Dubai: UAE foodstuffs traders and retailers are rushing to find alternate sourcing arrangements on food supplies as the Russia-Ukraine conflict enters a third week. Global prices of key commodities such as wheat has surged as Ukraine – which is one of the major players in this food essential – barring all shipments.
Higher supplies from other exporting countries can fill the gap, say senior industry sources. “Wheat from India, Pakistan and Australia can be brought in easily enough,” said Dr. Dhananjay Datar, Managing Director at Al Adil, the ethnic food retailer. “Yes, rising container costs are a worry, but that’s something all importers in all industries have been dealing with.
“Our shipment costs are at $950 for a TEU (20-foot container) where it used to be $50-$100 not so long ago. The important thing, however, is to absorb the costs and try not to pass it on to consumers.” (Al Adil brings in its shipments from the Navi Mumbai Port.)
Supplies from India and Pakistan can in the short-term compensate for the loss of Ukraine shipments. Australia too could weigh in with higher supplies into the world food commodity marketplace.
Container rates
It’s not just about higher import costs alone. “On shipments from Jebel Ali to East Africa – a major food export route from here - carriers are releasing bookings only with a premium,” said Roshmon Manoli, Vice-President for Freight Forwarding at Consolidated Shipping Services Group.
“That premium is split between sea priority, shipping guarantee, etc. The container space situation remains tight, and space is only available for bookings made two weeks in advance. The situation in Ukraine has heavily impacted cargo ships that pass through the Black Sea and that too will create backlogs at European ports, which could cause shipping rates to increase further.”
Import freight rates from Nhavasheva in India to Jebel Ali has shot up to $1,500 per container compared to $400-$500 six months ago
Not just about containers
The surge in oil prices since February 24, which is when the conflict broke out in Ukraine, is the main factor weighing in on food costs. Right from the start of the year, oil prices were feeling the pull, with $100 a barrel seen as a possibility. After February 24, the talk has even veered towards oil at $200.
“This surge could dramatically raise the cost of transport for all products, including agricultural, as we have already witnessed for soybeans and corn,” said Farah Mourad, Senior Market Analyst at XTB MENA. “Countries like Egypt could feel a significant impact as it remains largely exposed to the spillover effects of the war in Ukraine. Egypt’s import of agricultural products comes mainly from Russia and Ukraine, as the two provide around 58 per cent of its cereals and wheat needs.
“These difficulties have directed buyers' attention towards other producers like France, Canada, and the US. However, these countries could struggle to respond to the rapid increase in demand.”
The surge in agricultural products adds to the high inflation, which could affect how central banks approach their monetary policy. Food items remain an important component of consumer price indicators in the US and Europe, where they represent double the weight of energy
Higher oil prices directly add more to the cost of producing and transporting foodstuffs, albeit equivocating within a smaller band. This is why the escalation of geopolitical tensions in Russia-Ukraine will have such a bearing on food prices, given that both are heavy exporters of commodities such as staples like wheat, corn and sunflower oil.
Last week, Russia’s industry and trade ministry suspended exports of fertilisers, citing global sanctions that affected shipments. The disruption in shipments is also expected to create a shock wave for the agricultural sector through potential crop failures and subsequent food shortages.
On Tuesday, wheat futures soared to prices not seen since 2008. The higher prices make wheat more expensive for food makers, who will likely pass those costs on to consumers. (Buyers of raw materials use futures contracts to fix the price of the commodity they are purchasing. That reduces their risk that prices will go up. Sellers of these commodities use futures to guarantee that they will receive the agreed-upon price. They remove the risk of a price drop.)
- Justin George Varghese
Can rice be immune?
So far, the Ukraine situation is more about wheat and bypassed rice – the other big food staple in these markets. According to one industry source, it need not remain that way.
Rice prices have not risen as much as other grains, but because it is an alternative staple, prices will climb up owing to freight and logistical expenses as well as increased demand
“Russia and Ukraine are two of the world's top wheat exporters, exporting more than 60 million tonnes of wheat each year, accounting for 25 per cent of global wheat commerce,” said Sudhakar Tomar, President of India-Middle East Agro Trade Industry & Investment Forum.
“If the conflict and sanctions continue, the supply chain for not only food but also fertilisers, petroleum and even banking transactions would remain disrupted, causing hardship for millions who rely on imports. Weather problems in Iran, Syria, Iraq, Turkey, and Egypt have exacerbated worldwide wheat shortages.”
