The ongoing war between Russia and Ukraine is already affecting global supply chains and export and import lines. Russia and Ukraine’s combined wheat exports make up about 25% of the global volume. Most of these exports land in European Union countries besides the Philippines in South-East Asia. Embroiled in war, Ukraine and Russia’s wheat and corn exporting capacity has reduced significantly. The Russian banking system has been cut off from the SWIFT payments system, while Ukraine is putting all its effort into stopping the Russian advance. This, in turn, has left a vacuum in wheat supply that Indian exporters are poised to fulfil.
Global wheat prices have reached record heights since the inception of the war. The Chicago International Benchmark price for wheat is up about 50%. Commerzbank, a German multinational bank, estimates that wheat exports have fallen by nearly 30%.
India and Wheat
India is the second-largest producer of wheat in the world. High domestic consumption and poor export opportunities have historically held back Indian wheat exports. That could all change with the Ukraine-Russia war showing no signs of abating. India has 100 Million tonnes of wheat stored in granaries. Furthermore, production is expected to close at 316 Million Tonnes for the current fiscal. Indian exporters are well-equipped to supply the wheat shortage currently faced by Europe. Traders across the nation have received inquiries from overseas buyers who are eschewing Russian and Ukrainian grains. As the financial year draws to a close, Indian wheat exports are expected to close at 7 Million tonnes, a new high.
Stronger Dollar is Pushing Exports
Several factors have strengthened the Dollar in the past year. The COVID19 crisis, record-high global shipping rates, crude oil price hike and now, the war in Ukraine, have all contributed to the Indian Rupee’s downward spiral. Recently, the Rupee fell to an all-time low of 76.96 for a Dollar. This has resulted in more profitable exports for Indian traders and lesser profitable imports. If the Indian government gives a push to wheat exports, earnings will rise significantly while also giving a boost to farm incomes. Senior Indian government members have also been reported as saying that Indian wheat exports are truly on the rise.
Updates on Payments Stuck in Russia
Russia’s isolation from the world financial system has tremendously impacted the Indian export and import community. Indian traders have about $500 Million in dues from Russian buyers that was not transmitted before sanctions were imposed on Russia. The Export Credit Guarantee Corporation of India (ECGCI) is hesitant to issue insurance cover to Russia bound shipments. The Reserve Bank of India is exploring other options to route payments from Russia. Among the alternatives being discussed is third party country routing and trading with smaller Russian banks that have been excluded from sanctions. A Rupee-Rouble trade mechanism has been ruled out for now.
As crude oil prices are expected to skyrocket soon, Indian exporters must look to make the most of every opportunity. That opportunity, in this case, could be the export of wheat to European Union countries.
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