Editorial Analysis for IAS - Operation Blue Star

Impact of Russian Invasion on Global Agri-commodities 

 

Context:

 

  • The current Russian invasion of Ukraine — unlike previous wars in Iraq and Libya or sanctions against Iran — is having an impact not just on energy prices.
  • The effects of shipping disruptions through the Black and Azov Seas, plus Russian banks being cut off from the international payments system, are extending even to the global agri-commodities markets.

 

Background:

  • Russia is not only the world’s third biggest oil (after the US and Saudi Arabia) and the second biggest natural gas (after the US) producer, besides the No. 3 coal exporter (behind Australia and Indonesia).
  • It is also the second largest exporter of wheat. The US Department of Agriculture (USDA), in its most recent report on February 9, estimated the country’s shipments for 2021-22 (July-June) at 35 million tonnes (mt), next only to the 37.5 mt of the whole of European Union.
  • The shutting down of ports in the Black Sea have also sent prices of wheat and corn traded at Chicago Board of Trade futures exchange soaring to their highest since March 2008 and December 2012, respectively.

 

Impact on India:

  • Skyrocketing global prices have made Indian wheat exports very competitive and in a position to at least partially fill the void left by Russia and Ukraine.
  • Wheat from Gujarat, Rajasthan and Uttar Pradesh is now being delivered by rail wagons or trucks at warehouses near Kandla port at Rs 2,400-2,450 per quintal, as against Rs 2,100 or so hardly 15 days ago.
  • This is above the government’s minimum support price(MSP) of Rs 2,015/quintal for the new crop that will arrive in the markets from mid-March.
  • Could result in lower government procurement this time
  • A lot of wheat from western and central India may end up getting exported rather than in the Food Corporation of India’s godowns and, in turn, putting pressure on public stocks

 

Vegetable Oils and Oilseeds:
  • Ukraine crisis has also led to prices of vegetable oils and oilseeds skyrocketing.
  • That includes not just sunflower and its immediate competitor, soyabean. Palm oil in Malaysia has hit all-time-highs, even scaling 7,000 ringgits-per-tonne levels briefly in the past few days.
  • The benefits of it should flow to mustard growers in Rajasthan and UP, who are set to market their crop in the coming weeks.
  • Mustard prices are ruling at Rs 6,500-plus per quintal, which is again above the MSP of Rs 5,050.

 

Fertilisers:
  • The ongoing Black Sea tensions are impacting fertiliser prices as well. Take MOP, a nutrient that India wholly imports.
  • Out of the total 5.09 mt that was imported in 2020-21, nearly a third came from Belarus (0.92 mt) and Russia (0.71 mt). With supplies from there virtually choked, more quantities would have to be procured from other origins such as Canada, Jordan and Israel.
  • International prices of other fertilisers (urea, di-ammonium phosphate and complexes) and their raw materials/intermediates (ammonia, phosphoric acid, sulphur and rock phosphate), too, have gone up in the past one month and more.
  • These commodities essentially track crude and gas prices