[Update Below] On Wednesday the G20 Summit in Indonesia concluded with a communique that includes:
Most members strongly condemned the war in Ukraine and stressed it is causing immense human suffering and exacerbating existing fragilities in the global economy – constraining growth, increasing inflation, disrupting supply chains, heightening energy and food insecurity, and elevating financial stability risks.
Bali and at the Black Sea are linked, more directly than you might think.
Ukraine is typically the source for a significant portion of global food flows — especially corn, wheat, and sunflower oil. Ukraine’s food flows have been disrupted by Russia’s invasion. Early in the war Russian naval attacks — and anticipated amphibious operations — trapped ships in several ports, damaged warehouses, docks, loading facilities, and vessels, and excluded commercial operations in the northwest Black Sea, north of the Danube Delta. This blog did not anticipate any of Ukraine’s ports being reopened until hostilities concluded.
On July 27 Turkey and the United Nations brokered a temporary deal. I did not expect the agreement to stick. But it has — so far. By mid-August a slow flow of foodstuffs had restarted. Several ports remain closed. Sources and channels are profoundly constrained. But according to the United Nations, “As of 17 November, the total tonnage of grain and other foodstuffs exported from the three Ukrainian ports is 11,186,228 million metric tons. A total of 941 voyages (470 inbound and 471 outbound) have been enabled so far.” This flow has been fundamental to sufficient global volumes and some very rough semblance of affordability.
Food security is an acute concern in the Horn of Africa, across the straits in Yemen, all along the Sahel, and in many other places as a result of local crop failures and/or inability to pay in dollars (more and more). Food security is a core long-term strategy for several nations, among them the People’s Republic of China.
S&P Global recently wrote, “In recent years, China’s astounding growth in commodity consumption has outpaced its domestic supplies, compelling the government to import food commodities in large volumes. The Xi administration acknowledges the dire need to raise agricultural imports to satisfy domestic demand. But all that dependency on imports is leaving China vulnerable in its quest to become a superpower… China has been importing corn primarily from the US and Ukraine. However, supply from these origins have been uncertain due to geopolitical tensions.”
This is not where Xi wants to be. So, Xi was ready to agree when the G20 draft communique offered:
We support the international efforts to keep food supply chains functioning under challenging circumstances. We are committed to addressing food insecurity by ensuring accessibility, affordability, and sustainability of food and food products for those in needs, particularly in developing countries and least developed countries. We reiterate our support for open, transparent, inclusive, predictable, and non-discriminatory, rules-based agricultural trade based on WTO rules. We highlight the importance of enhancing market predictability, minimizing distortions, increasing business confidence, and allowing agriculture and food trade to flow smoothly. We reaffirm the need to update global agricultural food trade rules and to facilitate trade in agricultural and food products, as well as the importance of not imposing export prohibitions or restrictions on food and fertilizers in a manner inconsistent with relevant WTO provisions. We are committed to sustained supply, in part based on local food sources, as well as diversified production of food and fertilizers to support the most vulnerable from the disruptions in food trade supply chain. We will avoid adversely impacting food security deliberately. We commit to facilitate humanitarian supplies for ensuring access to food in emergency situations and call on UN Member States and all relevant stakeholders with available resources to provide in-kind donations and resources to support countries most affected by the food crisis, as required and based on assessed needs by governments of affected countries. We continue to support the carve out of humanitarian activities from sanctions and call on all nations to support this aim, including through current efforts at the UN. We will continue to closely monitor the state of global food security and nutrition.
Following release of the surprisingly strong Bali declaration, one insider was quoted, “The Indonesians were smart. They started on something everyone could agree on, which was food security, and then built on that…” If food security is fundamental, there is every motivation to acknowledge what is happening to Ukraine’s grain and support continued flows. After several days of negotiations, it was clear to almost everyone — even the Russian Foreign Minister at Bali — where the G20 would land on Wednesday. This was instrumental to deciding where Turkey, the United Nations, Russia, and Ukraine would land on Thursday.
Supply Chain Resilience is a policy, strategy, and practice to maximize continued flows of demand and supply under severe duress. Supply Chain Resilience focuses on natural, accidental, and intentional disruption of flows. Intentional government action is a recurring source of various impediments ranging from delivery curfews to weight restrictions to public health interventions to bombing port facilities. Government actions usually have a purpose only indirectly related to supply chains — and the flow impediments caused by these intentional acts are often unintended.
Our settings are seldom as dramatic as Bali and the Black Sea, but Supply Chain Resilience often involves unveiling heretofore hidden connections between flows and policy. Reducing impediments and releasing flows often requires resolving heretofore hidden conflicts between policies. Supply Chain Resilience often depends on key decision-makers (both private and public) recognizing that flows of water, food, fuel, pharmaceuticals, and other critical freight are priorities that should not be unintentionally constrained — especially in a crisis.
Following is an infographic developed by S&P Global and published on November 16.
November 24 Update: S&P Global reports, “The first shipment of Brazilian corn has started its voyage to Guangzhou, China after MV Star Iris, laden with 67,000 mt of corn, sailed from the Brazilian port of Santos at about 5 pm local time Nov. 23… Currently, China imports corn from the US and Ukraine to meet its domestic demand on top of its local production. China’s long-awaited participation in the Brazilian corn market is expected to shift global trade flows for corn…”
November 29 Update: S&P Global reports, “Corn buyers in Europe are growing concerned that their competitively priced supplies from Brazil will dry up as China begins to buy from there too.”