The Secretary General of the United Nations warns that the world's largest rice exporting country has issued the strictest export restrictions in history! Soaring Grain Prices Wheat | Global | Export

"We have seen continuous increases in global wheat and corn prices, which will harm everyone, especially vulnerable groups in the third world."

After Russia bombed the natural port of Odessa in southern Ukraine, UN Secretary General Guterres issued the aforementioned warning. In addition to wheat and corn, the fluctuations in the rice market are also heart wrenching. The largest exporting country, India, has issued the strictest rice export restrictions in history, prohibiting the export of rice varieties other than Indian long rice. Experts believe that this move may push global rice prices, which were already at their highest point in over a decade, to a higher level.

On the Black Sea Transport Line, due to both Russia and Ukraine announcing that ships heading towards each other's ports would be defaulted to military vessels, the atmosphere was unprecedentedly tense: cargo ships transporting wheat dared not pass through, insurance costs for ships in related waters skyrocketed, and many insurance companies even refused to provide coverage. Although Ukraine is also trying to open up temporary channels, Ukrainian officials admit that currently there are not many freight forwarders willing to switch to remote temporary routes.

India announces restrictions on rice exports, disrupting global market supply

On the 20th, India announced an immediate ban on the export of any rice other than long rice, which has had an impact on the global agricultural market.

The Modi government believes that this year's rainy season in India has been delayed, damaging domestic crop yields and causing concerns about food shortages in the domestic market. The retail price of rice in India increased by 11.5% last year, and in June of this year, it rose by 3% in just one month. In addition, vegetable prices in India increased by 12% in June, with an overall inflation rate exceeding 4.8%. In order to stabilize domestic food prices before the election, the Modi government announced restrictions on rice exports and prioritized ensuring supply in the domestic market.

India currently exports rice to over 140 countries and regions. In 2022, India's rice exports reached a record high of 22 million tons, accounting for 40% of global supply, surpassing the total exports of the four major grain exporting countries behind it, Thailand, Vietnam, Pakistan, and the United States. Last year, the Indian government announced a 20% tax rate on rice exports, but due to low domestic rice prices in India, exporters are still willing to risk heavy taxes to sell rice to the global market to earn a price difference.

Krishna Rao, chairman of the Rice Exporters Association, said that India's disruption of the global rice market would even exceed the impact of the Russia-Ukraine conflict on the wheat market.

In India, traditional rice growing areas mainly focus on growing Indian long rice, which is mainly exported to the Middle East and Europe and has a high selling price. It will not be affected in this round of policies. Other regions in India mainly grow short grain white rice at lower export prices, with the main export regions being the Philippines, Indonesia, and multiple countries in East Africa. This type of rice is strictly prohibited for export by the Indian government. Taking the Philippines as an example, about 20% of the country's rice relies on imports, and rice prices account for up to 25% of the CPI index.

Some Filipino traders have expressed concerns about the impact of India's export restrictions. A trader said, "The volume of Indian rice exports is irreplaceable by any other country, and for grain traders, this sudden ban will cause us great pain.".

The situation in Odessa affects food exports, UN Secretary General issues a warning

It's not just rice that has gone up in price. On July 19th, the price of flour wheat on the European Stock Exchange soared by 8.2% compared to the 18th, reaching 253.75 euros per ton, and corn prices also rose by 5.4%. American wheat futures on the Chicago Board of Trade soared 8.5%, the highest daily increase since the outbreak of the Russia-Ukraine conflict in February 2022. On July 20th, US wheat futures prices have risen by over 13% in three days.

According to statistics, Russia's wheat exports account for over 20% of global wheat exports, and Ukraine's wheat exports also account for 10% of global wheat exports. The wheat exported by these two countries is an important source of food for some underdeveloped regions in Africa.

On the 19th local time in Russia, it was reported that the Russian military continues to strike military facilities around the Ukrainian port city of Odessa on the northwest coast of the Black Sea. According to local media reports in Odessa, local residents have experienced three consecutive nights of intense bombing. According to reports, around 2am local time on the 20th, an attack on Odessa began to erupt and lasted for at least 90 minutes, during which the drone's buzzing echoed over the city.

Ukrainian media reported that the country's air defense system deployed in Odessa is unable to respond to the types of missiles used by the Russian military, and there is a significant gap in defense capabilities compared to other war zones. The Ukrainian Air Force has admitted that as of the night of the 20th, Russia has launched 19 cruise missiles in the Odessa region, of which only 5 have been successfully intercepted by the Ukrainian army. This success rate is significantly lower compared to the Kyiv region, and Ukrainian officials say this is due to the lack of more advanced defense systems in the southern region of Ukraine.

