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Effect of drought on raw material prices

28 January 20227 min reading

Wheat prices have increased all over the world because of the drought, the increasing demand due to the pandemic, and the export restriction of producer countries. In Turkey, on the other hand, the increasing exchange rate also increased the prices. Consequently, the price of wheat in Turkey has increased from 2,250 TL to 4,500 TL in the last year. Wheat prices reached 6,500 liras for a few days in December.

Climate change is one of the most dangerous environmental issues of our time, affecting all industries of the economy. One of the disasters caused by climate change is drought. Agriculture, by its very nature, is the sector that will be most affected by climate change. Attempts to reduce greenhouse gas emissions, which cause climate change, also affect the production activities for countries. Therefore, climate change is also a development problem. 

The most important effect of drought is the decrease in agricultural production and that it threatens food security. During droughts; the decrease in the amount and quality of agricultural products and food supply, the increase in food prices, the difficulty in accessing food particularly for low-income groups, malnutrition, and hunger can cause deaths. This poses a food security threat. The effect of the droughts continues in the following years. This is because the farmers, whose capital decreases during the drought, may withdraw from production in the post-drought period or may produce less with the use of less land and inputs compared to normal seasons.


The fact that the prices are higher due to the lack of production during the drought periods makes it difficult for low-income groups, children, and adolescents to access food for a healthy and balanced diet, especially to food of animal origin.

Drought as a result of global warming negatively affected agricultural production throughout the world. Due to drought, especially wheat and corn production has decreased substantially in many countries. Among them is Turkey. The long-lasting drought in the Konya Basin, which is described as Turkey's granary, has battered the wheat harvest. Likewise, due to the drought in the Southeastern and Central Anatolia Regions, there were substantial losses in yield. This was reflected in wheat prices as an increase. Price increases in products such as wheat, barley, and corn directly affect basic food products such as pasta, bulgur, and bread.

Losses in grain production led to an increase in imports. However, due to the heat waves in the Northern Hemisphere, the world's two largest wheat producers, Russia and Canada, also experienced a decrease in yield. 

According to the official figures announced, around 20 million tons of wheat was produced in Turkey in 2020. However, because the drought in 2021 caused yield losses of up to 70 percent in some places, yield estimates are revised with a sharp decrease. According to the Turkish Statistical Institute (TURKSTAT), which announced the production amounts for 2021, wheat production decreased by 13.9 percent and fell to 17.7 million tons. Experts estimate that the wheat harvest for 2021 will vary between 12 million and 17 million tons.  

Due to both the low production and the increase in input costs, there were substantial increases in wheat prices. The drought is not the only reason for the increase in the price of wheat. The increase in the cost of production is regarded as one of the biggest factors in the increase in agricultural product prices. Fertilizer prices have increased exponentially all over the world. 

According to the grain purchase prices announced by the Turkish Grain Board on May 17, 2021, durum wheat's price was determined as 2,450 TL per ton with an increase of 36% compared to the previous year, and Red/White Hard Bread Wheat as 2,250 TL per ton with an increase of 36% compared to the previous year. These prices, announced by TMO, which has a regulatory and stabilizing role particularly in the grain and pulses markets, were very high compared to the previous year. However, it still was well below the market prices associated with the drought and the COVID-19 pandemic.  

However, due to the increasing demand affiliated to the pandemic, the export restriction of producer countries, drought, and the increasing exchange rate, the price of wheat in Turkey has increased from 2,250 TL to 4,500 TL in the last year. Wheat is the raw material of the most basic foods in human nutrition such as bakery products, pasta, and bulgur. Therefore, it is more vital than other agricultural products. For this reason, the demand for wheat products has increased unprecedentedly during the COVID-19 pandemic all around the world.


The increase in wheat prices, which was reflected as a hike in bakery products such as flour, bread, pasta, bagels, pastry and baklava, had reached 6,500 liras per ton at the Polatlı Commodity Exchange for a while. Negative effects of drought and high taxes imposed by exporting countries and the speculative increase in the exchange rate were effective in the rapid increase in wheat prices.

In the import tender for 385 thousand tons of wheat initiated the by Turkish Grain Board (TMO) on November 25, the price reached 395 dollars per ton. Prices ranging from 394.90 dollars to 380 dollars per ton were offered for 13.5 protein wheat, which constitutes 210 thousand tons out of the total capacity of 385 thousand. Prices for 12.5 protein wheat, which constitutes 175 thousand tons, ranged from 387.40 dollars to 376 dollars per ton. However, in the 320 thousand-ton wheat import tender held by TMO on December 21, 2021, the price decreased by 20.1 dollars per ton for 12.5 protein bread wheat and 32.90 dollars for 13.5 protein bread wheat compared to the previous 385 thousand ton-tender.

The steps that were taken to sell wheat at affordable prices to flour mills by constantly replenishing the stocks by TMO in an attempt to ensure food safety of the Turkish population and protect the producers prevented panic in the markets.  

The prices, which were substantially affected by the drought, regressed a bit with the rainfalls across the country in October and November. Compared to the same periods of the previous year, that is, from seed time in October and November until mid-December, this year got more precipitation. These rains brought prices down, which had skyrocketed due to the exchange rate and global prices. 

Looking at the prices in Turkey, the Turkish Grain Board announced the purchase price of bread wheat for 2021 as 2,250 liras per ton on May 17, 2021. This was equivalent to $269 that day. The USD/TRY rate was 8.36. From that day to December 2021, one ton of wheat used by Turkey increased by approximately 100 dollars in foreign currency terms. When calculated with the exchange rate at the beginning of December, one ton of wheat exceeded 4,500 liras. Bread wheat was traded on stock exchanges over 6,000 liras for a while. Thus, the price of wheat has reached a level that is more than twice the purchase price of TMO within 7 months only. For this reason, prices of all bakery products, particularly bread and pasta, increased one after the other. 

The fact that the precipitation is currently below the averages compared to previous years and the fact that the producers go after the products that require less fertilizer or simply use less fertilizer due to the fertilizer prices more than quadrupled in the last year show that the wheat yield in Turkey will further decrease in 2022.

TURKEY IS THE NUMBER 1 CUSTOMER OF RUSSIAN WHEAT

67 percent of the wheat imported by Turkey is supplied by Russia. Turkey purchased 6.5 million tons out of its total wheat import of 9.75 million tons from Russia, 1 million tons from Ukraine, 550 thousand tons from Canada, 400 thousand tons from Mexico, and 300 thousand tons from Lithuania. This year Turkey became the number 1 customer of Russian wheat. Russia exported 16.6 million tons of wheat between 1 July and 11 November. During this period, its exports decreased by 16 percent. Turkey bought 3.3 million tons of wheat as of November and became Russia's best customer in the 2020/21 season.


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