Top Flour Exporter Faces Bigger Wheat Bill If Trade Spat Endures

  • Turkey may have to pay more for wheat if Russian curbs remain
  • Restrictions will ‘lead to mutual losses:’ Russia’s Dvorkovich

A worker watches as wheat grain falls into a waiting truck near Bolshiye Achasary village in Russia.

Photographer: Andrey Rudakov/Bloomberg

Turkey, the world’s biggest flour exporter, may have to pay more for wheat if a food-trade spat with Russia isn’t soon resolved.

Turkey depends on Russian wheat to supply millers, but has slapped restrictions on some agriculture imports in retaliation for a similar Russian ban. To replace Russian wheat, Turkey will have to look elsewhere and end up paying higher prices, said Ivan Vikoulov, a partner at Gibraltar-based grain trader Quorum Capital Ltd.

The trade restrictions “lead to mutual losses” for both countries, Russia’s Deputy Prime Minister Arkady Dvorkovich said on April 7. Dvorkovich is scheduled to meet Turkish counterpart Mehmet Simsek for talks in Moscow on Tuesday, according to Aliya Samigullina, the spokeswoman for Dvorkovich.

If Turkish millers pass on extra costs to customers, that could hurt demand for flour exports that bring in about $1 billion a year, according to Faik Genc, managing director at broker and consultant AgriPro Ltd. in Istanbul. Ukraine, another major Black Sea wheat shipper, may only partly fill the gap because it typically provides lower-quality grain.

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Turkey, which ships flour to countries including Iraq and Angola, has already started importing more wheat from Baltic nations.

An extended standoff would also be bad for Russia because exporters rely on Turkey, the country’s second-biggest buyer of wheat, and farmers are still trying to offload last year’s bumper crop. Russia may sell more of the grain to African countries to make up for lost Turkish business, according to consultant UkrAgroConsult.

Ukraine doesn’t grow enough high-quality grain to cover Turkish millers’ needs, said Gennadiy Shulga, vice president of global business development at SGS SA, a Swiss inspection company. Firms prefer wheat with at least 12.5 percent protein content to grind into flour to be sold overseas, said Volodymyr Slavinskyy, a trader at Nibulon.

Ukraine would also have to rely more on its smaller ports to boost shipments to Turkey. Many Turkish ports are suited for smaller ships that leave shallow Russian waters on the Azov Sea, which links to the Black Sea. While Ukraine also ships from the Azov, most of its exports leave on bigger vessels from deeper Black Sea ports.

It’s also harder for millers, which are mostly small, private firms, to finance larger cargoes, AgriPro’s Genc said. In addition, bigger shipments would require more investment in storage capacity, according to Quorum’s Vikoulov.

Turkey bought 27,000 metric tons of wheat from Ukraine this season through February, compared with almost 2 million tons from Russia, according to data from UkrAgroConsult and Russia’s government.

“It’s a question of logistics,” Nikolay Gorbachov, president of the Ukrainian Grain Association, said in an interview in Kiev. About 95 percent of Ukrainian grain exports are carried on bigger vessels from big ports, compared with about 50 percent in Russia, he said.

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