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Agriculture

How the Russia-Ukraine Crisis Could Affect Food Prices in India

Wheat, corn, cooking oil, fertiliser – the crisis is likely to affect all these prices.

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Have you been thinking that the Ukraine-Russia crisis is distant and doesn’t effect your home? Think again, because the odds may be stacked against you. The recent increase in fuel prices is only the appetiser, very soon your favourite foods – and your favourite vodka – may too be the victims of inflation. Alarmist? See for yourself.

The world calls Ukraine the ‘breadbasket of Europe’ for a reason. It is blessed with fertile black soil, also known as “chernozem”. Apart from being among the world’s leading producers of sunflower oil, this region is also a major producer of corn (sixth largest), barley (sixth), rapeseed (seventh), wheat (ninth), poultry and meat too.

Russia isn’t far behind either. It supplies about 20% of the world’s wheat. Egypt, followed by Turkey, are the top two destinations for Russian wheat. Overall, Ukraine and Russia are major suppliers of agri-produce. And the agri-export industry in Ukraine has the lion’s share of the export revenue pie. While conflict has shelled the agriculture sector in Ukraine, Russian exports are blocked by sanctions and greater demand at home. But how does this effect us all?

Ukrainian-Russian corn is the lifeline to the European meat and food processing industry. If the corn supplies in Europe are disrupted, meat prices are bound to rise. Uncertain barley supply coming from the region has alarmed the global beverage industries too, breweries in particular. But the wheat presents a greater humanitarian problem. Wheat from Ukraine and Russia feeds many. Egypt, Turkey and Nigeria align with other African countries depend on this wheat. Food security fears have already driven prices up in Egypt since the sanctions have kicked in. India, between 2016 and 2020, has also imported wheat worth $537.26 million.

Sunflower oils presents a serious case, especially for heart conscious ones. Indian frying pans may miss this precious oil, and with no healthier alternatives, prices are already up and shipping companies are charging higher insurance premiums for freight consignments from the Black Sea. This will have a direct impact on edible oil prices. Adding to our troubles is India’s growing demand of cooking oils, and the fact that rapeseed (a variety of mustard) exports are also blocked doesn’t help. Agri-commodity pundits and future traders have already placed a big bet on mustard; hoarding has also began in parts. Given this scenario, farmers may get a better rate for their mustard crop.

But while the crisis grows, not everyone is losing. Strangely enough, the share prices of two of the largest public listed grain traders – ADM (Archer Daniel Midland) and Bunge Ltd – kept going up since February 24.

But let’s get back to essentials. The next major threat to our food prices and security comes from chemical fertilisers shortages. Russia is the second largest producer of potash, which is used in the production of Di-ammonium phospohate (DAP). Now DAP is critical for chemical/industrial agriculture and without it farmers may experience poor yields and many times no germination. DAP prices are peaking and nitrogen fertilisers have jumped to $700 from $560. A 25% rise in a matter of days.

Since last year, DAP prices have been sky high. India experienced a shortage right before rabi sowing season. And hence a high-level ministerial delegation was negotiating, as per media reports, one million tonnes a year each of di-ammonium phosphate (DAP) and potash; and about 800,000 tonnes a year of a mix of nitrogen, phosphorus, potassium (NPK) a few weeks ago with the Russians.

If the sanctions and blockades continue, it’s hard to predict when the prices will stabilise. The direct result will be rising input costs and farmers will get lesser DAP for their fields. The Russian side has assured Indians of healthy trade despite sanctions, but time will tell how well both countries can circumvent the sanctions. Meanwhile, both farmers and consumers should be prepared to weather the storm.

But speaking of upheavals, let’s address the most expensive elephant in the room – crude oil prices. With Russia sanctioned, our globe has only a few legal options for fuel imports. Oil prices have touched $100/barrel; with election season over, Indians will have to feel the burn too, and not just at the gas station. Agriculture from the tractors to water pumps and agri transport takes a lot of fuel. This means that in the next ten days, everything from onions to milk may be slightly more expensive. But if things are getting pricy, someone is making more. With Iran, Russia and Venezuela out of the oil game, most likely Western-backed oil companies are going to have bumper windfall gains.

Ukraine Agri-produce Global position
Sunflower oil 1st
Wheat 9th
Corn 6th
Barley 6th
Rapeseed 7th