Friday, March 28, 2014

The politics of grains

Few commodities are more politicised than grains. They were the first products to be covered by the Common Agricultural Policy. The US has run export subsidy schemes for them in the past. International trading houses like Cargill are involved.

Fear has gripped the wheat market with prices soaring as investors buy against the backdrop of the crisis in Ukraine. Concern about freezing weather in major growing areas in the US has also helped to push up prices by about 20 per cent since the end of February. Ultimately this could boost inflation by affecting prices of goods in the shops.

The so-called Black Sea grain region of Russia, the Ukraine and Kazakhstan accounts for a fifth of world exports. Exports from this area are particularly important in North Africa and the Middle East.

In the longer run, production in Ukraine could be affected by higher prices for inputs because of the weakness of the hryvania and difficulties for farmers in accessing finance. If Russian tanks actually came charging across the steppes of eastern Ukraine, even more disruption would occur. On the more positive side, exports of Ukranian wheat to Europe could increase.

In Britain, 'Nimbys' are using food security arguments to reinforce their case against building on 'green belt' farmland. However, it is important not to panic. Global production forecasts are of 700m tonnes, only slightly down from 709m in 2013/14.

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