Wheat import to get hit as Russia goes back on Black Sea deal

Russia's withdrawal from a UN-brokered deal to export grains through the Black Sea deepened fears of worsening the situation in the wheat and wheat-based food products market.

Although Moscow had stopped short of reimposing a blockade, the price of wheat in the international market has already registered an upward movement.

Russia's U-turn has already pushed wheat prices up by $10-15 per tonne in a day, spurring Bangladesh to scramble for alternatives, an initiative which has yielded few results in the past.

Food importers say Russia's decision will make the already uncertain wheat market even more precarious with prices going up further and supply getting scarcer. 

The government has already imported some wheat and there is more to come. Muhammad Mahbubur Rahman, senior assistant secretary (External Procurement), Ministry of Food, told The Business Standard, "One lakh tonnes of wheat has been imported from Russia [according to an earlier agreement]; the rest will also arrive on time. However, despite the export agreement, not much wheat was privately imported from Russia or Ukraine."

After the government signed the import deal with Russia in July, wheat imports from Russia and Ukraine began, and the wheat and wheat-based product market, including flour and baked goods, stabilised.

Infographic: TBS

According to the Food Planning and Monitoring Unit (FPMU) of the food ministry, letters of credit (LCs) for 15.65 lakh tonnes have been opened for wheat import at public and private sectors from 15 July to 15 October this year. 

Most of these were opened in India, Ukraine, Russia and Bulgaria, while more than one-third were opened from Ukraine. Against these, only LCs amounting to 6.63 lakh tonnes have been settled, of which private import is slightly above four lakh tonnes.

In comparison, the country's total wheat imports in the fiscal year 2021 was 53.43 lakh tonnes of which 17% came from Ukraine and 21% from Russia. Imports then fell to 40.12 lakh tonnes in FY22.

Redwanur Rahman, general manager of the Bashundhara Food and Beverage Ltd, told The Business Standard, "We started importing wheat from Ukraine, but now it has stopped again. Prices have increased by $10-15 per tonne in the international market in a day. The supply in the local market will be seriously hit."

He also said the demand for wheat was still high. "Owners of bakeries and biscuit factories have been forced to reduce production due to lack of raw materials. This crisis will increase in the coming days."

Mill owners are also unable to conduct their activities properly due to the current energy crisis.

Insiders say production has fallen by 30%-35 while cost is also increasing.

Faria Yasmin, business director, ACI Limited said, "Our capacity is not being fully utilised due to lack of sufficient wheat. Meanwhile, the cost of labour and power in my mill is the same as before. Thus, on one hand supply is decreasing and on the other hand the cost of production is increasing."

President of the Bangladesh Bread, Biscuit and Confectionery Manufacturers Association Mohammad Jalal Uddin told TBS that if there was no supply of one of their main ingredients – flour – then the industry would have to shut down.

He said supply was dependent on the big corporations and any disruption in imports would mean supply shortages. 

"We are still having to buy raw materials at high prices. I can only see darkness in the coming days."

Jalal Uddin said, when the prices of raw materials are increasing, load shedding is hitting the industry as well. Load shedding has reduced production, increasing production costs.

Against this backdrop, the Prime Minister's Office held a meeting on Sunday regarding the global supply system, food production in the country and relevant issues. Top executives of the finance, agriculture, food, commerce and energy ministries were present there.

Government does not see any crisis

The Bangladesh government had signed a contract to import six lakh tonnes of wheat from Russia and Bulgaria. Out of this, one lakh tonnes of wheat arrived from Bulgaria and another one lakh from Russia. 

The rest is in process, according to government sources, who also add the government does not think there will be any crisis in importing the grains from Russia.

Officials of both the food and finance ministries say the government is working to ensure the deals signed with various governments to import wheat are completed by next December. As December-April means winter in Europe, an escalation of the war, alongside the ongoing global food crisis, could lead to many countries halting exports. 

When the Russia-Ukraine option looked shaky, Bangladesh had turned to India, a major source of the country's grain imports, which had banned wheat exports last May. 

The government made a diplomatic push to tie down wheat agreements with the country, to which the Indian side sought detailed information on Bangladesh's demand, while assuring supplies.

Soon, both the government and private importers turned their attention to Russia and Ukraine once those markets opened up again, but only on paper. 

According to the food ministry, the last shipment of wheat from Ukraine was 46,655 tonnes which arrived at the Chattogram port on 25 May.

Ministry sources say 62% of wheat was imported from Russia, Ukraine and India in FY21.

Importers say they are now trying to procure wheat from Bulgaria and Romania, but there is uncertainty of how much can be collected from these two countries. 

Meanwhile, alongside the dollar crisis, load-shedding and gas crisis have continued to further plague those dependent on wheat.

Ukraine began exporting wheat on 7 August following a UN-brokered grain export deal between the two warring nations last July. This increased the supply of wheat in the international market and depressed prices. The private sectors of Bangladesh also started importing wheat from Ukraine. 

In October, S Alam Group and Bashundhara Group imported 1.59 lakh tonnes of wheat from the country in three shipments.

Along with these two, several other industrial groups producing food products started the process of importing wheat from Ukraine. 

According to the food ministry, there is a demand of 70-75 lakh tonnes of wheat in the country. Local production is a little over 10 lakh tonnes. 

Since the start of the Russia-Ukraine war, imports fell to rock bottom, resulting in a crisis.