If a food-trade spat with Russia isn’t soon resolved, Turkey may have to pay more for wheat despite the fact that it is the world’s biggest flour exporter.
Turkey has slapped restrictions on some agriculture imports in retaliation for a similar Russian ban but depends on Russian wheat to supply millers. Ivan Vikoulov, a partner at Gibraltar-based grain trader Quorum Capital Ltd. said that Turkey will end up paying higher prices as it will have to look elsewhere for wheat in order to replace Russian wheat.
Russia’s Deputy Prime Minister Arkady Dvorkovich said on April 7 that the trade restrictions “lead to mutual losses” for both countries. According to Aliya Samigullina, the spokeswoman for Dvorkovich, for talks in Moscow on Tuesday, Dvorkovich is scheduled to meet Turkish counterpart Mehmet Simsek.
According to Faik genc, managing director at broker and consultant AgriPro Ltd. in Istanbul, if Turkish millers pass on extra costs to customers, that could hurt demand for flour exports that bring in about $1 billion a year. Because it typically provides lower-quality grain, only part of the gap can be filled because it typically provides lower-quality grain by Ukraine which is another major Black Sea wheat shipper.
Turkey has already started importing more wheat from Baltic nations as it needs to ships flour to countries including Iraq and Angola.
Since Russian farmers are still trying to offload last year’s bumper crop and since its exporters rely on Turkey, the country’s second-biggest buyer of wheat, an extended standoff would also be bad for Russia.
According to consultant UkrAgroConsult, in order to make up for lost Turkish business, Russia may sell more of the grain to African countries.
Gennadiy Shulga, vice president of global business development at SGS SA, a Swiss inspection company said that Ukraine doesn’t grow enough high-quality grain to cover Turkish millers’ needs. Volodymyr Slavinskyy, a trader at Nibulon said that in order to grind wheat into flour to be sold overseas, firms prefer wheat with at least 12.5 percent protein content.
And in order to boost shipments to Turkey, Ukraine would also have to rely more on its smaller ports. Smaller ships that leave shallow Russian waters on the Azov Sea, which links to the Black Sea are suited for many Turkish ports. While most of its exports leave on bigger vessels from deeper Black Sea ports, Ukraine also ships from the Azov.
AgriPro’s Genc said that to finance larger cargoes, it’s also harder for millers since they comprise mostly od small, private firms. According to Quorum’s Vikoulov., bigger shipments would require more investment in storage capacity in addition.
According to data from UkrAgroConsult and Russia’s government, compared with almost 2 million tons from Russia, Turkey bought 27,000 metric tons of wheat from Ukraine this season through February
“It’s a question of logistics,” Nikolay Gorbachov, president of the Ukrainian Grain Association, said in an interview in Kiev. Hee said that compared with about 50 percent in Russia, about 95 percent of Ukrainian grain exports are carried on bigger vessels from big ports.
(Adapted from Bloomberg)