Russia and India's agricultural policies add risks to global food prices

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This past week was dominated by global agricultural events. First, grain exports, specifically from Ukraine, were disrupted when Russia invaded the country in February 2022. But the rising concerns about global food security resulted in the United Nations and Turkey brokering a deal in July 2022 between Russia and Ukraine to allow a safe movement of grain from Ukraine to the world market while the war continued.

But this past week, Russia halted the Black Sea Grain Deal. The reasons are not clear but it appears that the attack on the Kerch bridge connecting the Crimea peninsula to the Russian mainland angered Russia. But this is possibly not the only reason. Prior to this week's events, Russia wanted to increase the exports of ammonia and other fertiliser material to the world market and this required the EU to reconnect the Russian Agriculture Bank to the global electronic payment network, SWIFT. Russia demanded that this be done for them to renew the Black Sea Grain Deal, which had not happened.

Regardless of what Russia's true reasons are, this is an important event in global agriculture, whose implications will be clear over the coming days and weeks. Still, we can appreciate that one of the major contributors to the current slowing global agricultural commodities prices (food prices) is the Black Sea Grain Deal, which allowed for a safe grain movement from Ukraine and Russia since July 2022.

Second, India officially announced a ban on rice exports this week. But it does not cover all rice categories as some analysts, myself included, initially feared. It is mainly on the non-basmati white and broken rice. Still, this affected category is significant. It accounts for 45% of the 22 million tonnes of rice that India exports to the global market annually.

The rationale cited in various media articles in that India's government is worried about inflation ahead of the upcoming elections.

Understandably, many people are worried about this development because India is a significant producer of rice globally. The country accounts for a 26% share in the expected 2023/24 global rice production of 525 million tonnes, according to data from the International Grains Council (IGC).

Of the 50 million tonnes of rice for global exports projected for the 2023/24 season, India is expected to account for about 40%. But the affected non-basmati white and broken rice accounts for 18% of global rice exports, which is still a significant share, and thus raises worries about potential upside on prices.

Other notable rice exporters are Pakistan, Thailand, the US, Vietnam, China, Cambodia, and Myanmar. But India is the largest exporter of all these countries.

At the end of June 2023, global rice prices softened from the surge we saw in May as the global production prospects improved. This price decline was positive for an already declining global agricultural commodities basket from the peak levels we saw after Russia invaded Ukraine in March 2022.

But the export ban, combined with the non-renewal of the Black Sea Grain Deal, will likely change this constructive view of global food prices.

We discuss more in this week's podcast segment.

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/

Podcast production by: Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli
23 Jul 2023 English South Africa Investing · Food

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