India fertilizer, edible oil shortages worsen amid Ukraine war
MUMBAI (ICIS)–India is facing a more severe shortage of fertilizers and edible oil amid wide-ranging trade disruptions as the Ukraine war rages on its third week, with financial sanctions tightening on Russia.
Western nations led the imposition of sanctions on Russia – including the removal of its banks from the SWIFT (Society for Worldwide Interbank Financial Telecommunication) global payments system – following its invasion of Ukraine on 24 February.
The sanctions deter all transactions with Russia, the world’s second biggest crude exporter and also a major exporter of fertilizers.
Given recent difficulty in securing Russian fertilizer cargoes, India is currently looking at Canada, Jordan and Morocco as possible alternative sources, ahead of its summer sowing season in April.
Russia accounted for nearly 17% of India’s muriate of potash (MOP) requirement and around 60% of its nitrogen, phosphorus and potassium (NPK) fertilisers in the fiscal year ending March 2021.
For edible oil, supply in India – which is already constrained by low palm oil imports – could tighten further in the absence of sunflower oil coming from both Ukraine and Russia.
India imports nearly 70% of the edible sunflower oil from Ukraine, while another 20% comes from Russia.
OIL SPIKE FUELS
Crude oil prices had surged near their record highs last week on heightened concerns over tighter supply as western nations led by the US mulled halting imports on Russian oil as part of the sanctions.
India is highly vulnerable to the surging oil costs as its imports 85% of its crude requirement and is the third biggest importer of the fossil in the world.
The government expects to spend over $100bn on crude imports in the current fiscal year ending March 2022. Its April 2021-January 2022, total crude imports stood at 175.9m tonnes.
In the previous fiscal year, the south Asian country spent $62.2bn for 196.5m tonnes of crude oil. Crude imports were higher at 227m tonnes in the pre-pandemic fiscal year ending March 2020.
Crude imports have also become more expensive as the Indian rupee has weakened against the US dollar, with the exchange rate now at Rs76.62 to $1.
In the domestic market, the current petrol price of Rs110/litre in Mumbai is already considered too high.
India has been posting double-digit wholesale inflation since April 2021, with the February 2022 number at 13.11%, up from 12.96% in the previous month, official data showed.
“The high rate of inflation in February 2022 is primarily due to rise in prices of mineral oils, basic metals, chemicals and chemical products, crude petroleum & natural gas, food articles and non-food articles, etc as compared to the corresponding month of the previous year,” according to the Ministry of Commerce.
Surging oil prices could further fuel inflation globally which could arrest the global economic recovery.
The Indian government recently formed a committee to examine the economic sanctions on Russia and their likely impacts on the Indian economy, an official in the Ministry of Commerce said.
Various sanctions have been imposed on Russia by over 30 countries including Australia, Canada, Norway, Japan, the US and EU, following its invasion of Ukraine.
India, which depends on Russia for over 60% of its defense supplies, on the other hand, has refused to impose sanctions on the eastern European giant.
EXPORT HIT AND SOME
“Most of the businesses impacted by the Russia-Ukraine conflict are from the micro, small & medium enterprises (MSME) sector. MSMEs are large exporters of goods like pharmaceuticals, machinery, and apparels to both the countries,” said Ajay Sahai, director general of Federation of Indian Export Organisations (FIEO).
The sharp rise in crude oil prices have also raised the raw material costs for synthetic textile manufacturers.
Textile exporters in India catering to clients in the EU have seen a drop in demand as the EU-based companies withdraw from the Russia market, said Raja Shanmugham. president of Tirupur Exporters Association.
“Most European buyers and brands have branches or franchises in Russia which are now seeing a temporary pause in activities,” he added.
Logistical problems as ships are unable to transport goods through the Black Sea are also causing problems for Indian exporters to Russia and to countries that form the commonwealth of independent states (CIS).
Exporters are now considering alternative trade routes for exports to countries in the region instead of routing them through Russia.
The ongoing Russia-Ukraine conflict and the consequent increase in crude oil prices has increased the cost of imported raw materials and feedstock, especially in the pharmaceutical industry.
Pharmaceutical manufacturers from the MSME sector, who are only now scaling up production after the economic slowdown due to the COVID-19 pandemic, may not be able to pass on the increased costs to consumers.
“Some businesses are still in the process of scaling up operations. The Ukraine crisis and price rise will drag down production again,” said Amit Chawla, regional secretary of the Small-scale Drug Manufacturers Association.
Prices of material such as aluminum and polyvinyl chloride (PVC) used for packaging in the pharmaceutical industry have also increased, which has put pressure on producers, he added.
India exported pharmaceutical goods worth over $180m to Ukraine in the fiscal year ending March 2021 and $590m to Russia during the same period, based on data from the Pharmaceuticals Export Promotion Council (Pharmexcil), an industry body affiliated with the Ministry of Commerce.
The trade disruptions being caused by the Ukraine war, however, could also open up markets for India’s exports of steel, wheat, corn, plastics, aluminum, inorganic chemicals and jewelry.
Indian steel companies and engineering exporters have seen an increase in enquiries from the EU over the past two weeks, said Sahai of FIEO.
Focus article by Priya Jestin
($1 = Rs76.62)
Click here to read the Ukraine topic page, which examines the impact of the conflict on oil, gas, fertilizer and chemical markets.
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