Why Should Egyptians Worry About The Ukraine?

Egyptian wheat (Egytpian guy carrying pallet of flatbread)
A man carries bread on wooden racks to be sold to customers in Cairo, April 11, 2013.

When Russian President Vladimir Putin declared that violence in the Ukraine would be a “last resort,” on Monday, the ruble strengthened and oil prices fell on easing market fears. But Ukrainian grain exports could still be a problem, especially for the world’s largest wheat importer.  

“Whilst we do not expect significant disruption to the supply of any commodities, there is much greater potential for exports of grain from the Ukraine to be interrupted than energy supplies from Russia,” Tom Pugh, a commodities economist at Capital Economics, said in a report.

“While the risks to energy prices may be relatively small, Ukraine is one of the largest producers of grain in Europe, so crop prices could be more vulnerable,” he wrote.

Ukraine is the fifth-largest grain exporter worldwide, accounting for roughly 16 percent of global corn exports and 6.3 percent of wheat, according to the United States Department of Agriculture.  

Egypt imports more wheat than any other country in the world. Though the conflict between Russia and Ukraine hasn’t caused any problems yet, future price fluctuations could create further tension for an already-tense market.

The benchmark Paris milling wheat for May was up 0.9 percent to hit a three-month high on Wednesday, Reuters said.

Though economists don’t expect a supply shock any time soon, potential problems at Ukrainian ports or a delay in the spring planting season could cause trouble down the line.

Ukraine sends six hundred metric tons through its ports every week, so even one or two disruptions could have wide implications. Two major ports are Sevastopol, in the Crimea, and Odessa, where pro-Russian rallies have occurred.

Meanwhile, the country’s army reserves would include most men under 40-years old. If they were called into service, it could seriously disrupt the spring planting season. Again, this is only a possibility.

“For now we think that disruption to grain supplies is unlikely,” Pugh wrote, adding that the price of wheat should fall to $500 per bushel by the end of the year.

Though Egypt imports about 10 million metric tons of wheat every year, officials have stated there's no need to worry. But experts are keeping a close eye on the situation.

“They’re a huge importer of wheat and that’s what I’m worried about,” Matthew Spivack, practice leader for Middle East and North Africa at Frontier Strategy Group, an advisory firm for multinationals that operate in emerging markets, said. “It’s just something else that adds to volatility.”

Egyptian officials, however, have emphasized that the country is prepared.  

“Egypt’s imports of wheat will not be affected by political events that Ukraine is witnessing,” Mamdouh Abdel Fattah, vice chairman of the main government wheat buying agency GASC said on Saturday, according to Reuters

On Monday, the Egyptian supplies minister said the country had enough stocks to last until June.

Like other countries in the region, many Egyptian food products are highly subsidized. Citizens purchase loaves of bread for about $0.01 each, a program that costs the government about $3 billion annually. 

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