Russia’s invasion of Ukraine has entered the second month. Buoyed by the US and Europe’s aggressive supply of arms, Ukrainians have put up a stiff resistance, stalling Russian tanks from entering the capital city of Kiev and, in the process, disproving military pundits who had predicted a short and lopsided war.

A protracted war in the Black Sea region and extended sanctions against Russia entail risks of economic upheaval across the world — and India will not be spared. New Delhi is already bearing the brunt of high global crude oil prices (about $110-120 a barrel as against $70 in the beginning of November) as well as rising mineral, metal and edible oil prices, indicating a possible scenario of high inflation and low growth — stagflation.

Against this macroeconomic backdrop, the war in Ukraine has created an unlikely opportunity for select Indian agri-exporters who trade in wheat, maize, millet and processed food. Since the crisis unfolded last month, the world has been looking to Indian wheat to fill the huge void in stocks caused by the turbulence in Europe’s breadbasket. Ukraine is one of the world’s top wheat exporters, and Russia and Ukraine together have a 25% share in the global wheat market.

In the case of maize, Ukraine accounts for 13% of the global trade, with half its export consignments moving towards the lucrative European Union market. A ban on Russian flights to Europe also means opportunities for Indian exporters of processed food —nuts, fruit juices, confectionary, pulse and cereal preparations, among others — 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. ET has perused the document.

GRAIN GAINS

Kunal Shah, a partner in Mumbai-based trading company Kunal Corporation, sums up India’s opportunities in just two sentences: “Our company usually exports 50-60 containers (20 ft) of wheat during the entire year. But for the coming fiscal year, we already have an order for 40.” He adds that his company would have aggressively promoted maize had the prices been more competitive. “Maize per tonne in Mumbai is $325 whereas in Pakistan it is $300,” he says.

Another exporter from Gurgaon, Nitin Gupta of Olam Agri, explains why the entire world is banking on India for supply of wheat, adding that the price of the commodity in the international market has skyrocketed, which will help exporters as well as farmers make a quick buck. “Between now and June, no fresh wheat arrival is expected from anywhere in the world except from India. No one knows the extent of damage in the wheat fields of war-ravaged Ukraine. Russia will remain isolated for quite some time. And Australian wheat, which competes with Indian wheat, will arrive only in November,” says Gupta, adding that India will be able to export 10 -12 mn tonnes of wheat in the coming fiscal year as against about 8 mn this year.

But it is unlikely that India will make a bid to capture every market vacated by Russia and Ukraine this year. Earlier this month, 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 own population as the country’s supply chains are getting majorly disrupted. If we go by the 2020-21 numbers, the lion’s share of Russian and Ukrainian wheat was exported to nations such as Egypt, Indonesia, Turkey, Nigeria, Italy and Bangladesh. Should India focus on all these six nations?

APEDA chairman M Angamuthu explains India’s strategy, calling it a three-pronged one. The first approach, he says, will be to consolidate India’s position in countries such as Bangladesh, Sri Lanka and Indonesia where Indian wheat is already popular.

Second, New Delhi wants to expand wheat export to Turkey, Egypt and the Middle East where Russia and Ukraine have long been market leaders. And, third, India’s successful rice exporters to Africa are being encouraged to diversify to wheat. “We must not explore a new market for temporary gains coming out of the Russia-Ukraine crisis. Instead, we want to forge a long-term relation with each of the key markets,” says Angamuthu. APEDA has recently stepped up, organising virtual buyer-seller meets, roping in Indian missions located mainly in three geographies — South Asia, Southeast Asia and Africa. The focus has remained on wheat although exporters have scouted for opportunities in other items as well.

That GoI has been pulling out all the stops to aggressively promote wheat bears immense significance as India was hardly a wheat exporting nation five years ago. In 2016, India’s global share was just 0.14%; even today, it’s less than 1% with a global export ranking of 36 (in 2020). As India’s domestic wheat market has been very large, New Delhi was circumspect in promoting the commodity abroad, fearing that such an adventure might trigger inflation in domestic markets, thereby creating a possible backlash. India is the world’s second largest producer of wheat (about 108 million tonnes in 2020-21), with a global share of around 14%. China continues to be No 1. In maize, India’s global export ranking is 40, whereas in other cereals (including millet) it is 28. In jaggery and confectionery, India’s ranking in the world is somewhat higher at 12.

Pankaj Agarwal, who exports millet under the brand name Just Organik, says the demand for various types of millets, including barnyard millet and finger millet, has risen after the Ukraine war broke out. “We are engaging some 4,000 farmers in Uttarakhand to meet our target of 250 tonnes of millet export for the coming fiscal year. Our plan is to export millet to four countries — Germany, France, Denmark and Italy. Ukraine used to be a major supplier to these nations,” he says. In the current fiscal, merchandise exports from India are at a record high of $400 billion, achieved nine days before the year-end. The amount is way higher than the nation’s previous record of $330 billion in 2018-19.

Still, Indian exporters are aware that good times may not last long. The Covid pandemic is still hanging over economic recovery like the sword of Damocles. Also, the Russia-Ukraine war and the resultant volatility in oil prices have the potential to stymie global economic growth. Even the budget’s projection of India’s gross domestic product (GDP) growth rate for the coming fiscal year was based on an assumption that crude oil price would hover around $75 a barrel. According to EY’s estimate, India’s GDP growth rate will slide from an estimated 7.8% to 7.1%, if crude oil remains at $100 and will slip further to 6.5% in the event of oil prices going up to $125.

A million-dollar question that crops up is, how long will the effects of war play havoc with the Indian economy? And will the window of opportunity for agri-exporters end soon after the war draws to a close? “It is difficult to predict how long the demand for Indian wheat will last. It could be for three to six months, or, it may be longer, for a year or two,” says Gupta of Olam Agri, adding that once the war gets over, Ukraine, in particular, will have to feed its own people first. Also, the embargo on Russia might not be withdrawn instantly.

For Indian exporters, the journey won’t be a cakewalk. The first challenge comes from high rates of ocean freight, initially triggered by shortage of containers after the outbreak of the pandemic and subsequent lockdowns across geographies. “Freight rates to Africa have doubled in the last one year. The trade is no longer competitive. For us, it is better to focus on our neighbours than venturing into Africa,” says Shah of Shah Corporation.

The second challenge is to strike a balance between India’s aspirations to be a global leader in wheat export vis-a-vis checkmating food inflation in the domestic market. After all, wheat is the staple food for most Indians and any abnormal price rise will risk a backlash.