Red Sea attacks reverberate in food and ag trade

Houthi attacks on cargo ships in the Red Sea are disrupting grain shipments from Europe, Ukraine, and Russia to customers in East Africa and Asia, with the potential to drive up food costs in import-dependent countries, said a think tank blog on Wednesday. “While this worst-case scenario for the Red Sea crisis is still unlikely, the current disruption is a reminder of the fragility of supply chains and the need for countries to be flexible in sourcing food when disruptions occur,” it said.

Ship traffic on the Suez Canal is down sharply since the beginning of the attacks by Houthi militants based in Yemen. The Biden administration, which has coordinated an armed response to the attacks, said on Wednesday that it would label the rebel group as a “specially designated global terrorist.” National security adviser Jake Sullivan said the designation was “an important tool to impede terrorist funding to the Houthis, further restrict their access to financial markets, and hold them accountable for their actions.”

A relatively small share of the world’s grain passes through the Suez Canal: 14 percent of cereals and 4.5 percent of soybeans at the start of this decade, according to a Chatham House analysis. World Trade Organization data suggest that 20 to 30 percent of wheat exports from the European Union, Russia, and Ukraine could be affected if shipping companies decided to take the much longer, and more expensive, route around Cape Horn to reach East Africa and Asia, said the blog by the International Food Policy Research Institute (IFPRI).

“Trade disruptions are most likely to impact the countries in East Africa, South Asia, Southeast Asia, and East Asia,” said the blog, written by IFPRI senior research fellow Joe Glauber and senior research analyst Abdullah Mamun. Iran and Pakistan, for instance, rely heavily on wheat imports from Europe and the Black Sea region, as do East African nations.

“If the disruptions continue, consumers in importing countries will end up bearing some of the cost increases. Countries may choose to seek alternative suppliers, although El Niño-related impacts have reduced wheat production in Australia, another major supplier to the region,” wrote Glauber and Mamun. Higher transportation costs also could pinch the prices offered to farmers for their crops in Europe, Russia, and Ukraine.

China has accounted for 30 percent of Ukraine’s corn exports since 2020. “Increased costs of sourcing Ukraine maize would likely push China to increase imports from the United States and Brazil,” said the blog.

Export demand for U.S. corn has held steady despite disruptions at, first, the Panama Canal, due to drought, and now, the Suez Canal, said USDA analysts last week. In the fall, shippers rerouted corn bound for Japan from New Orleans through the Suez Canal because of long waits at the Panama Canal. “However, recent Houthi militant attacks in the Red Sea have resulted in ship rerouting around the Cape of Good Hope, an even longer route,” the analysts said.

Another effect, said the USDA, was a huge increase in the volume of corn sold for delivery to Mexico and Colombia — 57 percent of corn inspected at U.S. Gulf ports from last September through December, compared to the four-year average of 20 percent. “For the first time since at least 2016/17, FGIS [Federal Grain Inspection Service] inspected 80,000 [metric] tons of exports to El Salvador and Guatemala via the Pacific Northwest.”