Rural economy reaps rich gains from war

by vijay banco

Posted on 13-April-2022 8:39:10 AM    0 Comments    727 view(s)

Rural economy reaps rich gains from war

The Russian invasion of Ukraine has presented an opportunity for the country’s rural economy. There could be a silver lining for India with an upsurge in rural sentiments as harvesting of rabi crops is in full swing and prices are at an all-time high, higher than the Minimum Support Price (MSP) as well as in global markets.

The MSP of wheat is ₹2,015 per quintal whereas the trading price in the open market is in the range of ₹2,200-2,300l.

Open market prices of wheat are up 17 per cent, mustard by 30 per cent, barley by 67 per cent and soybean up by 36 per cent compared to April 2021. Mustard, the second most important rabi crop has seen a 30 per cent higher sowing in FY22 over FY21 and will be the second-largest contributor to farm income this year.

It is broadly estimated by brokerage firms that due to the Ukraine-Russia conflict the high prices of commodities in domestic and global markets can infuse an extra ₹31,000 crore income into the rural economy from rabi crops.

Ukraine is among the largest global exporters of wheat with a share of 12 per cent. Its share of global exports of sunflower is 47 per cent, barley 17 per cent, rapeseed 20 per cent and maize 14 per cent. Russia also has a strong presence in global exports — 25 per cent of sunflower, 18 per cent of wheat and 14 per cent of barley.

In the case of maize, Ukraine accounts for 13 per cent of the global trade, with half its export consignments moving towards the lucrative European Union market. “A ban on Russian flights to Europe and the US also means opportunities for Indian exporters of processed food, nuts, fruit juices, confectionery, pulse and cereal preparations,” according to an analysis by the Agricultural and Processed Food Products Export Development Authority (APEDA), an agency under the Union Ministry of Commerce and Industry.

There is a huge scope for increasing wheat exports in the current scenario. Export orders of 35 lakh tonnes have been received for the April- July period. The prolonging conflict is an opportunity for India to garner a share of the global market by exporting quality wheat (as we did with Basmati rice) so that Indian wheat remains in demand even after the crisis. too

Exporters must not explore a new market for temporary gains coming out of the Russia-Ukraine crisis. Instead, they must forge a long-term relationship with each of the key markets.

The total wheat market in the world hovers around 2,100 lakh tonnes. After China, India is the world’s second-largest producer of wheat at about 1,008 lakh tonnes in 2020-21, contributing around 15 per cent of the world production. A chunk of it goes towards maintaining food stocks for strategic domestic consumption. At present, warehouses are overflowing with more than 230 lakh tonnes of wheat against a bufferstock norm of 70 lakh tonnes and the new crop will start reaching in a week.

Despite holding 400 lakh tonnes of wheat stock in 2016, India hardly exported any of it. In 2016, India’s global share was just 0.14 per cent and increased to 0.54 per cent in 2020; even today, it’s less than 1 per cent, and had exported about 78.50 lakh tonnes in 2021-22, 21.55 lakh tonnes in 2020-21 and only two lakh tonnes in 2019-20.

The share of Russia and Ukraine in the wheat export basket was 30 per cent — 420 lakh tonnes and 240 lakh tonnes, respectively, for 2021-22. To fill up this gap in the global market India is drawing up a strategy to step up wheat exports to a record of 100 lakh tonnes in 2022-23.

Challenges for Punjab, Haryana

Gujarat and Madhya Pradesh have been exporting wheat since last year to neighbouring South Asian countries, but exports by other wheat-producing States, especially Punjab and Haryana, will be challenging in the absence of transportation infrastructure, higher cost of transport to ports in the western region, and higher levies on grain purchase.

While the Madhya Pradesh government has waived mandi fee and other levies aggregating 3.5 per cent on grain purchases, in a bid to boost wheat exports, Punjab has not made any announcement to boost exports. The high rate of taxation in Punjab is another deterrent. The taxation system of Punjab is discouraging as exporters have to pay 8.5 per cent levies, more than in any other State.

Given the skyrocketing price of wheat in the global market, the world is banking on India to supply wheat. This will help exporters, as well as farmers, make a quick buck.

Between now and July, no fresh wheat arrival is expected from anywhere in the world except India. Though Ukraine and Russia wheat crop will mature in August and September, no one knows the extent of damage to the wheat fields, godowns and ports of the war-ravaged Ukraine.

Australian wheat, which competes with Indian wheat, will arrive only in November; thus wheat growing States in India' must be ready to export.

The way ahead

It is unlikely that India will make a bid to capture every market vacated by Russia and Ukraine this year.

In March, Ukraine had banned the export of wheat, oats, millet, sugar, cattle and cattle byproducts, mainly to ensure that the nation, wrecked by Russian missiles, has enough stock to feed its population as the country’s supply chains remain disrupted.

Going by the 2020-21 numbers, the lion’s share of Russian and Ukrainian wheat was exported to Egypt, Indonesia, Turkey, Nigeria, Italy and Bangladesh.

India must focus on these nations. Setting up a special task force on agri-exports with representatives from the Commerce Ministry, FCI and States procurement agencies, railways, shipping, ports and exporters will boost the country’s rural economy in a big way.

The writer is Vice-Chairman Sonalika Group; Vice-Chairman Punjab State Planning Board; Chairman Assocham Northern Region Development Council