Feeding the World: The Impact of the Russia-Ukraine War on the Indian Wheat Market

ABSTRACT

TheRussia-Ukraine war in 2022 has had a major impact on food security globally.The crisis created a food shortage, especially in relation to wheat. This wassoon followed by India’s export ban on wheat, which unsettled global marketsand was a significant factor for increasing the price of wheat all over theworld. This paper explores the changes in the dynamics of international trade,specifically in relation to wheat resulting from the war as well as India’s currentstrategy as a supplier of this commodity.

INTRODUCTION:

The Russia-Ukraine crisis has an impact on millions of livesand has currently reduced living standards in both countries. Both Russia andUkraine are major producers and exporters of wheat. Thus, the war has led to anexponential rise in wheat prices and food security has become a huge concernglobally (Pavel 2022). Inflation in food prices is a problem that has impactedcountries all over the world.

The current war poses great concerns regarding foodshortages since Russia and Ukraine’s combined trading is at 12% of foodcalories globally (Caprile 2022). Countries that are dependent on Russia andUkraine for food imports like wheat include Germany, Italy and France. Theproblem is most acutely felt by countries that cannot find affordablesubstitutes for wheat, such as Belarus, Armenia and Ireland (Caprile 2022). Theshare of important agricultural products that Ukraine and Russia exportglobally is represented below.

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Since the Russia-Ukraine war, India’s position in the wheatmarket has become more important now. Many countries are stating interest in importingagricultural products from India. This could be a good way to increase India'sbalance of payments. But the price of wheat in India was increasing even beforethe Russia-Ukraine crisis, which has posed problems for India’s domesticconsumers of wheat (Shew et al. 2020).

India, if it chooses to, could potentially fill the gap ininternational market share now for wheat caused by the Russia-Ukraine war.Indian farmers are getting higher prices in foreign markets for their produce. Butdomestic consumers in India have recently had to cut short on their consumptionof wheat due to increased prices, which led to an increase in the number ofunder-nourished people in the country. The government also had to cut short theamount of wheat it subsidized to the poor because of high prices. India then decidedthat it needed to take major steps to protect domestic consumers. Therefore,after the crisis began in February 2022, India was faced with a dilemma whereinit had to decide whether it was more important to protect its domestic consumersor expand into international markets to improve its diplomatic relationships.

IMPACT ONINDIA’S CURRENT ACCOUNT

With increasing free trade, countries have become inter-dependenton each other for certain essential goods. This has been a beneficial factor formaintaining peaceful political relationships. But new sanctions imposed onRussia has complicated trade relationships overall globally. For instance, 25countries are dependent on Russia and Ukraine for more than 50% of wheatimports, and these countries now only have India or China (Mahapatra 2022).

Wheat prices have been fluctuating in international markets,reaching a record 1277 dollars for 743 dollars from January 1st to May 17th(World Bank 2021). Since wheat is an inelastic good, demand didn’t decrease substantiallydespite higher prices. At the same time, Russia’s invasion led to destruction ofcrop yields in Ukraine causing huge losses for their farmers. The war is thusexpected to increase the amount of undernourished people by approximately 10million globally (Banerjee 2022).

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IMPACTS OFINDIA’S WHEAT BAN

The huge spike in wheat prices in India has been controlled bythe central government mainly with the help of the wheat exports ban. Thedownside of reducing exports would be that India’s imports stay the same while exportsdecrease, increasing their current account debt (Tuovila 2019).

Even though India produced more quantities of wheat thanRussia, Russia exported wheat 40 times more than India. But as the Russia-Ukrainewar led to a drastic decrease in their wheat exports, the demand for Indianwheat rose. With 20 million metric tons of wheat being blocked from Russia andUkraine, India could potentially fill this void in the international market forwheat (Banerjee 2022).

In India, the central government was providing farmers with a10% higher price for selling wheat in international markets. With its exportsrising exponentially, India was expected to increase its wheat exports tobecome one of the largest wheat exporters in the world. But analysts estimatedthat India’s production of wheat would reduce soon due to external factors likeclimate change and consequences of the COVID-19 pandemic. This created adilemma for the government about protecting its domestic consumers by reducingor eliminating exports.

