India steps in to plug global wheat shortfall due to Ukraine war

In an upside amid rising risks to India’s economy from the Ukraine war, a large number of countries are likely to turn to India’s massive wheat reserves, the second highest globally, to make good a large void in Russian and Ukrainian shipments.

The Union government is in the process of asking its diplomatic missions abroad to facilitate export of the country’s record domestic stockpiles of wheat, as international prices soar, an official aware of the development said. Western Europe, Turkey and Philippines are some large importers of Russian and Ukraine wheat and corn (maize).

Russia and Ukraine make up nearly a quarter of global wheat shipments. On the flip side, the war between Russia and Ukraine has begun biting other Indian exports to Russia as the West’s economic sanctions have cut off money flow from the former Soviet empire to rest of the world at warp speed.

With Russian banks severed from an international payments system known as SWIFT, payments to Indian exports have been stranded, with the government looking for alternative avenues.

Global wheat prices have hit record highs since Russia invaded Ukraine. The war has cut global wheat exports by 30%, according to a note by Commerzbank. The international Chicago benchmark for wheat rose 50% since Russian actions in Ukraine began, with global prices touching nearly $14 a bushel (approximately 30 kg).

“Exporters of agricultural goods will also gain because of a stronger dollar vis-à-vis the rupee,” said Ashok Agrawal, an analyst with Comtrade. A stronger rupee makes imports cheaper. Conversely, a weaker rupee makes exports more profitable.

Exporters of non-farm items to Russia risk getting stranded for payments and receivables. The Export Credit Guarantee Corporation of India (ECGCI) has decided to provide export credit guarantees to Russia only on a case-by-case basis in view of sanctions against Russia. The ECGCI provides insurance cover to Indian exporters against foreign payments, which de-risks the export businesses.

India’s share of exports to Russia as a share of its total exports is 0.9%, while India’s imports from Russia make up 1.5% of its total imports, according commerce ministry data.

Wheat exports to EU will raise India’s export earnings and farm incomes. India has more than 100 million tonnes of foodgrains in state-held granaries. The country had projected farm output to touch a record 316 million tonne in 2021-22.