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Egypt's wheat buyers should be careful what they wish for

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Egyptian grain officials should be careful what they wish for.

Gasc, the authority which handles the country's wheat imports, has questioned Ukraine's decision to ban exports of the grain and protect domestic supplies following a drought-hit harvest.

Such a curb "takes away from the credibility of the origin", Nomani Nomani, the Gasc vice-chairman, said.

Mr Nomani, whose organisation stands to lose 110,000 tonnes in shipments from Ukraine, is right.

But longer term it is Egypt rather than Ukraine which may suffer more if Kiev does decide to put its reputation as an exporter before its prerogative of feeding itself from its from its own harvest.

Merchants' melee

Ukraine's willingness to rely on export barriers in fact plays into Egypt's hands.

It means that Ukraine's merchants fight hand over fist to sign export deals at the beginning of the marketing year, when silos are flush with supplies fresh from harvest, before any risk of export curbs looms.

That means promoting short-term competitiveness at the expense of any long-term strategy for selling the grain at the highest price.

(Indeed, farm operator Trigon Agri on Wednesday revealed it had torn up plans for holding stocks to exploit potential rises in wheat prices in favour of selling while Ukraine's export market was still open.)

Big discounts

That's one reason why, at the start of 2012-13, Gasc could buy Ukrainian wheat some $14 a tonne cheaper than rival French supplies, equivalent to a saving of some $840,000 per cargo, and at an even bigger discount to US supplies.

And that is before including shipping charges, which are cheaper from the Black Sea to Egypt than from France or the US Gulf.

Offering such a hefty discount does not smack of wholly rational tendering, if assessed in terms of merchants planning measured and full-season campaigns.

But it makes perfect sense if wishing to exploit a potentially short window of opportunity, against competition from domestic rivals besides peers in Russia, whose 2010 export ban also spurred fears of a repeat this year.

Russia's lead

In fact, Ukraine should for its own sake eschew wheat export restrictions, and boost its "credibility" as a shipper.

That would turn off the taps on panic selling, and boost returns for the domestic grain industry at the expense of Egypt, and other buyers.

Russia already seems to have realised this. It has gritted its teeth and kept wheat exports open despite a harvest worse than 2010, even at the risk of being forced into sizeable imports itself later in the season.

Sure, it is not a programme without pain.

Russia's domestic prices have hit post-Soviet highs. And livestock groups such as Cherkizovo have invested heavily in grain farming to boost their access to feed.

But it does send a signal of fair play, to producers, merchants and importers, and promote long-term planning which is to the benefit of the whole food chain.

Hollow claim

As it is, Ukraine penchant for interference has tilted the industry towards Egypt and other importers.

Indeed, Egypt's call for Ukraine "credibility" rings hollow.

If Gasc really cared about reliability it would not have bought Ukraine wheat after Kiev's history of meddling over 2010 and 2011, nor purchased from Russia after the country' s export ban two years ago left the authority in the lurch.

Unsurprisingly for an organisation with many mouths to feed, Gasc has opted to put money, and quality, first.

By Mike Verdin

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