The political crisis in Ukraine, the world’s third biggest exporter of maize, could affect global prices of the grain and global reserves in the 2014-2015 season, say experts. The US Grain Council said in a recent statement that shipments from the Ukraine, which exports to North Africa, the Middle East and China, are “becoming increasingly difficult”.
The Council also expressed concern that economic instability in the country, which has been afflicted with civil unrest since the end of 2013, would affect planting of the maize crop for the 2014-2015 season.
Abdolreza Abbassian, an economist with the Food and Agriculture Organization and the Secretary of the G20 Agricultural Market Information System (AMIS), said global reserves of the main staples - maize, wheat and rice - were good at the moment, but that the situation in 2014-2015 could become problematic. Contrary to media reports, Ukraine has delivered the bulk of its current export orders, he said. Still, he echoed the US Grain Council’s concerns about the 2014-2015 harvest.
“Exporters from Russia, the EU [European Union] and the US will be stepping in to cover the gaps in supply [resulting from the Ukraine crisis]. This would, in turn, affect the global reserves, as countries might put in too much of their reserves in the market,” he added.
Prices up and down
Global prices of wheat and maize climbed last week, prompted by the Ukraine crisis.
“The price hike is purely speculative,” said Abbassian. The price of wheat is 2 percent higher than it was at the same time in 2013, but the price of maize and rice is considerably lower than it was last year. The global supply of wheat is a “bit tight”, he said.
Last week, the price of wheat futures traded in South Africa reached a five-year high, and that of yellow maize rose to its highest level in three weeks, according to South African media. This week, the prices have begun to come down, news reports indicated.
Essentially, Abbassian says, the situation requires close monitoring.
Price volatility, or sharp fluctuations in price, has been a growing problem in recent years. It is driven by poor information on food stocks, especially when global supplies are perceived to be constrained. To address the issue, G20 countries have set up AMIS to get agri-food markets to share data and improve food intelligence. "If global prices seem to be getting out of hand, AMIS could convene its Rapid Response Group to meet to respond accordingly, as both Russia and Ukraine are among AMIS-participating countries,” Abbassian said.
The governments of Russia and Ukraine could be asked to intervene, Abbassian said. “For the time being, there is no cause for concern.”
Maximo Torrero, the director of the markets, trade and institutions division at the US-based International Food Policy Research Institute (IFPRI), also believes there is no cause for alarm.
“I don’t think the Ukraine problem will create a global food crisis,” he said. “No matter what happens with Ukraine, the markets are showing strong fundamentals. [If] Ukraine slows down or even closes exports of grains, other big exporters are likely to boost supplies. As a result, in the short term, we are seeing small increases in prices, but this will be dissipated soon.”
Torrero says other major exporters, such as Australia, Brazil and the US, will be able to fill in the gaps.
“We have today significantly higher stocks for maize, wheat, rice and soybean.” He pointed out that, following the 2012 drought in the US, which saw a significant reduction in wheat exports, Brazil stepped in to the fill the gap.
"We expect wheat production to increase… [in] Australia. Not only that - countries in Asia have built larger stocks of wheat in recent years," Torrero added.