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

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. India’s farm-produce exports were already showing weakness, having fallen in the last two years to $51.1 billion in 2024-25 from $53.1 billion in 2022-23. Earlier, they had dropped from $43.3 billion in 2013-14 to about $30-35 billion in 2019-20. Now these may weaken again, depriving farmers of profits from the export market.

Various agricultural imports will also be affected, particularly of edible oils and pulses, the two major crop groups for which India relies on overseas produce. India imports more than half its requirement for edible oil consumption and the pulses proportion is about one-fifth. For the former, prices generally mirror the trend in petroleum prices. The food price index of the Food and Agricultural Organization points to an increase in global edible oil prices, reaching their highest level since June 2022, when these increased in the wake of the Russia-Ukraine war.

Geopolitical vulnerabilities are not new. These can arise unpredictably and cause uncertainty. India’s priority in the short-run is to protect the agricultural sector from the immediate consequences of supply disruptions and volatility in prices. Both input as well as output prices are likely to remain volatile for some time. Any export restrictions or controls would hurt the sector’s profitability.

It is likely that inflation will climb as a result of a rise in food and agricultural commodity prices. Some of these price increases may be explained by the ‘base effect.’ As many agricultural commodity prices underwent deflation over the past year or so, rising prices would seem like a dramatic change.

This effect would normalize over time. However, any restrictions of agricultural trade—domestic and exports—will only make things worse. Price stability matters, but agriculture remains the country’s largest employer and protecting the incomes of farmers should be a priority for aggregate demand in the economy to firm up.

However, we also need a long-term strategy to reduce vulnerabilities in the sector. This may require an increase in the domestic production of fertilizers. To be sure, output has risen since 2014 after almost stagnating in the decade before that, but production growth lags growth in consumption.

The other area in need of attention is trade policy. In general, global trade in agricultural commodities helps keep prices stable. But this trade is not always free and fair. Broadly, India’s recent trade agreements with the UK and EU and its proposed trade deal with the US would allow these countries access to the Indian market without commensurate access for our farmers to theirs.

For Indian farmers, uncertainty is as much a result of the geopolitical situation as it is of shifts in New Delhi’s policies. While it may not be possible to insulate Indian farms from an external crisis created by a war, strengthening domestic policy structures to protect the livelihood of farmers is certainly possible.

The author is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi.