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Trade restrictions threaten global grain supply

14 April 20206 min reading

As the COVID-19 pandemic worsened globally, some countries have turned more protectionist. Vietnam has curbed rice exports. Russia has halted grain exports. Kazakhstan has suspended exports of wheat flour and buckwheat. Even though there are adequate supplies of staple food, restrictions by countries reserving strategic supplies heighten the risk for global supply chains.

As concerns grow for the global pandemic, COVID-19, food security and supplies of staple food grains have become a global focus. Despite sufficient global supplies and the upcoming harvest season, several key exporters have put in place various forms of trade restrictions to increase domestic food security. In particular, Russia, Ukraine, and Kazakhstan have each imposed export restrictions for wheat for the months of April to June 2020, creating near-term regional and global supply concerns.

Such moves could lead to an acceleration of food price inflation during a time when consumers are concerned about lockdowns and have created their own stockpiles at home. Countries most exposed to a rise in food price inflation include those with elevated imports as a share of domestic food supply, such as the Middle East, China, Japan and South Korea.

“We risk a looming food crisis unless measures are taken fast to protect the most vulnerable, keep global food supply chains alive and mitigate the pandemic’s impacts across the food system,” warned the Food and Agriculture Organization of the United Nations (FAO). The FAO said disruptions can be expected in April and May.

Restrictions on movements and “basic aversion behavior” by workers could impede farming, said the FAO. Food processors, who handle the vast majority of agricultural products, could also be prevented from processing the farm products. “We are already seeing, however, challenges in terms of the logistics involving the movement of food (not being able to move food from point A to point B), and the pandemic’s impact on livestock sector due to reduced access to animal feed and slaughterhouses’ diminished capacity (due to logistical constraints and labor shortages) similar to what happened in China,” said the FAO.

Here is a list of countries that have applied trade restrictions on food or agricultural products due to the spread of the coronavirus around the world.

RUSSIA Russia, the world's top wheat exporter, has an export quota that limits its total grain exports to countries outside of the Eurasian Economic Union (EAEU) to a total of 7 million tons for wheat, corn, barley, and rye through June 2020. The government order signed by Prime Minister Mikhail Mishustin said these grains were "of significant importance to the domestic market." While it did not refer to the coronavirus pandemic, Russia wants to ensure its supplies during the virus crisis and keep domestic prices down.

Russia has exported over 28 million tons of wheat to date and is expected to export about 5 million tons during the quota period. With corn, barley, and rye exports projected at approximately 2 million tons during this period, the total projected grain exports will not exceed the established quota.

KAZAKHSTAN Kazakhstan had initially established an export ban on wheat flour but quickly canceled the ban and imposed a monthly export quota. Beginning this month, Kazakhstan will allow a maximum monthly quota of 200,000 tons of wheat and 70,000 tons of wheat flour for export.

As a landlocked country, Kazakhstan has become a major supplier to the region, particularly to Uzbekistan, Afghanistan, and Tajikistan, which rely heavily on Kazakh wheat and wheat flour. With Kazakhstan’s monthly export volume restricted to 200,000 tons in wheat and 70,000 tons in flour, these markets could face a potential shortage and will have to look to nearby suppliers such as Turkey for flour and the European Union for wheat. Imports for Uzbekistan and Tajikistan are revised down on a slower pace to date and potential trade restrictions imposed by Kazakhstan.

UKRAINE Ukraine, a major global exporter of grain and vegetable oils, has established a wheat grain export quota for the current trade year of 20.2 million tons. To date, Ukraine has exported approximately 18 million tons of wheat. USDA’s forecast of 20.5 million tons, which includes wheat flour, leaves approximately 2.5 million tons for exports in the remaining 3 months of the year.

Despite these export restrictions, USDA’s forecasts for Ukraine and Kazakhstan remain unchanged due to the faster-than-average pace of exports during the first 3 quarters of 2019/20 which are offset by slowerthan-anticipated export volumes during the final quarter. USDA lowered Russia’s exports on slower pace over recent months and reduced trade anticipated in the fourth quarter.

Conversely, EU wheat has become price competitive with ample supplies leading to a massive surge in exports to date. The European Union is expected to continue its higher-than-average exports in the final quarter, on par with Russia as the top global wheat exporter. Optimism for the end of its 3-year drought has another major supplier, Australia, dipping into its stocks with greater-than-anticipated exports.

Russia and Ukraine are major exporters to price-sensitive markets such as Indonesia, Egypt, Bangladesh, and Turkey, which are easily able to shift to other suppliers. Indonesia, the world’s second-largest importer, has diversified its suppliers and can easily shift imports to a variety of other exporters such as Australia, which was historically its largest supplier. Egypt, the largest wheat importer globally, sources most of its supplies from Russia and Ukraine, but also imports from the European Union when prices are competitive. Similarly, Bangladesh imports mostly from Russia and Ukraine but also sources from a variety of other exporters, such as the United States and Canada. Turkey is also a major importer of Russian wheat. Its exuberant import pace during the first 3 quarters has boosted its stocks and fueled its flour exports.

VIETNAM The world's third-largest rice exporter has banned exports, despite requests by exporters and the domestic industry to remove or lessen the restrictions. The industry has expressed concern that restricting exports could lead to lower domestic prices and reduced the incentive for producing rice in upcoming crop cycles during this year.

THAILAND The second-largest rice exporter, Thailand, has fewer exportable supplies this year amid a drought that resulted in a much smaller dry season crop, so its 2020 exports are forecast to be slightly lower than last year. It has not placed any official restrictions, but its export prices have escalated to 7-year highs as other Southeast Asian suppliers have imposed bans.

CAMBODIA Cambodia has also implemented a ban on the export of paddy and non-fragrant white rice, though fragrant rice exports are still allowed. The bulk of Cambodia’s paddy exports are to neighboring Vietnam and Thailand. China and the European Union are key import markets for its fragrant and white rice.

BURMA Burma, the seventh-largest rice exporter, has not officially banned exports but the issuance of new export licenses has been suspended. It has implemented an export quota at 100,000 tons per month, less than half of the average export volume last year.

In response to the trade restrictions in Southeast Asia, prices have escalated for those that are still suppliers. Because only 9 percent of global rice production is traded in international markets, the reduction in the number of suppliers has an immediate impact on prices, leaving importers with fewer options from which to source. The higher prices are expected to reduce purchases from price-sensitive markets, particularly in Sub-Saharan Africa.

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