Financial Times: Nations make secret deals over grain 11 April 2008, 16:38
CA-NEWS (CA) - By Javier Blas, Commodities Correspondent
Governments are racing to strike secretive barter and bilateral agreements with food-exporting countries to secure scarce supplies as the price of agricultural commodities jump to record highs, diplomats and cereal traders say.
The moves coincide with a significant tightening of the global food market as leading exporters of agricultural commodities ban foreign sales. The government-to-government contracts could bypass those restrictions, diplomats say.
Wheat traders said on Thursday that Ukraine was close to an agreement with Libya to devote up to 100,000 hectares of its own land to grow wheat for the north African country. Kiev-based analysts questioned the feasibility of such an agreement after the former Soviet republic restricted its cereals sales earlier this year.
The discussions follow a barter contract signed between Egypt and Syria in which Cairo agreed to supply Damascus with rice in exchange for secure wheat cargoes. The Philippines also sought unsuccessfully last month to reach a deal with Vietnam to secure a large supply of rice.
Abdolreza Abbassian, an expert at the Food and Agriculture Organisation in Rome, said: “The use of bilateral agreements is on the rise.” Diplomats also say bilateral and barter contracts signal a broader trend.
“Some countries could view this [type of agreement] with interest as, in the event of future restrictions, they would be able to get the supply,” Mr Abbassian added.
Leading rice, wheat and soyabean exporters such as Argentina, Vietnam and Russia have restricted their foreign sales, triggering concerns among importing countries about food supply security.
Cereals traders say India has held talks with Kazakhstan to secure a bilateral contract for wheat, after New Delhi was forced to import the grain in the past two years, but added that it was unclear if any deal had been signed.
The move towards bilateral agriculture contracts marks a policy U-turn as such deals were gradually abandoned in the 1990s as countries started to rely on the international food market for their supplies, abandoning previous policies of self-sufficiency.
Analysts say that while bilateral agreements could help secure supplies, prices are likely to be at market prices rather than discount levels. Diplomats say Russia, Ukraine and Kazakhstan have been particularly involved in striking bilateral agreements as a way to expand their market share.
Some rich developing countries have also been investing in price-risk management using agriculture commodities derivatives, such as the futures for wheat, corn and soyabean traded at the Chicago commodities exchange, bankers say. Food prices have risen on average by 45 per cent since last summer, according to the United Nations’ FAO. The cost of wheat, rice, corn and vegetable oil have all hit records this year.