World meat industry news

The crisis in the world grain market continues to gain momentum. Export of grain from Ukraine, India and Russia is limited. Some analysts predict the start of a food crisis in 2023, while other experts say that the topic of food security is greatly exaggerated.  

According to the International Grains Council (IGC), the forecast for world cereal production (wheat and coarse grains) for 2021/22 is raised by 3 million tons per month to a record 2.3 billion tons, mainly due to modernization corn production. 

Lower wheat, corn and sorghum crops will limit total global grain production in 2022/23 to 2,251 Mt, 40 Mt less than a year earlier. As feed consumption is constrained by higher market prices and demand rationing, total consumption will fall by 8 million tonnes to 2.27 billion tonnes, the first time since 2015/2016. World trade will decline by 3% to 404 million tons, mainly due to smaller volumes of corn and barley, according to IGC.

Main exporters

The largest grain exporters in the world are Russia and Ukraine. Before the start of the military special operation in Ukraine, they accounted for more than a third of the world's grain exports, the Food and Agriculture Organization of the United Nations (FAO) estimated. “The Black Sea region is even called the “bread basket of Europe,” comments Mark Savichenko, chief analyst at Ivolga Capital. 

Now, due to the blocking of the Azov and Black Sea ports, it is impossible to export grain from Ukraine. Russia, in turn, in March banned the export of grain to the EAEU countries until June 30. The federal authorities explained this decision by the need to ensure the security of the Russian Federation and the smooth functioning of industry. 

According to media reports, the decision to ban grain exports from the Russian Federation is aimed at preventing the "flow" of grain to the EAEU member states. From the beginning of 2022 until the moment of the ban, the volume of grain exports from Russia to the EAEU countries doubled compared to the same period last year. Moreover, the main volume was exported to Kazakhstan (since July 2021, the republic has imported 2.5 million tons of grain). The probable reason is the development of re-exports and arbitrage deals with Russian grain, bypassing the existing export restrictions in the Russian Federation, experts said.

It is not surprising that Kazakhstan did not agree with the restrictions imposed by Russia, suspected the Russian Federation of discrimination and, in response, also introduced quotas for the export of wheat and flour. The head of IKAR, Dmitry Rylko, explained: the dissatisfaction of Kazakh colleagues is connected with the fact that it is possible to export grain to Belarus, to third countries - too, but not to them. 

Now, fearful of re-exports, Russia is pushing for all EAEU members to impose quotas and duties on grain exports, and is also considering extending restrictions on the supply of products. Kazakhstan is still opposed, as it is interested in developing supplies abroad.

India held grain

Later, the situation on the world grain market was exacerbated by India's decision to ban wheat exports. It was adopted to ensure the food security of the country, the Ministry of Trade and Industry of India reported. 

An exception is made for deliveries under letters of credit already issued, as well as for exports based on the permission of the Government of India "to meet the needs of other countries" at the request of their authorities. As Bloomberg wrote, other countries hoped that India could replace Ukraine in the wheat market. Initially, it was assumed that in 2022-2023, the supply of wheat from India will amount to a record 10 million tons.
Rice could also be banned: Media recently reported that Indian authorities may consider restricting rice exports to ensure enough domestic supply and prevent price increases India is the second largest rice producer in the world after China and has been exported rice to more than 150 countries.

Expected consequences

“The rise in grain prices affects other food markets, and above all the prices for poultry and pork, which depend on the cost of feed crops. The reduction of exports of these goods by Russia and Ukraine will lead to a long-term increase in prices for livestock products. It can rise in price by 3-10%,” said Mark Savichenko, speaking at the online conference “ Commodity Markets: Commodity Supercycle in Action? » and information agency Finam.ru.

In general, at the household level, the food crisis will manifest itself in a general increase in prices on the shelves of grocery stores, agrees Vitaly Manzhos, senior risk manager at Algo Capital, who also spoke at the conference.

The problem of a threatening rise in food prices, especially for poor families, is already being actively discussed in the EU, said Alexander Potavin, a leading analyst at FG Finam. “There are already reports of restrictions on vegetable oil sales in European countries. Against this background, the media report on the attempts of UN Secretary General António Guterres to agree on lifting the blockade of sea grain exports from Ukraine in exchange for easing sanctions against potash fertilizers from Russia and Belarus, he added. 

Otkritie Investments commodity market analyst Oksana Lukicheva predicts that wheat prices in the new season, which will begin in June this year, will remain high. According to her, a real food crisis with massive shortages could happen as early as the winter of 2023. “This will happen with a significant reduction in the world's grain harvest, as well as with the destruction of supply chains. In this case, food security will be at risk for the most vulnerable countries in Africa, Asia and the Middle East, which were the main importers of the Black Sea region,” commented the analyst.

Shortage?

However, not all analysts believe that the food crisis is coming. Thus, the head of the Grain Union of Russia, Arkady Zlochevsky, is sure that a possible food crisis in the world will be associated only with rising food prices. At the same time, a shortage of resources in the world is not expected, even taking into account the fact that Russia, Ukraine and India have limited grain exports. According to Arkady Zlochevsky, Russia will supply the previously planned 40 million tons of grain to the world market. Wheat from Ukraine will be exported by land routes. And India is likely to resume grain exports, he said. 

The head of Sovecon, Andrey Sizov, notes that the food crisis has actually been going on for several years. “ The number of hungry people has increased by 38 million year-on-year. Approximately the same increase is expected this year. It seems like every day someone is predicting “a new global food crisis. Let me remind you that the old food crisis has not gone anywhere,” the expert added. 

“What confuses me about all the statements that “Putin wants to starve the world out” is that the politicians who talk about this probably have little idea of ​​​​what will happen if the Kremlin decides to do this. The importance of Russia for the world grain, more precisely, the wheat balance, in the new season is likely to be unprecedented. It, by our estimates, will account for more than 20% of world wheat trade, which will simply be impossible to replace if the Kremlin decides to stop exports. In this case, we will talk about a rise in prices from the current already record levels at times and an increase in the number of hungry people in the world not by tens of millions, but by hundreds,” Andrey Sizov comments.