Ukraine invasion, global wheat supply and India’s opportunity

The news from the Russia-Ukraine war continues to be very disturbing. Yet, there seems to be a ray of hope with Ukrainian President Volodymyr Zelenskyy saying that he will not insist on NATO membership. This was one of the key provocations for Russia, which led to the invasion of Ukraine. Right now, the US and its western allies may not be ready for a quick compromise on the matter. They would like to “punish” Russia through the strictest sanctions, with the hope that President Vladimir Putin bows out and the country is weakened to the extent that it never raises its head again. But China has openly indicated that it will stand firmly with Russia, and bail it out of the embargo. If China and Russia join hands, it may not be good news for either NATO or India. With Indian students now evacuated from Ukraine, Prime Minister Narendra Modi can take a lead, perhaps with other neutral powers, to find an amicable solution to the conflict, which is otherwise likely to be even more devastating than it has been so far.

The ripple effects of the war are already being felt across the world with energy and gas prices surging. Wheat prices are also skyrocketing. As on March 7, wheat prices in exporting countries like the US shot up to $525/tonne, up from $275-280/tonne on January 3. Other wheat exporting countries have also followed suit, with Australian wheat export prices touching $395/tonne, Argentina at $425/tonne, the EU at $460/tonne, and Canada at $478/tonne. Russia and Ukraine together normally export about 50-55 million metric tonnes (mmt) in a total global market of about 200 mmt. With their supply lines terribly disrupted, there is an opportunity for India to fill this gap. This wheat window is likely to be there at least for the next 3-4 months.

India has large stocks of wheat with the Food Corporation of India (FCI). The buffer stock norm for wheat on April 1 is 7.46 mmt while the actual stocks are 23.4 mmt in March. India can easily go for about 15 mmt of exports of wheat. This will not only reduce its food subsidy bill, but also compensate for the higher costs of imports of crude oil. India needs to scale down its target of procuring wheat in the coming marketing season from 44 mmt to, say, just 30-35mmt, and let the private sector buy wheat at competitive prices. The domestic market prices are likely to be higher than minimum support prices (MSP), provided we keep wheat exports going at a fast pace.

In this context, the news from the domestic front is more exciting. With the BJP winning four of the five states that went in for assembly elections, it has a shot in the arm for the 2024 general elections. The Indian voter needs to be complimented for giving a clear victory to the BJP in Uttar Pradesh and the AAP in Punjab. In UP, it is clear that neither the farm protests (largely driven by large farmers of western UP and Punjab) nor the saga over Covid deaths or joblessness made a significant dent in the BJP’s fortunes. But in the process, the Congress, which was at the forefront of farm protests — remember Rahul Gandhi and Amarinder Singh riding a tractor driven by Sunil Jakhar in support of farm protests — is almost decimated in UP and Punjab. In Punjab, even the Akalis who thought that they were the champions of farmers, and the newly floated party by protesting farmers, had to bite the dust.

The AAP in Punjab has made big promises to voters. They range from jobs for all to free power to Rs 1,000 for each woman, and on top of all this, a corruption-free state. These are lofty ideals and ambitions but let them assume power and see the crumbling finances of the state, and chalk out a strategy as to how they will fulfil the promises. Voters will be looking forward to the implementation of these promises. If the AAP can control corruption and make Punjab’s agriculture more prosperous and environmentally sustainable, it can hope to emerge as a national party, replacing the Congress as the main opposition to the BJP in 2024.

But let me come back to the wheat window. This is an opportune time for the Centre and key wheat-growing states to chalk out a reformist action plan. UP is the largest producer of wheat and should have the biggest say. Punjab and Madhya Pradesh are the largest contributors to the central pool. Haryana, Bihar, Rajasthan and Gujarat are others. There is a need to bring symmetry in procurement costs. The FCI should put a ceiling on procurement expenses (including arhatiya commissions/fees) to be no more than 3 per cent of the MSP in all states.

Right now, Punjab imposes an 8.5 per cent mandi fee/cess/ arhatiya commission while in most other states, it hovers around 3-4 per cent. Yogi Adityanath in UP should take the lead in streamlining the value chains of wheat, rice, sugar, and milk by inviting private sector companies to build export lines, storage silos with grading, packaging and processing facilities. Yogi can unleash a revolution in UP agriculture by making it more competitive and opening global markets to UP farmers.

Also, in wheat-growing states, they should give the PDS beneficiaries an option to get grain or cash in lieu of grains that is equal to MSP of wheat plus 20 per cent. That would still save the Centre resources by plugging leakages in PDS, help diversify agriculture to high-value crops, and give a better deal to farmers as well as consumers.

Gulati is Infosys Chair Professor for Agriculture at ICRIER