Food and Fertiliser Crisis

Why in news?

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.

References

1. https://www.thehindubusinessline.com/opinion/russia-ukraine-conflict-can-spark-a-global-food-crisis/article65211198.ece
2. https://www.thehindubusinessline.com/opinion/russia-ukraine-war-choking-fertiliser-supply/article6521084ece