So, in May 2022, India banned its exports of wheat whichcaused chaos at the World Trade Organization. International political retaliationfrom banning wheat exports is possible for India since its exports ban affectsthe international market, especially in terms of increased inflation. Eventhough India accounted for less than 1% of wheat exports globally, internationallyit was expected to increase wheat exports from 2 million metric tons to 10million metric tons which would contribute to reducing wheat shortages (Yadav2022). Overall, banning wheat has led to a lot of inflation in the wheat market,which led to fewer people being able to afford wheat or enough wheat forconsumption daily.

This is not the first time India has banned wheat exports. Anexport ban on wheat was imposed in India for four years between 2007-2011, whenan estimated 11 million metric tons of wheat were produced less (Arora andBhardwaj 2022). At that time, Indian wheat exports were not significant inquantity, so the ban didn’t affect international markets very significantly.

Many countries, including Canada, Uruguay, Thailand, USA andJapan had conducted bilateral negotiations with India for exporting wheat to themwhen the Russia-Ukraine crisis began. Following India’s wheat ban, ninecountries including Turkey, Thailand and Indonesia successfully confirmed continuationof wheat exports from India, allowing India to retain influence politicallyover these countries.

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India now is in a position where wheat consumption in thecountry is somewhat lesser than wheat production. But when wheat consumption isadded to exports, then the total amount of consumption increases in quantity inrelation to current wheat production. Estimates indicate that there will befood shortages of around 7 million metric tons of wheat in India. A day afterthe Indian wheat ban was exposed, the international price of wheat increased by6% (Menon 2022). However, the Indian government has also stated that thecurrent Indian wheat ban is indefinite and will possibly lift once theRussia-Ukraine crisis smooths over.

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With the Indian central government’s export policy, farmerswere finally earning Rs.300 per quintal with MSP (minimum support price) at Rs.2015, making wheat more accessible to domestic consumers and leading to lessshortages within the country. But it is also possible that the wheat exports banwill cause this profit margin to drop significantly, potentially increasingpoverty levels among farmers. Since most of the Indian population pursuefarming as a livelihood, this policy could result in a drastic decrease inliving standards in the country.

Additionally, prices have plummeted in India from Rs. 2300per 100 kg of wheat to Rs. 2015 per 100 kg of wheat, reducing most of theprofit margin that farmers were earlier benefitting from. With 55% of thepopulation bearing a reduction in profit, income inequality is set to rise (AFP2022). While farmers stored their crops in anticipation of increasing prices,the wheat exports ban has led to a shock in their market plans, forcing them tosell a perishable crop like wheat at the lowest possible price.

With prices becoming very low it has become easier forIndian consumers to buy wheat. In addition to this the biggest buyer of wheatis the Indian government. The government subsidizes certain quantities of wheatfor the poor. Additionally, the trade deals done by India with neighboring andvulnerable countries have helped these countries also to get wheat at a cheaperamount.

CONCLUSION

The soaring price of wheat has an important adverse effecton the Indian domestic market. An average Indian requires 3 servings of wheatper day or 48 grams of wheat. 103 metric million tons were produced in 2021 inIndia (Banerjee 2022), which amounts to 183 grams per person in a day.

With Indian consumers unable to purchase wheat at the higherprices, the sale of wheat has gone down within India. There is a risk that the existingamount of wheat in the country isn’t enough to feed all its citizens and so thepriority needs to be the domestic market. With the yield of agricultural productsdecreasing in general globally, the production of wheat in India is estimatedto decrease in the next five years.

The Indian government decided to tackle this situation bybanning all wheat exports from the country for now. This move benefits domesticconsumers in India in terms of satisfying their demand for wheat. On theinternational front, India was supposed to fill in the gap that Ukraine andRussia made. The wheat exports ban in India was therefore disappointing forcertain countries since they now have fewer alternatives for importing wheat.

However, vulnerable neighboring countries as well as Indianconsumers continue to benefit from Indian wheat exports. Hence, the wheat ban isthe right policy for Indian currently, since domestic Indian consumers need tobe protected while vulnerable countries neighboring India also receive benefits.

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