November 26, 2010

 

Russia wheat export ban affects grain millers

 

 

Grain and milling industries in the country had been affected by higher wheat prices following an extension of Russia's wheat export ban and also the depreciation of the shilling against the US dollar.

 

The ban in Russia had highly affected local importers in Tanzania as they have to buy wheat from Ukraine whose wheat prices has skyrocketed and the country is selling the product on a quota system.

 

Tanzania Grain Millers Association Chairman, Dharmapal Gupta, said that apart from the ban and the depreciation of the shilling, piracy has also contributed tremendously on the rising wheat prices as they now have to travel the longer way to Durban and then Tanzania.

 

"Previously we were using the shorter route that was from Russia. We used the Mediterranean Sea into the Gulf of Eden and then to the coast of East Africa but now this is not possible because of the pirate incidents," he lamented.

 

He said that there have been a number of challenges in the milling industry in Tanzania, which includes high taxation and high electricity costs, fluctuation of the dollar and fluctuation of world wheat prices had made the local milling industries struggle to remain in business.

 

He said that wheat prices have increased from US$230 per tonne to US$360 per tonne including transportation to Dar es Salaam and this had affected the industry severely.

 

"Prices had increased substantially than the price before the Russian scare," he said.

 

"Most millers finance their working capital from short-term borrowings from banks at an unpredictable interest rate. This discourages companies from operating with substantial strategic stock that would otherwise mitigate unforeseen risks," he said.

 

Gupta said that Tanzania is currently importing 500,000 tonnes of wheat annually and most of the imports come from countries like Russia, Ukraine, Germany, Australia, Belgium, Canada, USA, and Latvia, among others.

 

It is estimated that Tanzanian grain importers pay extra US$100-US$150 for every tonne of wheat imported into the country. Wheat prices hit a two-year high in August this year when weather conditions ravaged one-fifth of Russia's cereal farms, forcing the world's third largest producer to ban exports.

 

Prices soared 42% in July, in what analysts described as the biggest monthly gain in at least 51 years. Canada, another major exporter of wheat, expects the lowest wheat yields since 2002 because of crops that were destroyed by heavy rains or left unplanted.