Odessa, as a natural port with superior geographical conditions along the Black Sea coast, has always been an important port base for Ukraine's export of grain to foreign countries, known as the "European granary". Ukrainian Agriculture Minister Solsky said that the Russian airstrikes destroyed 60000 tons of grain stocks and damaged many infrastructure related to grain exports. Ukrainian President Zelensky confirmed in his evening speech on the 19th, "The attacked ports have stored approximately one million tons of food, which should have been delivered to some countries in Africa and Asia."

After the airstrike, UN Secretary General Guterres reminded that "the airstrikes that damage civilian infrastructure are also having an impact on areas outside Ukraine." He hoped that Russia would abide by its commitment to "promote unimpeded exports of food, sunflower seed oil, and fertilizers from Ukrainian controlled Black Sea ports.". Dennis Brown, the United Nations Resident Coordinator, said she was shocked by the dilapidated scene after the air raid on Odessa. She said in a statement, "This is the second consecutive day that this civilian port has been severely damaged in large-scale attacks. The port is an important lifeline for the world's poorest people who rely on Ukrainian grain exports."

Wheat transport ships dare not cross the Black Sea, and insurance costs skyrocket all the way

Last July, Russia, Ukraine, Türkiye and the United Nations reached the "Black Sea Grain Initiative" in Istanbul. At the same time, the United Nations also reached a parallel agreement with Russia on its grain and fertilizer exports. According to the official website of the United Nations, in the past year, the Black Sea Grain Initiative has facilitated the export of over 30 million tons of Ukrainian food to the global market through three Black Sea ports, including Odessa, becoming an important component of ensuring global food security.

On July 17th, Russia announced that it would stop participating in the Black Sea Grain Initiative. On the 19th, the Russian Ministry of Defense issued a statement stating that due to the expiration of the agreement on the export of agricultural products from Black Sea ports and the closure of the maritime humanitarian corridor, starting from midnight Moscow time on the 20th, Russia will consider all ships traveling along the Black Sea waters to Ukrainian ports as potential military cargo carriers. The countries represented by the flags of these ships will be regarded as standing on Ukraine's side in the Russia-Ukraine conflict. The Russian Ministry of Defense also declared some waters in the northwest and southeast of the Black Sea International waters as temporary navigation alert zones.

In response to Russia's statement, Ukraine immediately announced "retaliatory measures". On the 20th, the Ukrainian Ministry of Defense issued a statement stating that starting from July 21st, all ships bound for Russian Black Sea ports may be regarded by Ukraine as military material transport ships.

Previously, Russia and Ukraine had repeatedly accused each other of laying mines in the Black Sea grain shipping corridor in an attempt to blockade ports. Nowadays, some waters in the northwest and southeast of the Black Sea have been regarded as a daunting route by commercial ships, making it difficult for cargo ships to safely navigate under tense geopolitical pressure. Since the outbreak of the conflict, the insurance costs for merchant ships in the Black Sea have skyrocketed, greatly increasing transportation costs in the region. After Russia and Ukraine announced the possibility of treating passing ships as military vessels, some insurance companies began to consider withdrawing insurance quotes for Black Sea cargo.

A senior analyst at Lloyd's Group in London said that a small number of insurance companies are planning to "sit on the ground and raise insurance prices significantly during times of tension." However, many insurance companies are unwilling to take on such huge risks and refuse to provide insurance services for cargo ships passing through the Black Sea. Danish freight giant NORDEN has stated that the vast majority of shipowners are currently refusing to accept orders at Ukrainian ports.

Carlos, head of agricultural markets at Rabobank in the Netherlands, said that Ukraine will now be forced to export most of its grains and oilseeds through land and Danube ports, which will significantly increase transportation costs and squeeze the profits of Ukrainian farmers. "The chain reaction triggered by the current situation may prompt Ukrainian farmers to reduce wheat cultivation next season, thereby putting further pressure on future supply capacity."

There are also reports that Ukraine is coordinating the establishment of a temporary route through neighboring Romania, with the goal of promoting smooth international shipping in the northwest of the Black Sea. However, Ukrainian officials acknowledge that currently there are not many freight forwarders willing to accept the cost increase caused by temporary routes.