Himanshu: How India’s farm sector could end up as a major casualty of the conflict in West Asia

The war in West Asia has raised geopolitical vulnerabilities. These are not only affecting countries in the region that are directly or indirectly involved in the war, but also much of the rest of the world. The closure of the Strait of Hormuz has already led to a spike in energy prices and shortage of petroleum products, including gas.

India is also affected, given its dependence on the import of petroleum products for domestic consumption, both household and industrial. While the shortage of liquefied petroleum gas (LPG) may not persist, its impact is unlikely to be restricted to the household and industrial sectors. One sector that is likely to see major disruption is agriculture.

Rising energy prices drive up input costs for farmers directly but also through an increase in fertilizer prices. India imports a sizeable portion of its urea needs; our dependence on imports for complex fertilizers is even greater. West Asian countries such as Saudi Arabia, Oman, Qatar and the UAE are our major suppliers.

But more than supply disruptions, fertilizer prices will rise because domestic fertilizer factories use gas for production. Fertilizer prices are also linked to the price of naphtha, which is an input. Naphtha prices are linked to petroleum and gas prices.

The net impact of the global rise in energy and fertilizer prices is an increase in input costs and thus lower farm profitability, unless inputs are further subsidized. Unfortunately, this war shock has come at a time when the market prices of fertilizers were already high due to supply shortages. West Asia is also an important destination for Indian agricultural exports such as Basmati rice and spices.