In today’s Financial Times you can find an interesting article about countries securing food supplies by arranging barter deals. A quote:
“Wheat traders said on Thursday that Ukraine was close to an agreement with Libya to devote up to 100,000 hectares of its own land to grow wheat for the north African country. Kiev-based analysts questioned the feasibility of such an agreement after the former Soviet republic restricted its cereals sales earlier this year. The discussions follow a barter contract signed between Egypt and Syria in which Cairo agreed to supply Damascus with rice in exchange for secure wheat cargoes. The Philippines also sought unsuccessfully last month to reach a deal with Vietnam to secure a large supply of rice. Abdolreza Abbassian, an expert at the Food and Agriculture Organisation in Rome, said: “The use of bilateral agreements is on the rise.” Diplomats also say bilateral and barter contracts signal a broader trend. “Some countries could view this [type of agreement] with interest as, in the event of future restrictions, they would be able to get the supply,” Mr Abbassian added. Leading rice, wheat and soyabean exporters such as Argentina, Vietnam and Russia have restricted their foreign sales, triggering concerns among importing countries about food supply security. Cereals traders say India has held talks with Kazakhstan to secure a bilateral contract for wheat, after New Delhi was forced to import the grain in the past two years, but added that it was unclear if any deal had been signed.”
More financially literate countries also invest in food derivatives to cover the rising food costs:
“Some rich developing countries have also been investing in price-risk management using agriculture commodities derivatives, such as the futures for wheat, corn and soyabean traded at the Chicago commodities exchange, bankers say. Food prices have risen on average by 45 per cent since last summer, according to the United Nations’ FAO. The cost of wheat, rice, corn and vegetable oil have all hit records this year”
This is very interesting development. Barter is very inefficient and makes things worse. It diverts part of the production from the world markets, and with lower liquidity market prices may become much more sensitive to news, climate disasters, etc. Agflation can be dealt with only by global, collective actions. Bilateral (secret or not) agreements are likely to make the current food crisis deepen and last longer. And those who but food derivatives may indeed make good returns in the coming years. Given this policy blindness we should pray for a very good weather this year.