Jul 7 - Black Sea Grain Agreement terminated
Ukraine is the granary to the world and ships its grains out at its port at Odessa. This port is crucial because it is Ukraine’s largest port with silo facilities for grain and is capable of handling Panama class vessels. When the war with Russia broke out, Ukraine’s access to the world by sea was effectively cut as Moscow controls the Black Sea. This triggered severe global food security and exacerbated an already ugly inflation brought about by Covid pandemic and the Russo-Ukraine war.
The agreement, brokered by EU, was signed in Jul 2022 by Ukraine, Russia and Turkey which kept Odessa port open and the grains flowing again even as the warring states were bombing each other. Turkey was involved because maritime route goes through Boshorous Straits where Istanbul is. Turkey is responsible for inspecting the vessels to prevent arms shipment going through.
On Jul 7 this one year agreement expired. Ukraine asked for 120 days extension which Russia rejected. Russia has also rejected Turkey and EU’s request for 60 days extension. Of course the West go ballistic on evil Russians. Putin adamantly rejected continuance of the agreement can only mean the other side has not kept their part of the bargain, whatever that was. Who knows, perhaps Turkey was letting arms shipment through.
We are back to square one. Ukraine’s major grain export is corn and wheat. So be prepared for surge in prices again. Wheat is not a staple food for Singapore, but as global consumers seek alternatives, inflation will kick in again.
Jul 20 India bans export of non-Basmati rice
I covered this in my previous blog. Straits Times regurgitated Western media that suggests India’s ban was an effort to bring prices down ahead of the coming 2024 election. I reasoned it was due to a conflict with World Trade Organisation that forced India’s hand to ban the export of rice.
India is the world’s largest exporter of rice, accounting for 40% of the market or 22m metric tons. Who in the world can replace that extra 22m m/tons at short notice? To add to the woes, India’s rice is the cheapest in the world. The more expensive rice will simply become even more expensive.
The biggest rice producer in the world, just slightly ahead of India, is China. The Chinese are self-sufficient in rice, but continues to be a net importer, buying about 4m m/tons annually. The speculation is China is building up a huge rice stockpile to beef up food security in an uncertain future. For the first time in 2019, China began buying Indian rice.
Singapore's import from India forms only 17% of total rice imports. The authorities allayed fears, confident that Singapore's diversity of rice sources will see us through. Our rice comes mainly from Thailand, Vietnam, India and Cambodia. We also buy from Pakistan, Japan and Australia. Importers also lock in with forward purchases. Another short term measure is our rice stockpile which is adequate for 3 months. Singapore’s rice stockpile is unique amongst nations. There is no official stockpile. The government is smart to pass the burden to licenced importers. We trust there is reliable monitoring and stockpiles are in fact in place. However, forward purchases and stockpiles are good only for the short term. With a permanent Indian export ban, every importer in the world is going to be chasing the same diverse suppliers that Singapore has.
India has said that they may still sell to some countries if they asked for it. In other words, a government-to-government arrangement. Has the Singapore government taken the early initiative to approach Indian authorities?
El Nino
El Nino is a climatic condition that brings warmer and drier weather to the Pacific part of the globe. It delays the monsoon rains and reduces precipitation to Asia and SE Asia which has a devastating impact on water hungry rice plants. Some years, El Nino brought much feared drought. This is terrible because 90% of the world’s rice is grown in these regions.
This year, El Nino seems to come one or two months earlier. Scientists say early arrival is bad because this gives it time to grow in severity. This is extremely bad news for rice production this year.
Fertilizers santion
Agriculture needs fertilisers which could be nitrogen, potassium or ammonia based. The biggest potash producing country is Canada, second is Belarus. Western countries punish Russia with crippling sanctions. Sanctions extend to Russia's ally Belarus. The West has not been sympathetic to Belarussian appeal that a sanction on potash is going to hit global food production. We know Vivian Balakrishnan poked the Russian bear with sanctions. We don’t know if he is also aligned with the Western sanctions on Belarus.
Jul 27 Fed raised interest rate
Fed increased interest rates by 25 basis points. USD interest rate is now at its highest in 22 years at about 5.5%. This tightening has come even though inflation is slowing down. And worse still is the Fed has said another increase is likely in September. The increase in USD interest rate will see US exports its inflation all over the world and cost of finance cascades down to all goods and services. Imagine what 25 basis points can do to the cost of oil and you can understand its eventual impact.
Aug 1 China impose export restrictions on Gallium and Germanium
These are rare Earth materials. Gallim is used in electronic products and China produces 80% of world supply. Germanium is used in the making of chips. And China produces 60% of world supply. China claimed the export restriction is for national security reasons. China’s rare Earth export restriction is going to hit every electronic product you can name.
Conclusion
The cancellation of the Black Sea Grain Agreement and the Indian ban on non-basmati rice will push prices of 2 staple food produce of grains and rice to record highs. El Nino and Belarus fertiliser ban will cause further severe shrinkage of world agricultural produce. The increase in USD interest rate will raise cost of capital adding more pressure on businesses. China’s rare Earth export restriction is going to strangle the electronics industries and the digital world. Coming together at the same time, we are going to be hit with a sledgehammer of price increases in every product and services we use and consume. Inflation is going to shoot to heights never seen before. Will food and electronics production security drive nations into new conflicts?
How prepared is Singapore? Like have we asked India for exemption from the rice ban?
And while we are being hit by an onslaught of another round of price increases due to exogenous causes, the coup de grace for many Singaporeans will be the 1% hike in GST next year.
A terrible dark winter is coming. Be afraid. Be very afraid.
A parting shout out :
Plato said:
“The price good men pay for indifference to public affairs is to be ruled by evil men.”
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