Bangladesh waits to reap benefit of wheat price fall

Bangladesh has already struck a note of optimism after wheat prices on Friday dipped to levels seen before the Russian invasion of Ukraine following a landmark agreement to unblock Ukraine's Black Sea grain exports.

Food Minister Sadhan Chandra Majumdar on Saturday hailed the agreement between the two warring states as a sign of good things to come.

Afterall, wheat is the second staple in Bangladesh with nearly 8.5 million tonnes of annual consumption.

Experts, however, believe any celebration is premature.

Friday's accord between Kyiv and Moscow -- through United Nations and Turkish mediation -- establishes safe corridors along which Ukrainian ships can come in and out of three designated Black Sea ports in and around Odessa, AFP reported.

Riding on the back of the news of the agreement, wheat prices dropped 5.9% to $7.59 per bushel in Chicago, while Euronext, the pan-European bourse, wheat prices for delivery fell 6.4% to $325.75 per tonne.

Back in Bangladesh, Food Minister Sadhan Chandra Majumdar said, "The Ukraine-Russia war has created problems around the globe. But now there is a compromise through mediation by Turkey. Ukraine and Russia have agreed to export food products which will be a relief for us as getting wheat will no longer be a problem."

Speaking as the chief guest at the foundation stone laying ceremony of a modern steel silo in Chattogram, he also said Bangladesh has the capacity to store 21 lakh metric tonnes of food grains and the government hoped to increase this to 35 lakh metric tonnes by 2025. 

But whether there will be enough stock to fill new silos remains a question. 

Bangladesh has been grappling with soaring commodity prices, while the country's wheat stocks hit their lowest in three years at 166,000 tonnes last month.

The country is the third largest importer of wheat from Ukraine, after Egypt and Indonesia, having purchased 2.3 million tonnes in 2021.

According to a report by the USDA, Russia and Ukraine combined supplied 42% of Bangladesh's total wheat import in the marketing year 2020-2021.   

A few industry insiders think the Russia-Ukraine agreement may increase the supply of consumer goods in the international market and depress prices, but the rising value of the dollar may erode any gains for Bangladesh.

Abul Bashar Chowdhury, chairman of BSM Group, the country's top consumer goods importer, said it will take time for the impact of this agreement to be felt in the consumer goods market.

On the other hand, Bangladesh does not directly open any letter of credit (LC) with Russia-Ukraine at a private level. Those are usually done via Singapore, Netherlands and UK, among others, he said, adding this meant that there were two-three ports between Chattogram and Russia-Ukraine.

He, however, said direct imports were possible if it was desired at a government-to-government level.

Chowdhury also said the extent of the market impact would depend on how equipped the infrastructure of the ports of the two countries were during the war time.

"This news will, however, result in the prices of consumer goods coming down. But, I don't think it will bring much benefit to Bangladesh since the increasing value of the dollar means we have to pay more for imports."

Nurul Alam, the owner of Messrs A Zaman & Brothers, a consumer goods importer, struck a more positive note saying if the supply of food from two of the world's major food grain suppliers increases, the price of consumer goods will come down.

He said the price of the two main commodities – wheat and edible oil – would reach a more bearable level, although the effect of the milestone agreement would be felt later.

Russia and Ukraine together produce about 30% of the world's wheat exports.

Up to 25 million tonnes of wheat and other grain have been blocked in Ukrainian ports by Russian warships and landmines Kyiv has laid.

Despite Friday's retreat in wheat prices, analysts expressed scepticism about the accord's ability.

"I'm still sceptical and I don't think I'm alone in questioning that it will actually move much grain," Michael Zuzolo, president of Global Commodity Analytics & Consulting, told AFP.

But Zuzolo said wheat prices may not have much further to fall, given that drought conditions are hitting output in some other parts of Europe.

Zuzulo's comments almost seemed prophetic after Russian missiles hit the major port of Odessa in southern Ukraine a day after the agreement, the Ukrainian military said.

UN officials had hoped the accord would become operational in a few weeks, but now it remains to be seen.

 Whether it happens or not, however, the repercussions of the war, especially on wheat, will be felt for much longer.

 Laura Wellesley, a food security specialist at think tank Chatham House, told the BBC that as much as 30% of the 86m tonnes of grain Ukraine normally produces will not be harvested due to the war.

 Even with the deal, she said unless a lot of Ukraine's grain is shipped, many countries in the Middle East and Africa will go short.

 "This would push up the price of bread within those countries even further, which would cause a great deal of social unrest."

 The plan in place

 According to a BBC report, Russia and Ukraine signed "mirror deals" with the UN and Turkey to open up a "maritime corridor" in the Black Sea.

 The plans for this includes, Ukrainian vessels guiding grain ships in and out through mined port waters,Russia agreeing to a truce while shipments move, Turkey inspecting ships to allay Russian fears of weapons smuggling and Russian exports of grain and fertiliser via the Black Sea being permitted. 

 Before the war, Ukraine sent over 90% of its food exports by sea, but once the ports were blockaded, it has been resorting to export as much as it can through trucks and trains. 

 The Ukrainian Grain Association, a trade body, has said that 1.5m tonnes of grain a month at most has been exported, whereas before the war the figure was 7m tonnes in a single month.