“The Houthi group’s attacks on commercial vessels sailing through the Bab al-Mandeb Strait, connecting the Red Sea to the Gulf of Aden, are heightening concerns in the global supply chain and trade. These attacks, occurring in response to Israel’s bombardment of Gaza, are compelling ships to alter their routes. The Red Sea route, playing a pivotal role in the global grain trade, enables the transportation of approximately 42 million tons of wheat annually from the Black Sea region and the EU to East Africa and Asia. Maintaining the openness of the Red Sea route is crucial for ensuring price stability in delivering the world’s most competitively priced Black Sea and EU wheat to these regions.”

The Houthi group’s attacks on commercial vessels navigating the Bab el-Mandeb Strait, linking the Red Sea to the Gulf of Aden, have caused a shock in the global supply chain and international trade. These Houthi assaults, in response to Israel’s bombing of Gaza, have significantly impacted international trade by compelling major shipping companies to alter their routes.

Four out of the world’s top five container shipping firms (CMA CGM, Hapag-Lloyd, Maersk, and MSC) have halted the passage through the Bab al-Mandeb Strait, a route through which approximately 30% of global container traffic transits. These companies, responsible for 53% of the global container trade, are redirecting their vessels to traverse the Cape of Good Hope. Other significant players like Zim, Evergreen, Yang Ming, Cosco, OOCL, HMM, ONE, and major tanker owners Frontline and Euronav have also suspended Red Sea transits. Even the global oil giant BP has ceased all shipments through the Red Sea.

Since the Houthi attacks, insurance rates for ships using the Red Sea have doubled. The costs for vessels linked to Israel have reportedly surged by 250%, leading some insurance companies to refrain from insuring such ships. As of December 27, more than 170 container ships were rerouted to South Africa to avoid the Suez Canal.

The gradual impact of increased transportation costs is unavoidable and will affect nearly every commodity, with cereals being particularly crucial for global food security. Consequently, the closure of one of the world’s most vital trade routes raises significant concerns about its repercussions on both global food security and international grain trade.

Despite the attacks, dry cargo ships carrying grain have not been redirected from the Red Sea. However, the shipping insurance association has heightened the risk level for ships transiting the Gulf of Aden. While the flow of ships for dry cargo remains unrestricted, there are plans to implement a war risk premium scheme, making it mandatory for shipping companies. 

42 MILLION TONS OF WHEAT IS TRANSPORTED THROUGH THIS ROUTE

When we consider that approximately 42 million tons of wheat is transported annually from the Black Sea region and the EU to East Africa and Asia through the Red Sea, it becomes evident how critical the Red Sea route is in global grain trade. This quantity corresponds to 10% of global wheat trade. East African countries, in particular, exhibit high sensitivity to the flow of the Red Sea. The necessity for keeping the Red Sea route open is strengthened by the fact that all the wheat they import traverses the Red Sea, and a significant portion of this wheat originates from the Black Sea and the EU, currently offering the world’s most competitive prices, contributing to price stability.

In the scenario of a complete interruption in the Red Sea, there would be a need to redirect grain shipments from the EU and the Black Sea region via the Cape of Good Hope. However, this alternative would result in extended voyage durations, elevated maritime transportation costs, and an estimated increase of 15% to 24% in transportation costs from the Black Sea to Asia. This, in turn, would diminish the overall trade volume to these regions due to the added 2 to 3 weeks in sailing days for each vessel. The cost of maritime transportation will also rise due to the prolonged duration of journeys.

2023 EVALUATION AND 2024 EXPECTATIONS

Chairman of the Turkish Flour Industrialists Federation (TFIF), Haluk Tezcan, who assessed the year 2023 in the cereal sector and shared expectations for 2024, emphasized that global financial crises, climate change, natural disasters, and wars pose risks for the industry in 2024. TFIF President pointed out the increase in wheat production worldwide in line with the population, noting that the annual global grain production has surpassed 2 billion tons. Haluk Tezcan expressed the following views:

As known, we have completed the 2023 harvest and planting season. In these days, as we move towards 2024, climate change, natural disasters, wars, and issues in energy resources stand out as significant risks for the upcoming season, alongside the global financial fluctuations experienced in the year we are about to leave behind.

There is an increasing wheat production worldwide along with the growing population. It is possible to state that in the world’s grain production exceeding 2 billion tons, there has been an increase of approximately 100 thousand tons in ten-year periods. By 2050, the world’s population is expected to stabilize at 10 billion. Although the population increase will lead to growth in production and consumption, concerns arise as production has lagged behind consumption in the last three years. Looking at the world’s major grain producers, Russia, Ukraine, and China, Russia achieved a production of over 47 million tons. Despite adverse developments in the last two years, Ukraine has exceeded 10 million tons of production this year. China, one of the largest wheat producers globally, meets its domestic demand with a consumption of 135 million tons. Despite a decrease in production areas in recent years, China has compensated for the deficit with increased yields. 

ANTICIPATED RISE IN WHEAT HARVESTS TO EXTEND THROUGH 2024 SEASON

Despite the contraction in cultivation areas, similar to China, our country experienced an increase in yield, keeping production levels stable. The drought in the 2021 season caused our production to drop to 17 million tons, but with the support provided in the last 2 years and the rainfall this season, we reached 22 million tons, the highest production figure in the last 6 years. We anticipate that this upward trend in production figures will continue in the 2024 season.

Flour consumption in our country has been consistently stable at 12-13 million tons. Given that Turkey accounts for approximately 30% of the world’s flour exports, it is challenging to boost export demand. After a declining trend for the last 5 years, exports surpassed 3 million tons again in the 22/23 season and are expected to push beyond the 4 million-ton mark in the 23/24 season. Iraq has been Turkey’s largest export market by a significant margin for many years. When comparing the 2022 and 2023 seasons, it is observed that Sudan and Sri Lanka were included in the markets this season. In the 2024 season, we anticipate the emergence of new markets for the sector. 

PURCHASING POWER IS DECLINING GLOBALLY

On a global scale, we observe a decline in the purchasing power of people’s earnings. They can buy fewer products with the same amount of money. Unfortunately, this also leads to a reduction in global demand for food. People are dining out less, becoming more attentive to minimizing waste. Once again, the access to food for low-income groups takes center stage.

In the 2024 season, our primary objectives include consumer protection, ensuring fair competition in the sector through a binding, rigorously enforced system of rules applied uniformly to all participants. Focusing on the quality and safety of raw materials, adherence to production standards, and the secure and reliable supply of food will be our paramount areas of focus.

Our newly implemented contracted production model aims to empower and economically incentivize small-scale producers, guiding us toward establishing a sustainable agricultural model that prioritizes producers, society, and the planet.

Aligned with the green consensus, we will intensify our efforts in the upcoming seasons to maintain quality, boost productivity, and accelerate initiatives towards zero carbon footprint.