Rice And Wheat Prices To Climb Globally Following India Export Ban, Russia Trade Withdrawal

Russia’s decision to pull out of an agreement that guaranteed safe passage for vessels carrying wheat and other grains through the Black Sea sent agricultural commodity prices soaring and reignited concerns about a global food crisis as Moscow stepped up its attacks on Ukrainian ports.

Kremlin spokesman Dmitry Peskov said on July 17 that the deal had “essentially stopped” and that Russia would no longer cooperate with the deal that was brokered by the United Nations and Turkey a year ago. Moscow has complained that sanctions were holding up a parallel agreement to allow payments, insurance and shipping for Moscow’s own agricultural exports.

Russia also warned that it would consider all ships sailing in the Black Sea to Ukrainian ports to be potential military targets. It has carried out missile strikes against Ukranian port cities after announcing its decision to withdraw from the agreement, including against one of Ukraine’s biggest Danube river ports.

A drone attack hit the Danube port of Reni, Bloomberg reported citing people familiar with the matter, who asked not to be named discussing sensitive information. Romania said a grain silo, a fuel depot and cranes were damaged by the Russian drone attack on Reni.

The Russian decision to not renew the deal and the subsequent attacks on ports sent agricultural commodity prices higher. Wheat futures for September delivery settled up 8.6% in Chicago on July 24, by the daily exchange price limit, at $7.5750 per bushel. Corn contracts for December closed up 6% at $5.6825 per bushel, the highest level in nearly a month.

Food Concerns

It has also raised concerns about global food supplies for the nearly 350 million people across the world who face food insecurity. The World Bank had forecast in April that food prices were expected to fall by 8% in 2023, though would still be at the second-highest level since 1975.

But Russia’s decision to terminate the Black Sea Initiative in effect ends a “lifeline” for hundreds of millions worldwide facing hunger and spiraling food costs, UN Secretary-General António Guterres said on July 17.

“Russia’s decision to suspend participation in the Black Sea Grain Initiative will worsen food insecurity and harm millions of vulnerable people around the world,” Adam Hodge, a spokesperson for the US National Security Council, said in a statement.

The White House said the deal had been “critical” to bringing down food prices around the globe. Since the initiative was struck, food prices have dropped over 23% from their peak in March 2022, according to the United Nations Food and Agriculture Organization’s Food Price Index. The accord has allowed over 35 million tons of vital food commodities to be exported from Ukrainian ports on the Black Sea to 45 countries on three continents, the United Nations said.

Rice Ban

A decision by India to ban rice exports has added further pressure on agricultural commodity prices. India banned on July 20 the export of non-basmati white rice in an attempt to ward off looming domestic price spikes. Heavy rains have hurt crops in the world's biggest exporter of rice, which accounts for more than 40% of global shipments.

One Singapore-based trader at an international trading company told Reuters that rice prices could climb by over $100 a metric ton. Vietnam's 5% broken rice was offered at $515-$525 per metric ton, its highest since 2011, before India's announcement. The previous mean price was around $400 a ton in early 2019.

International Monetary Fund chief economist Pierre-Olivier Gourinchas said on July 25.

Gourinchas told a news conference that India's restriction would have a similar effect of the suspension of the Ukraine Black Sea grain export deal, helping to drive up prices in other countries. He added that global grain prices could rise 10-15% this year.

"In the current environment, these types of restrictions are likely to exacerbate volatility on food prices in the rest of the world, and they can also lead to retaliatory measures," Gourinchas said. "We would encourage the removal of these type of export restrictions because they can be harmful globally."