Indian wheat exports gain from Ukraine Crisis

Indian wheat exports gain from Ukraine Crisis

by 5paisa Research Team Last Updated: Dec 13, 2022 - 11:18 pm 34.8k Views

Here is a small question. What happens when the world’s largest exporter of wheat goes into a state of war? The answer is simple. The second largest producer of wheat tends to gain. But in this particular case, neither the largest producer of wheat, nor the second largest producer of wheat are in a state of war. In fact, two of the top 10 producers of wheat are in a state of war and that is making all the difference.

China is the world’s largest producer of wheat with annual output of 142 million MT followed by India at 109 million MT. Now the war is going on between Russia, the third largest producer of wheat at 85.9 million MT and Ukraine which, at 26.2 million MT is the 9th largest producer of wheat in the world. However, the situation looks very different when you look at the rankings of countries on wheat exports.

For instance, Russia exports nearly 37.27 million MT annually or nearly 44% of its annual output of wheat. Ukraine exports 18.06 million MT of wheat annually or nearly  69% of its total output of wheat. If you look at the total volume of exports annually, then Russia and Ukraine account for 28% of overall export volumes. That is why the sanctions on Russia, the embargoes on its ports and financial sanctions have hit wheat exports in a big way.

One obvious beneficiary of this trend has been India, which has managed to boost wheat exports in the current year. As of the close of February 2022, India had exported a total of 6.6 million MT of wheat and is on target to comfortably cross 7 million MT by the close of fiscal FY22. In addition, India has also gained from the sharp spike in wheat prices in the global market as wheat prices rallied by nearly 40% in a very short span of time.

The record wheat exports achieved earlier by India was in the fiscal year 2012-13 when wheat exports had touched 6.50 million MT. With one more month to go in the current fiscal, India should end FY22, at least 10% higher than the previous levels. For FY22, India is expected to report record wheat output at 111.32 million MT compared to 109.59 million MT in FY21. A clearer picture should emerge once the main Rabi crop hits from 15th March.

High prices of wheat are not the only instance. India has also seen record 7 million MT of sugar this sugar cycle year on the back of robust of global sugar prices. The robust global prices of agricultural commodities has been a key factor in making agri exports more attractive for India. However, this also comes with a serious downside in that it is resulting in a spike in commodity inflation that is a key input cost for many manufacturing industries.

To understanding the import of this point, one only has to look at the margin pressure on FMCG companies amidst an overall spike in agri products. Clearly, any celebration has a darker side to it also.

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