December 25, 2024 | 11:24 GMT +7

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Tuesday- 08:15, 17/05/2022

U.S., Europe race to improve food supply chains after India bans wheat exports

(VAN) The United States and the European Union are looking at how to improve food supply chains with export restrictions from India and other nations accentuating global problems, the EU’s trade chief told CNBC.

G-7 foreign ministers warned over the weekend that the war in Ukraine is increasing the risk of a global hunger crisis. This is because Ukraine has been unable to export grains, fertilizers and vegetable oil, while the conflict is also destroying crop fields and preventing a normal planting season.

This has increased the reliance on nations from other parts of the world for these products. But some of these countries, concerned about supplies for their own citizens, have imposed restrictions on exports. This is the case in India, for example, which announced Saturday a ban on wheat sales “to manage the overall food security of the country.”

“That’s something which is very much of concern,” Valdis Dombrovskis, the EU’s trade chief, told CNBC Sunday about these new export measures.

“We agreed with the United States to cooperate and coordinate our approaches in this area, because ... as a response to Russia’s aggression against Ukraine and a corresponding increase in food prices and concerns about food security, countries are starting to take export restrictive measures. And we think that this is a tendency which can only actually aggravate the problem,” Dombrovskis said.

He added that these measures, such as Indonesia’s ban on palm oil exports, “make matters worse.”

Limits on exports are likely to drive up commodity prices, and therefore food costs too. For the EU, this is a matter of food affordability, Dombrovskis explained.

Transatlantic bond

The U.S. and the EU are having talks in France on Monday for their joint Trade and Technological Council, or TTC. The group was put together back in 2021 to restore transatlantic ties, after the Trump-era trade tariffs and disagreements.

However, the work of the TTC has now gone beyond its intended focus, such as semiconductor shortages, to incorporate and find solutions for current geopolitical issues.

Its first meeting, in late 2021, was overshadowed by the U.S. agreement to sell nuclear submarines to Australia — where Canberra decided to ditch a business deal with France, upsetting European officials. Now, its second gathering is dealing with supply shocks in the wake of Russia’s unprovoked invasion of Ukraine.

Speaking to CNBC Sunday, Europe’s Competition Chief Margrethe Vestager said she never thought the TTC would be discussing sanctions against Russia.

“I didn’t foresee this coming. I thought the TTC would be much more focusing on all the other issues … like, for instance, how to coordinate in standard setting organizations, how to make sure that we can create a coalition for people to be elected in organizations, how to work on the supply chains,” Vestager said.

“I think with the geopolitics that we have ahead of us that we’re in now, you know, if we hadn’t had the TTC, we’d have had to invent it,” Vestager said.

The EU’s competition chief was once dubbed by former U.S. President Donald Trump as Europe’s “tax lady” and often criticized for going after Big Tech. However, she says she has noticed recent a change in the transatlantic relationship.

“Things are very different from what we saw 2, 4, 6 years ago,” she said.

When asked whether Russia’s invasion of Ukraine served to revive the transatlantic bond, she said: “I definitely think so.”

“It has made it abundantly clear that like-minded [nations] must come together,” she said.

India's surprise wheat export ban traps 1.8 million tonnes at ports

India's wheat export ban has trapped some 1.8 million tonnes of grain at ports, leaving traders facing heavy losses from the prospect of selling onto a weaker domestic market, four dealers told Reuters.

New Delhi banned wheat exports on Saturday, just days after saying it was targeting record shipments of 10 million tonnes this year, as a scorching heat wave curtailed output and domestic prices hit a record high. read more

Only exports backed by letters of credit (LCs), or payment guarantees, issued before May 13 can proceed before the ban takes effect, India has said.

But of the around 2.2 million tonnes of wheat currently at ports or in transit there, traders have LCs for only 400,000 tonnes, a Mumbai-based dealer with a global trading firm said.

"Exporters don't know what to do with the remaining 1.8 million tonnes. Nobody thought the government will outright ban the exports," said one dealer, who declined to be named due to company policy.

One Mumbai-based trader said the ban could force it to declare force majeure on shipments to overseas customers.

"We bought wheat from traders and moved it to ports," the trader said. "Our intention is to fulfil export commitments, but we can't overrule government policy. Therefore, we don't have any option but to declare force majeure."

Global buyers were banking on supplies from the world's second-biggest wheat producer after exports from the Black Sea region plunged following number one exporter Russia's Feb. 24 invasion of Ukraine.

Importers such as Bangladesh, Indonesia and United Arab Emirates may struggle to find alternative suppliers amid rising global prices .

The abrupt ban will also make it harder for exporters to sell stocks lying at ports profitably.

They may have to re-sell those cargoes into the weaker domestic market, which has been under fresh price pressure since the export ban news emerged, a New Delhi-based trader with a global trading firm said, and will also have to pay reloading and transport costs.

Around 1.4 million tonnes of wheat is currently stuck at west coast ports such as Mundra and Kandla or in transit there, while around another 800,000 tonnes is at the Kakinada, Tuticorin and Visakhapatnam ports on the east coast, dealers said.

"Vessel loading has stopped at a few ports. Thousands of trucks are waiting to unload at ports without any clarity," the trader said.

Global trading houses are among those affected by the ban, as in some transactions their Indian subsidiaries had sold the wheat to their regional headquarters in Singapore before securing the necessary LCs, said an exporter.

Strong export demand and an assumption that the government would support shipments of at least 8 million-10 million tonnes encouraged exporters to move cargoes to ports after making purchases from farmers, said a New Delhi-based dealer with a global trading house.

Every trading house wanted to ship as much as possible before the end of June, as crop movement becomes difficult once monsoon rainfall picks up, the dealer said.

"The Commerce Ministry and even state governments were helping exporters. Exports were profitable, so we never thought the government would do something like this," he said.

Tr.D

(CNBC; RT)

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