Okay with wheat import for now, drought, heat waves future worries
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WEDNESDAY, MARCH 22, 2023
Okay with wheat import for now, drought, heat waves future worries

Economy

Shawkat Ali
15 March, 2023, 10:45 pm
Last modified: 17 March, 2023, 03:36 pm

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Okay with wheat import for now, drought, heat waves future worries

Shawkat Ali
15 March, 2023, 10:45 pm
Last modified: 17 March, 2023, 03:36 pm

The 60-day extension of the Ukraine grain deal has come as a sigh of relief for net food importers like Bangladesh, aiming to build a safe stock of wheat amid concerns that extreme weather events may cut global output of the second major staple food grain.

Importers are preparing to make the best use of the extended period of the Black Sea deal as Bangladesh's wheat purchase has dropped by a third since 2020 due to Covid-19 and the Russia-Ukraine war.

Infographic: TBS
Infographic: TBS

However, alleviating the worry will not mean the end of it.

A heatwave has been forecast for India this season, and wheat production may suffer a big blow in China, the USA and Brazil from the prolonged drought plaguing the regions.

These mean major wheat producers may become importers themselves, putting further pressure on the global market supply and price.

Similar concerns have surfaced for edible oil supply as Indonesia has restricted palm oil exports and Argentina fears it will miss its soybean production target by some margin due to the drought.

Keeping the unreliable global supply in mind, edible oil refiners have already hinted at further price rise.

But it's not all doom and gloom.

A ray of hope lingers as an official team secured some commitments for a supply deal during its recent visit to Argentina, Bangladesh's single biggest source of soybean oil after Brazil.

Moreover, though wheat imports fell drastically in the private sector, purchases under government arrangements grew remarkably to over six lakh tonnes only in eight months of the current fiscal, up from 5.4 lakh tonnes in the whole of the fiscal 2021-22.

Infographic: TBS
Infographic: TBS

The government stock of rice – the staple – is over 15 lakh tonnes and its biggest rice crop harvest in the Boro season shows good prospects leaving food officials comfortable in the case of rice.

Relief from Black Sea deal extension

Ukraine's Black Sea ports were blocked after the war with Russia broke out in February 2020, disrupting the supply from one of the world's major food baskets.

Meanwhile, India, an easy source for Bangladesh's food imports, banned wheat exports in May last year amid rising prices and crop loss forecast.

As a result, Bangladesh's wheat import dropped to 40 lakh tonnes in FY22 from over 63 lakh tonnes in FY20. Wheat imports totalled 21.5 lakh tonnes from July last year till 13 March, causing worries about future supply as the Black Sea deal was set to expire on 18 March.

As the deadline has been extended by two months, importers are relieved that global supply would continue from Ukraine, which exported more than 2.4 crore tonnes of wheat under the deal since July last year, with Bangladesh among the importers.

Abul Bashar Chowdhury, chairman of wheat importing company BSM Group, told The Business Standard that Bangladesh's consumers would benefit from the extension of the Russia-Ukraine grain agreement. In particular, as the uncertainty of the extension has been reduced, price hikes in the international market will also ease up.

He also said price would decrease further if the time for inspecting the grain consignments were reduced.

Excessive delays in ship inspection when entering and leaving the Black Sea ports and persisting dollar crisis may limit the expected gains from the deal extension, other grain importers said.

Mostafa Kamal, chairman of Meghna Group of Industries, said he had opened a Letter of Credit (LC) for wheat import in December, but the ship was yet to reach Bangladesh.

According to Kamal, the tripartite inspection process by Turkey, Russia, and Ukraine in the Black Sea was causing the delay.

He noted that he is now avoiding Ukraine and importing wheat from Russia, Brazil, and Romania.

Meanwhile, the Bashundhara Group, which mainly imports wheat from Ukraine, faces a different issue.

According to a senior official of the group who wished to remain anonymous, they cannot obtain dollars to open LC for import and their factories are running below capacity.

Meanwhile, government officials say the essentials are available from official sources.

Muhammad Mahbubur Rahman, senior assistant secretary (External Procurement), Ministry of Food, told The Business Standard, "We are importing wheat from India and Russia as per the agreement. Our stock is also in a very strong position. We made these agreements during the crisis. We are also trying to import wheat from other sources."

According to the sources at the food ministry, the demand for wheat in the country is 70-75 lakh tonnes, of which a little over 10 lakh is produced domestically. The rest is imported.

While the government has explored different import sources, concerns about opening LCs remain.

Md Shafiul Ather Taslim, director of finance and operations at the TK Group, said, "Now the concern is that LC payments are not being made on time. Because of this, our relationship with the source is being ruined as it creates a lack of trust."

According to the Ministry of Food, in the eight months of the current financial year, the government and private sectors together imported about 21.46 lakh tonnes of wheat.

The Bangladesh Bank's import data says wheat imported from India in FY22 made up 62.3% of total imports. Another 13.3% was imported from Canada, 8.7% from Ukraine and 7.6% from Australia.

However, wheat from Australia and Canada is costlier than those from Ukraine, Russia and India.

Fears persist that a crisis in imports might develop if countries like China and America are forced to enter the international market to make additional purchases.

Soybean worries remain

After the start of the Russia-Ukraine war, the price of edible oil continued to rise.

In this situation, Argentina – the third largest producer of soybean oil – imposed a ban on exports in March to ensure their security.

Indonesia, the largest exporter of palm oil, also curtailed its palm oil exports.

Although both countries lifted the ban within two months, the supply chain had already been impacted.

Once the bans were lifted, the supply began to normalise and prices began to fall.

According to the Ministry of Commerce, the price of crude soybean oil in the global market decreased by 15% in one year.

But this advantage could not be exploited due to a shortage of the dollar.

In the meantime, due to severe drought, Argentina's soybean production is expected to fall short of the target this year and local importers fear an increase in prices.

Md Shafiul Ather Taslim, director of finance and operations at the TK Group, which refines and markets soybean oil, said, "If production in Argentina is reduced, there will be a shortfall in the global supply chain. Then maybe the price will increase."

In this situation, a team, including the commerce ministry secretary, the Trading Corporation of Bangladesh (TCB) chairman, and officials of the Bangladesh Trade and Tariff Commission, travelled to Argentina to import oil at the government level.

Chairman of TCB Brigadier General Md Ariful Hassan said they secured written proposals from two suppliers regarding soybean oil supplies, adding they were in touch with another organisation which would supply oil from Argentina.

He said government procurement was more time-consuming as contractual matters involved a lot of negotiations.

"But we are trying to make the deal quickly. We also want to make an agreement where if the price decreases in the international market, we can also take advantage of that," he said.

Soybean oil is sold at 9% higher in the market than in the same period last year, data from the TCB shows.

According to Bangladesh Bank data, 48.2% of crude soybean oil was imported from Argentina in FY22. Imports from Brazil accounted for 32.4%. Another 14.2% was imported from Paraguay.

The Ministry of Commerce says the annual demand for edible oil in the country is about 20 lakh tonnes.

Of this, soybean seed imports are about 24 lakh tonnes, from which four lakh tonnes of oil is produced.

The import of refined soybean oil is five lakh tonnes. Apart from this, 11 lakh tonnes of crude oil are imported. Another 2,00,000 tonnes of mustard and other edible oils are produced in the country.

Infograph / Top News

wheat / Heatwave / drought

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