Via Financial Times

Reda Hachelaf has had a hectic few weeks. The chief executive of SOPI, an Algerian couscous and pasta maker, has been running flat out to meet increased demand from retailers who have seen their shelves stripped bare by panic-stricken shoppers. The quantities he supplied in one month are now being sold in two weeks.

“The problem is that there is this sudden increase in demand because families are stockpiling, so demand has been compressed in a shorter period of time,” he said.

The widespread stockpiling in cities from the Maghreb to Manila by consumers looking to ride out the coronavirus pandemic has driven up grain prices, pushing food security up the agenda both for food-exporting countries and the nations that rely on them.

Countries like Algeria, Morocco and the Philippines have stepped up efforts to top up their grain reserves as big producers including top wheat producer Russia and the world’s third-largest rice exporter Vietnam imposed restrictions on overseas sales. Large importers have also been spooked by logistical bottlenecks including a lack of truck and train drivers and port staff in France, another leading wheat exporter.

In Egypt, the world’s largest grain buyer, President Abdel Fattah al-Sisi this week ordered an increase in the country’s strategic reserves of staple goods, while in the Philippines, which relies on Vietnam as its largest rice supplier, cabinet secretary Karlo Nograles said the government planned to import rice to shore up supplies.

Chart showing the global wheat trade ($bn). Wheat exporting country to its top five destination countries

Saudi Arabia last week placed extra orders for barley, Algeria paid 8 per cent more that it did a fortnight before on several cargoes of wheat while Turkish traders paid prices that were 10 per cent higher than a fortnight ago, according to Tom Houghton, an analyst at price assessment firm AgriCensus.

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Although other commodity markets have plunged in recent weeks, stockpiling has supported grain prices. Wheat traded on the futures market in Chicago has risen by 10 per cent since mid-March, reaching $5.50 a bushel, while physical prices for French wheat have increased by 11 per cent. Benchmark Vietnamese rice prices have rallied 14 per cent to $410 a tonne since the start of the year.

This has brought back memories of past political instability driven by food price rises. In 2007-08 severe droughts around the world drove prices up, leading to food riots in African countries. At the time, some countries imposed export restrictions which also pushed up market prices of staple goods. A wheat export ban by Russia in 2010 also led to a surge in food prices in the Middle East, contributing to the political unrest of the Arab Spring.

The key difference is that now most producers have had good grain harvests and supplies remain plentiful. Global wheat inventories for 2019-20 are expected to be 277m, slightly higher than the year before and 3 per cent above the five-year average, according to the UN Food and Agriculture Organization. World rice stocks are close to last year’s record high, enough to cover four months’ worth of demand.

Column chart of closing stocks (millions of tonnes) showing global rice inventories are near a record high

Despite this, export restrictions, prices increases and a rush to stockpile could still have a negative effect, analysts warn.

“We could create a crisis when there actually isn’t a crisis,” said Joe Glauber, senior research fellow at think-tank the International Food Policy Research Institute and former chief economist at the US Department of Agriculture.

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Some exporting countries, especially those which have been hit by the turmoil in emerging market currencies, have taken steps to limit exports as they become worried about domestic food price inflation, which has worsened because of panic buying at supermarkets.

In Russia, the rouble’s 16 per cent fall against the dollar means farmers do not want to sell their wheat to domestic flour millers, instead opting for export markets where they can earn dollars. Moscow last week proposed imposing a quota of 7m tonnes on its wheat exports between April and June, as well as releasing grains from its state reserves.

Chart showing top wheat exporters and importers, 2018 ($bn) by country

“The rouble has weakened significantly and the authorities were getting concerned, as many [food] items have become more expensive,” said Andrey Sizov at grain consultancy SovEcon. “There has been a lot of pressure on authorities to do something as the millers have been unhappy as well as livestock producers who have to feed their animals.”

While Russia’s cap on grain exports was regarded as mostly symbolic as it was in line with analysts’ expectations of what Russia would have exported anyway, it set many buyers on edge.

Meanwhile in Vietnam, rice industry analysts said the government’s decision to restrict new export contracts was a precautionary measure in the wake of panic buying by local consumers.

“In some places, people became very nervous and they went to the market to buy rice at any price,” said Dang Kim Son, a former director of Vietnam’s Institute of Policy and Strategy for Agriculture and Rural Development.

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Professor Vo Tong Xuan, one of Vietnam’s leading rice experts, said Hanoi’s decision to restrict exports meant the country’s rice growers were missing out on the opportunity to sell at a higher price before prices fall back.

The farmers “have been complaining so much” in recent days, he said.

That leaves economists warning of the potential negative consequences of any further tightening in international trade.

“Export restrictions in our perception is a mistake. It will only exacerbate the situation,” said Maximo Torero, chief economist at the UN FAO. “At this point countries should be very careful to assess the situation and keep trade flowing.”

Additional reporting by Pham Hai Chung in Hanoi