) announced by the government. Wholesale wheat prices are now higher than the MSP, while mustard prices, at ₹7,000 per quintal, are already 40% higher than the MSP and may cross the ₹10,000 mark. However, steep prices of inputs will add to the cost.

What is the impact of high crude prices?

Historic data show a close correlation between a rise in crude oil and food prices. Crude prices impact food prices more than even food production. Crude prices are hovering in the $120-130 per barrel range. Even if this were to cool down to the $100-110 level, it would impact fertilizer prices and shipping costs significantly. High crude prices also lead to diversion of food crops to produce biofuels, thus pushing up crop prices. India has not raised fuel prices since November and a significant hike is expected soon.

What measures can the government take?

Other than liquidating its public stock of grain, the government can restrict exports to keep cereal price inflation in check. As for edible oil, import duties have already been reduced significantly. Retail food inflation, which rose to a 13-month high of 5.4% in January, is likely to rise further. To ensure that the hunger situation does not get worse, it can expand PDS and enrol many more households. On the fertilizer front, the government may have to secure supplies from Canada, Israel, and China.

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