Sell wheat, not war: If India acts quickly, Ukraine war could hand it a $8 billion bonanza

The invasion of Ukraine by Russia is going to take a heavy toll of India\’s economy. Foreign institutional investors (FIIs) have flooded out of emerging markets, stock and bond markets are down, and the trade gap is getting exacerbated by high import prices (especially of oil). The disruption of global shipping has worsened congestion that has long afflicted container traffic and ports across the world. So, freight rates have skyrocketed.

But every dark cloud has a silver lining. Ukraine and Russia are among the world\’s largest exporters of wheat. World trade in wheat is usually around 200 million tonnes per year, with the Black Sea accounting for a big chunk of that. Indeed, Black Sea prices for some items have become more important for global trade than the traditional bellwether prices in Chicago.

The war has sent global wheat prices soaring. This gives India a golden chance to export record quantities of wheat. Several years ago, India exported a few million tonnes per year. This fell to zero when Indian wheat prices became higher than global prices in the late 2010s. But in the current year (2021-22), rising world prices have made Indian wheat viable, so exports will shoot up to 7 million tonnes. In 2022-23, high world prices should enable India to export as much as its ports can handle, which may be 15-20 million tonnes. If India can get an average price of $400 per tonne for 20 million tonnes, that will mean a whopping $8 billion. It needs to hurry and book contracts quickly since an early end to the war can send prices plummeting.

The world price of wheat was no more than $160 per tonne some years ago when supplies were ample. The Indian minimum support price (MSP) for wheat was far higher, and so India could not export wheat in those years. But now says Siraj Hussain, former Union food secretary, in a recent column for The Wire (, the US price of hard red winter wheat is already $539 per tonne, because the markets expect the war to punch a big hole in global supplies. Exports of wheat from the Black Sea could fall by 30 million tonnes, while exports of maize, soybeans and sunflower oil will also be hard hit. If India jumps into the fray with wheat exports of 15-20 million tonnes, the global price will come down a bit. Even so, the price could average $400 per tonne, a bonanza.

Rip as You Sow

The next sowing season in the Russian and Ukrainian steppes is fast approaching. Right now, all agricultural activities – from supplies of seeds, fertilisers and agricultural machinery to credit and marketing – have been disrupted by the war. The sowing season may be lost entirely in parts of the steppes, wiping out a full year\’s production. That may keep supplies short and prices high till late 2023.

Massive Indian wheat exports will not merely fetch a forex bonanza. They will also facilitate a sharp reduction of the government\’s bloated food stocks. These have been rising for years since procurement has exceeded offtake from the public distribution system (PDS), and exports of wheat have been uneconomic for quite some time.

The interest and warehousing cost of food stocks, plus losses to pests and moisture, means the economic cost of holding stocks can rise by up to 10% every year. Sales from the PDS entail higher and higher subsidies every year, since the sale price is fixed by law at ₹3 a kg for rice and ₹2 kg for wheat, while procurement prices for both cereals rise every year. Massive exports will help reduce bloated food stocks, which, in turn, will reduce food subsidies and holding costs of stocks. This will be a triple whammy.

India is a major rice exporter. But the global price of rice has not changed much. India imports edible oils and maize, whose prices have skyrocketed.

Buffer stocks peak at the end of a procurement season and reach a trough at the start of the next procurement season. The April 1 norm for buffer stocks of rice plus wheat is just 21 million tonnes, while actual stocks are 82 million tonnes, four times as high. For wheat alone, the buffer stock norm on April 1 is just 7.46 million tonnes, against actual stocks of 23.4 million tonnes.

The World Trade Organisation (WTO) agreed at its 2013 Bali meeting that developing countries could build buffer stocks with subsidies, but not dump these later on export markets. This means GoI could face technical hurdles in exporting surplus grain from government stocks.

Not Against the Grain

But the rise in global prices has pulled up prices in Indian mandis too. Private exporters are buying wheat in mandis for export. They could buy 15-20 million tonnes of wheat in the coming marketing season, leaving relatively little for the government to procure at the MSP.

Private exporters will only buy high-quality wheat with a low-moisture content. The government may end up buying mostly rain-damaged wheat – farmers bribe food inspectors to accept this. This is a separate problem crying out for reform.

This article was originally published in The Economic Times on March 15, 2022.

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