A direct economic impact of Russia’s Ukraine war is that prices of food, energy, fertilisers will tend to rise.
How will the conflict add to the food and fertilizer crisis?
Food Crisis- Ukraine is a major foodgrain (wheat and corn) producer.
Russia is known for its wheat and sunflower oil exports.
The crisis would
spur food inflation
propel the poor harvest due to dry spells in South America and Indonesia
aggravate the rising demand for wheat and oilseeds in China and India
Fertiliser Crisis- Russia is a major supplier of natural gas to Europe, and the Black Sea area is a major hub of fertiliser production and trade.
Russia supplies about one-third of Europe’s natural gas supply, the main feedstock to major power and chemical producers.
Russia is the second-largest producer of ammonia, urea, potash and the fifth-largest producer of complex phosphates.
The country accounts for 23% of the global ammonia export market, 14% of urea, 21% of potash and 10% of complex phosphates.
What will be the potential implications of the food crisis?
Russia accounts for about 10% of global wheat production while Ukraine has a 4% share.
Russia and Ukraine are important players in corn production and had a 14% share of global maize exports in 2020.
These two countries lead in sunflower oil production and have a 40% share in exports.
Food security- The armed conflict between the two countries has raised concerns over food security for the Middle East and Africa.
Food security has six dimensions - availability, access, utilisation, stability, agency, and sustainability, which are expected to be affected by this crisis.
Price rise- There can be an upside risk to global commodity prices, which have been at an elevated level since April 2021.
The spikes in the international prices of maize, wheat, soybeans, sunflower oil and dairy products have been reported.
In the near term, African countries would gauge the impact of the armed conflict through a surge in overall prices compounded by rising food inflation.
Profit for countries- Wheat exporting countries such as Canada, Australia, and the US are likely to benefit from near-term surge in cereals demand.
Oilseed growing countries such as China, EU nations, Canada, and India can step into a market dominated so far by Russia and Ukraine.
Ripple effect- The armed conflict can have a ripple effect on rising oil and fertiliser prices, affecting farmers in developing and least-developed countries and straining government finances.
Domestic economy- The overall implication of the conflict would be on the domestic economy.
Insulating the domestic economy from the crisis calls for a systematic intervention at three levels connecting the farm and landscape for sustainable agriculture, distribution, and tariffication in cross-border trade.
Agencies such as State Trading corporations, FCI and multinational trading firms can create a resilient and efficient food supply chain and public distribution system.
Export promotion of fortified foods can help the poor of these nations.
What is the trend of fertilizer production in India?
India is the world’s largest urea importer.
India depends heavily on imports for meeting its fertiliser raw materials and finished products requirements.
The self-sufficiency in urea production achieved by 2000 was lost due to unfriendly policies which discouraged further investments in the sector for two decades.
It was further deepened by the privatisation move and closure of a number of plants on account of low energy efficiency.
Urea imports amount to 8-9 million tonnes per annum mostly from China, Oman, Ukraine, and Egypt but China has restricted urea imports since October 2021.
On an average, 5 million tonnes of phosphatic fertilisers are imported to India mostly from China, Morocco, Saudi Arabia, Russia and Jordan.
Potash supplies (around 4 million tonnes a year) are fully imported from Canada, Russia, Belarus Jordan, Lithuania, Israel, and Germany.
How will it influence the fertilizer sector in India?
Fertiliser subsidy- Estimates of fertiliser subsidy allocation of Rs 1.05-lakh crore for 2022-23 in the recent Budget are likely to go faulty on account of the war.
Price rise- Disruption in production in Russia and Ukraine and closure of plants in Europe will result in an increase in fertiliser commodity prices all across the world.
Availability- A shift in product movement from traditional markets will lead to price volatility in the global fertiliser market, which will significantly impact availability.
Only urea, which still remains under administrative price control, is cheap and affordable to farmers.
The need of the hour is for the government to tie up alternative supplies quickly and ensure adequate availability of mineral nutrients to the farmers.
Need for self reliance- The conflict highlights the need for self-reliance at least in critical areas such as IT capabilities, banking, technology development and advancing developments in current science.
