Attacks in Red Sea to disbalance grain market
As the expert noted, “prices that farmers in the exporting countries receive might decrease to partially compensate for higher shipping costs”
Despite the fact that cereal stocks are estimated to be at a comfortable level, the stocks might not always be directed for exports, said an economist at the UN Food and Agriculture Organization (FAO). The shipping disruptions such as in the Panama Canal, the Red Sea and many inland waterways could threaten established trade routes and impact farm level prices.
“If farmers anywhere receive lower prices, it impacts their decision what to plant in the future. In simple terms, when transportation and logistical costs increase, they are often not just simply added to the producer prices. While prices importing countries pay increase to reflect higher shipping costs, prices that farmers in the exporting countries receive might decrease to partially compensate for higher shipping costs,” the expert said.
In particular, Ukraine is a recent example. As transportation infrastructure suffered from the war, prices on the farm gate declined to offset higher logistical costs, while overall global prices generally eased. Though the flows of exports of food commodities from Ukrainian Black Sea ports following the cessation of the Black Sea Grain Initiative in July 2023 were partially addressed by implementation of a “humanitarian corridor,” the Initiative ensured higher volumes of supplies.
“The volume of food products exported from Ukraine using the new shipping route (as well as other available export routes) is not as high as it was at the time when the Initiative was fully functional. Considering that the 2023 harvest in the country exceeded that of 2022, this means that the export potential is not fully realized. Thus, the lack of reliable and efficient shipping capacity will impact farmers’ decision to plant in the future – with impacts on future harvest,” the economist explained.
“If farmers anywhere receive lower prices, it impacts their decision what to plant in the future. Some might switch to more profitable crops (for example oilseeds) or, in extreme cases, retire from farming all together. Consequently, the production would decrease in the future, with the implication on prices,” the expert concluded.
