Wheat: These new trade routes born out of the war in Ukraine

The worst was averted. If the fear of a great famine in the world has subsided somewhat, it is undoubtedly due to the reconstruction of the trade routes of cereals, especially wheat.

The war temporarily blocked the export channels of Ukraine, the main supplier of this grain, allowing other actors to take over. Julien Marcilly, chief economist of the Global Sovereign Advisory Group (GSA), notes in a special study on the topic that “if Brazil could do well with corn, Argentina, Australia and Canada would significantly increase their wheat exports.”

Argentine wheat is in the spotlight

“Argentina’s exports are mainly aimed at African countries and the Middle East,” he says again. “Between 2021 and 2022, grain exports from Argentina increased by 53%, with a sharp increase in the months following the start of the conflict,” the study notes.

Thus, in the first six months of 2022, Buenos Aires tripled the amount of grain exported to the African continent in the first half of last year. Thus, Africa accounted for 46% of Argentina’s exports, compared to 31% the previous year.

Australia takes aim at Asia

On the Australian side, “despite recent trade tensions between the two countries, exports are largely directed to Asia, particularly China. The two capitals have shown pragmatism,” he continues.

Grain exports from Canberra, which have grown strongly for several years, are up 38% between 2021 and 2022, and the prospect of increased Australian supply should comfort importing nations. The country can export 28.5 million tons of wheat in 2022-23 against 26 million in 2021-2221,” GSA notes.

The French Leap

European countries also benefited to a lesser extent from the temporary suspension of wheat sales of Ukraine and Russia. Julien Marcilly adds: “France, which lost market share in the Maghreb and the Middle East to Russian wheat since 2014, managed to reverse this trend last year.”

Due to the war in Ukraine, Moscow has had difficulty exporting its wheat, although its production has not been affected by the conflict. “However, the country’s export capabilities have been financially and logistically constrained by Western sanctions, while the country’s March 2022 temporary ban on fertilizer and grain exports has further destabilized markets,” the GSA study said.

Russia does not provide all guarantees. In 2022, wheat export taxes imposed by Moscow were revised down 27 times and up 24 times, indicating that they are invisible to importers. Today, Russia’s grain export quotas for 2023, due to enter into force on February 15, are generous (more than 25 million tons, twice as much as the previous year) and do not prevent the sale of exclusively Russian products. But on Tuesday evening, Vladimir Putin said that Russia “cannot allow everything to be exported. […]. We definitely need stable resources.” If there is a shortage of Russian wheat, market instability cannot be ruled out.

For now, disaster has been averted with world wheat production of 779 million tons and world exports of 205 million tons during 2021-2022. For 2022-2023, production should increase slightly to 781 million tons, of which 209 million will be exported, according to the GSA.

While Australia will continue to play a major role in the market, Argentina will see its role diminish due to drought, which will hamper its exports.

Indian stranger

In this uncertain context, can India play a more prominent role in the wheat export market? “India’s wheat production capacity is expected to increase over the next decade,” predicts Julien Marcilly. But in his view, this capacity increase will not be a linear progression. “We cannot rule out extreme weather events that destroy part of the crop. The food safety factor is also added to this. Last May, India stopped exporting wheat to protect its domestic needs.

The global wheat supply is not yet completely secure. Many countries follow protectionist policies and favor local production by giving subsidies. In this context, African, Maghreb and Middle Eastern countries remain on a tightrope for their supplies. Wheat trade routes are far from stable.