Concerns as Ukrainian dam collapse upsets global wheat market

Wheat prices have started to rise again in the international market for more than a week — triggering an alarm among local importers who are already facing hurdles due to the dollar crunch.

According to international media reports, the intensity of the ongoing Russia-Ukraine war has escalated recently. The Ukrainian dam collapse has impacted the global wheat market and reportedly put the renewal of the Russia-Ukraine grain deal at risk, which could further weaken the global supply situation. 

According to data from The Wall Street Journal, the price of wheat per bushel (25 kilograms) increased by 3.32% from $6.11 to $6.31 between 1 and 9 June.

The dam along the Dnipro River in the Russia-controlled area of Southern Ukraine was destroyed on 6 June, unleashing a flood in the low-lying areas on both sides of the river. The incident undermined the region's grain production and supply situation.

The Ukrainian government said the floods caused by the dam collapse will damage the crops cultivated on about five lakh hectares of land, as well as affect the country's supply chain.

The Russia-Ukraine grain deal expired on 18 May. It has been reported that the term of this contract has been extended, but the renewal of the contract has not been announced yet. This has also put the supply situation in the international wheat market under pressure, as Russia-Ukraine are two of the world's largest suppliers of wheat.

Although Russia showed a positive attitude towards the renewal of the agreement, they increased the intensity of attacks on Ukraine. In response, Ukraine started counter-attacks.

According to a recent Bloomberg report, wheat surged for a fifth straight day (From 1 June) after fighting between Russia and Ukraine escalated, with the destruction of a dam and damage to an ammonia pipeline that Moscow views as key to negotiations for extending the Black Sea grain deal.

Ukraine said Russia blew up the dam. The dam is some way from the three Ukrainian ports covered under the grain deal, but flooding poses a severe risk to people, transport and logistics. Russia denied any responsibility.

Concerns among local importers

Local importers have expressed concerns over the upward trend of wheat prices in the global market, following the dam collapse.

Redwanur Rahman, general manager of the Bashundhara Food and Beverage Ltd, told The Business Standard, "If the supply situation in Ukraine weakens again due to the dam collapse and the raging war, the price of wheat in the world market may increase, which will put us under pressure. We are already under pressure with the supply of wheat due to the dollar crisis."

Wheat is generally imported into the country at the government and private levels. Officially, the Directorate General of Food imports wheat. 

An official of the Ministry of Food, who did not wish to be named, told TBS, "Currently, the government has a good stock of wheat, which is why there is no need to worry about imports right now."

"Wheat was imported under the g-2-g agreement last year. We have a plan to import it the same way in the next fiscal year. If the price is high in the global market, the cost of import will also increase at the g2g level," he said.

According to local importers and suppliers, there is currently a large supply of summer fruits in the country's market. The demand for wheat and wheat products decreases at this time of the year. But since imports have been low for a couple of years, there is an effort among importers to increase supply despite low demand. 

Bangladesh has an annual demand for 65-70 lakh tonnes of wheat, most of which have to be imported.

In FY22, Bangladesh imported 8.7% of wheat from Ukraine and 2.1% from Russia. During this period, around 62.3% of wheat was imported from India. 

However, due to the war, when food shortages were feared worldwide, India stopped exporting wheat to ensure its own food security, leaving Bangladesh in danger amid the dollar and import source crisis.

Although the dollar crisis did not end, Bangladesh's public and private importers were forced to become dependent on Russia and Ukraine. 

Local importers feel that the country's import situation will be at risk again if problems arise in this supply chain because wheat is still not being imported from India.