How will the global grain trade system be reshaped after the Russian Ukrainian conflict “detonates” the world’s granary?
As the “world granary”, Ukraine and Russia account for about a quarter of the global food trade. However, due to the continuous impact of the conflict between Russia and Ukraine, it is said that Ukraine’s granary is filled with 15 million tons of autumn harvest corn, most of which should have been supplied to the world market, but now it is difficult to find buyers.
The conflict has not only caused chaos in the global grain trade of about $120 billion, but also raised concerns about food shortages. Last week, a United Nations official warned that with the escalation of the conflict between Russia and Ukraine, Ukraine has changed from a world granary to a team waiting for relief, which has exacerbated the global food shortage and made it difficult for the world food programme to provide food to about 125 million people in need.
David Beasley, executive director of the World Food Programme (WFP), said: “this is not just a devastating blow to Ukraine and the region. Its impact on the world will be the worst we have seen since World War II.”
Before the outbreak of the Russian Ukrainian conflict, Ukrainian corn could be transported by rail to Black Sea ports such as Odessa and Nikolayev, and then loaded on ships bound for Asia and Europe. But with the closure of the port, a small amount of corn is winding westward through Romania and Poland by railway and then transported abroad.
But worse, unlike European Railways, Ukrainian trains run on a wider Soviet era track, so the wheels must be changed at the border.
Speaking from katerinko, vice president of the Ukrainian agribusiness club, it’s not very expensive to deal with the whole issue of food logistics, “katerinko said
Ukraine is one of the world’s largest exporters of corn, wheat and sunflower oil, but the export of these products has basically stagnated. The Ministry of Agriculture said that at present, grain exports are limited to 500000 tons per month, lower than the pre war maximum of 5 million tons, with a loss of 1.5 billion US dollars. Russia is the world’s largest wheat exporter, and its wheat production is still increasing, but there are still problems in the delivery and payment of goods in the future.
Looking for new sources of goods
Countries worried about food shortages are scrambling to find alternative suppliers, and new trade is emerging.
India used to keep its wheat harvest at home because of the price set by the government. Now, India is vigorously entering the export market to sell wheat all over Asia. In the wheat season that ended last month, India’s wheat exports could reach a record 8.5 million tons.
“We will continue to export wheat on a large scale to meet the needs of countries that cannot obtain supplies from conflict areas,” said Piyush Goyal, India’s food and Commerce Minister. “Our farmers are focused on increasing production.”
India is negotiating opportunities to enter the markets of Egypt, Turkey and China, as well as other potential buyers, including Bosnia and Herzegovina, Nigeria and Iran, the Ministry of Commerce said.
Brazil’s wheat exports in the first three months have also far exceeded those of last year. In the first three months of this year, the country’s total wheat exports will reach 2.1 million tons, almost twice that of 2021. Destinations include Turkey, South Africa and Sudan for the first time in at least four years.
In addition, the sales of Australia, a major wheat exporter, is also proceeding at full speed. The transportation force has been booked for several months, and the buyer’s cycle of buying wheat is longer than usual. American corn was shipped to Spain for the first time in about four years. Egypt is considering exchanging Romanian grain for fertilizer and negotiating wheat with Argentina.
Dan Basse, President of agricultural market research firm agresource, said that even with these efforts, the situation may not be good enough.
“Finding alternative suppliers is still feasible at the moment. But if the conflict continues into the summer, when wheat exports from the black sea usually accelerate, you will start to have problems. At that time, the world will begin to experience shortages,” he said.
At the same time, importers are also relaxing restrictions to obtain food from more producing areas. Spain, Ukraine’s second-largest buyer of corn, relaxed pesticide regulations and allowed the import of feed from Argentina and Brazil. In March this year, the country also imported 145000 tons of corn from the United States, the first batch since 2018, while China, another major corn customer of Ukraine, also increased the purchase of corn in the United States.
On the other hand, alternative suppliers have more expensive freight, longer transportation time or different quality, which will further exacerbate the rise of food prices.
The world’s food supply has been affected by droughts in Canada and Brazil and traffic jams in parts of the world, from railway congestion in the United States to truck driver strikes in Spain. The impact of the conflict between Russia and Ukraine made the price index hit a new high. Corn and wheat futures in Chicago have risen by more than 20% since the beginning of this year.
The United Nations warned that food prices, which are already at an all-time high, could rise another 22%. The report said that the serious decline in the export capacity of the Black Sea could lead to malnutrition of up to 13.1 million people, which will exacerbate the intensification of global hunger while the world is still recovering from the impact of the epidemic.
In addition, some governments are restricting trade in response to rising food prices. Serbia, the ninth largest corn exporter, temporarily banned corn exports. Argentina and Indonesia have raised vegetable oil export taxes, and Kazakhstan will restrict wheat exports. The International Grains Council estimates that global grain trade excluding rice could fall by 12 million tons this quarter, the biggest decline in at least a decade.
“High prices tend to lead to protectionism, not just increased exports,” said Michael magdovitz, senior analyst at Rabobank
Since there is no sign that the tight supply will ease soon, Rabobank predicted in March that by the end of this year, the average price of wheat futures will be $11 or more per bushel and that of corn futures will be $7.75 or more per bushel. This is an increase of 30% or more over the end of 2021.
Who’s the next victim?
Nathan Cordier, an analyst at market research firm agritel in Paris, said that the main harvest of corn in Brazil will be a few months away. If there is any bad weather in the northern hemisphere, it may mean that the supply of farmers raising pigs and chickens with corn will be reduced.
Alexander doring, Secretary General of the European feed industry organization Fefac, said that some feed plants in southern Italy were closed due to grain shortages. He said that the United States and Argentina are booking supplies, but the two countries need 10 days more transportation time than the Black Sea. The Italian industrial organization assalzoo says some livestock farmers are slaughtering their herds, starting with milk cows.
Giulio USAI, an executive at assalzoo, said Italy imports more than 5 million tons of corn from abroad every year, and producers are struggling to pay their bills as grain prices soar. He said that due to the maritime blockade of the Black Sea, livestock farmers now have little access to supplies from Russia or Ukraine. They are trying to find supplies from America, but this process will “take time”. He said pig farmers may be the next group at risk.
Miguel Angel higuera Pascual, head of anprogapor, a Spanish pig industry organization, said, “these are the problems we are trying to solve – how do we change the origin of products to get what we need. This is our current situation and we should try to adjust.”
Submitted April 06, 2022 at 05:42AM by lilyxu185
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