Notwithstanding the human tragedy associated with the war between Russia and Ukraine, it has, nevertheless, opened up new opportunities for India. In March 2022, India achieved its highest-ever merchandise export, surpassing $40 billion.

Though India exports many agricultural products, it is noteworthy that wheat exports stood at $1,742 million during April–January 2021–22, which was a 387 per cent increase compared to that in the previous year.

Considering that Russia and Ukraine together account for about 29 per cent of the global wheat exports, their inability to export wheat has led to the doubling of wheat prices in the global market — from $229 per tonne in March 2021 to $533 per tonne in March 2022.

The war and the resultant high crude oil prices as well as many other headwinds have caused the Rupee to depreciate. However, both these factors — high international wheat prices and depreciation of Rupee — have resulted in a bonanza for Indian wheat exporters.

Here, it is noteworthy that though India is the second largest producer of wheat, it does not feature among the top 20 exporters. Traditionally, India has been exporting wheat to only its neighbouring countries, — Bangladesh, Nepal, and Sri Lanka, with Bangladesh accounting for nearly 50–55 per cent of India’s wheat exports.

Coinciding with higher wheat price reigning globally, India has entered new export markets such as Yemen, Afghanistan, Qatar, and Indonesia. Additionally, Indian exporters have been exploring opportunities in Egypt, the world’s biggest wheat importer. Egypt imports about 80 per cent of its wheat from Russia and Ukraine, which stood at $2 billion in 2021.

However, India earlier was not in the list of accredited countries permitted to export wheat to Egypt. But a delegation from Egypt visited India in April to facilitate more wheat exports to the North African nation.

But how long will this silver lining last for India? Also, once the war is over, will India be able to leverage its experience and sustain the export momentum?

India is expected to produce 111 million tonnes (MT) of wheat for the 2021–22 crop year; further, the Centre’s procurement target is around 45 million tonnes through minimum support price (MSP). In addition, the Food Corporation of India (FCI) currently has 23 MT of wheat stocks against a buffer stock requirement norm of 7 MT, indicating that India has significant wheat surplus.

However, there are some factors that may hinder India’s aspiration to be an important wheat exporter.

Logistics hurdles

Logistical challenges such as congestion at ports and unavailability of train rakes are major infrastructural bottlenecks for wheat exports from India. At present, a bulk of India’s wheat export is sourced from Madhya Pradesh, which is closer to Kandla and Mundra ports. Discussions are going on among the shipping and commerce ministries, and the Railways to facilitate wheat export from Navi Mumbai and Kakinada ports.

The Commerce Ministry has also mandated the Railways to make available extra rail wagons for transport of wheat. It is also working with port authorities to prioritise wheat exports. The Centre has also empanelled 200-odd government-approved laboratories to test the quality of wheat, having mandated the Bureau of Indian Standards (BIS) to monitor the quality of wheat being exported.

Right now there seems to be a sense of urgency to fill the void caused by the Russia–Ukraine war, and the government machinery is making an all-out effort to support and facilitate exports. However, though these measures are commendable, such ad hoc top–down measures will only yield short-term benefit, which is, increasing India’s wheat export for the current year.

With wheat being a commodity of daily consumption, Indian exporters have to become price-competitive to find a strong foothold in the export market.

Supply chain efficiency contributes significantly to being cost efficient. Unless seamless infrastructural facilities and timely and cheaper modes of transport are available in the coming days, India may find it difficult to make significant inroads into the wheat export market.

The MSP factor 

Another fundamental factor that influences India’s export competitiveness is the Centre’s MSP. Irrespective of the supply and demand situation, both at global and domestic markets, in India, MSP for a given year is set at a higher price as compared to that in the previous year (see graph). A high MSP paid by the government sets a higher benchmark price for Indian exporters. To export, private players need to buy wheat at the MSP or at a higher price than the MSP, making Indian exporters non-competitive in the global market. Unless the international prices are sufficiently higher, Indian exporters lose their competitiveness and hence do not participate in the process at all.

Due to high MSP prices, India has remained a rather small player in the export market, even though thousands of tonnes of wheat and rice rot in the FCI warehouses. Considering that there’s no plan to do away with the MSP in the near future, the chances for Indian wheat to become competitive in the global market appear to be slim.

Govt interventions

Wheat, being an essential commodity, is prone to frequent government interventions in terms of export bans and imposition of higher import duty. The Centre also bans agri-commodity derivatives’ trading in domestic exchanges routinely. These frequent bans and interferences hinder export competitiveness. The fact that Russia, Canada, and the US are top three exporters of wheat though they produce 25–60 per cent less wheat than India is proof of the market distorting impact of these bans.

Right now, many countries have opened their doors to Indian wheat to rein in the high food prices. The world sentiment for Indian wheat is rightly echoed by Vijay Iyengar, the chairman and managing director of Singapore-based Agrocorp International. He said, “We have not seen this kind of frenzy for Indian wheat in the global markets before.” Infrastructural bottlenecks, high MSP, and frequent government interventions in the wheat market make it difficult for wheat importing countries to have a long-term relationship with India. The current export opportunity for wheat seems to be the case of making hay while the sun shines.

The writer is Professor (Finance & Accounting), Vinod Gupta School of Management, IIT Kharagpur. Views expressed are personal

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