Wandile Sihlobo: Should we be worried about wheat supplies?

South Africa imports all of
its rice and half of its wheat requirements. We have previously warned of the
restrictions placed by countries on agricultural commodity exports,
specifically rice and wheat.

The concern was that
restrictions in the world’s larger supplier markets would inevitably result in
drastic price increases of the aforementioned commodities, of which South
Africa is a net importer.

The restrictions on exports
were announced in the Black Sea and Asia regions, although the world has large
supplies of rice and wheat. The United States Department of Agriculture
forecasts 2019/20 global wheat production at 764 million tonnes, up 4{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} y/y. And
the 2019/20 rice production is estimated at 496 million tonnes, down by 1{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} y/y.

This past week, however,
Romania, which is the world’s seventh-largest wheat exporter, retracted its
statement on the ban of wheat exports. Over the past five years, Romania’s
wheat exports averaged 5.6 million tonnes.

While not directly a big
supplier of wheat to South Africa, the easing of exports is a positive move
towards boosting the global wheat supplies for export markets. The
International Grains Council estimates that the world has 176 million tonnes of
wheat for exports within the 2019/20 season, which is a 5{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} increase from the
previous season.

Under circumstances of
increased wheat production and supplies for exports, one would ordinarily
assume that wheat prices would be somewhat lower than levels seen this time last
year. But this is not the case.

Global wheat prices traded
around US$238 per tonne (US HRW) on 22 April 2020, which is up 13{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} y/y. The
increase can, in part, be attributed to the restrictions on exports announced
by various countries over the past couple of weeks amid fears about the
timeframe of the Covid-19 pandemic.

If we could see similar
statements to that issued by Romania or assurance that there won’t be an export
restriction on wheat from major wheat-producing countries, there could be some
ease in the global wheat market about supplies throughout the season.

This is a message that was widely
in the G20 Extraordinary Agriculture Ministers Meeting,
earlier this week, noting a need to “guard against any unjustified
restrictive measures that could lead to excessive food price volatility in
international markets and threaten the food security and nutrition of large proportions
of the world population.”

In the case of South Africa, the
2019/20 wheat imports could increase by 33{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} y/y to 1.8 million tonnes. This is
13{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} higher than the five-year average import volume, exacerbated by the decline
in domestic wheat production on the back of unfavourable weather conditions in
parts of the Western Cape in late 2019.

As of 17 April 2020, South
Africa had imported 804 335 tonnes of wheat, which equates to 45{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} of the
volume the country intends to bring into its shores within the 2019/20 season.
The leading suppliers so far are Germany, Lithuania, Poland, Latvia, Ukraine
and Russia.

There is no doubt that over
the coming weeks and months, there could be supply chain disruptions because of
the pandemic. However, the hope is that trade policy in key producing countries
doesn’t add to an already challenging environment for importing countries. We
are counting on various countries upholding the G20 message.

Wandile Sihlobo is chief economist of the Agricultural Business Chamber of
South Africa (Agbiz) and author of
and Agriculture

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