Like the wise farmer who knows disaster can and does strike, no matter how carefully he cultivates his harvest, policy makers at the Kremlin must be shaking their heads at how badly their well-laid plans have gone arwy.

Moscow had sown all the seeds a country should need to achieve a greater share of the global grain export market in recent years, having overhauled its agricultural industry and boosted sector investment. The result had been a near doubling of wheat exports between 2005 and 2009, from 10 million to 18 million tons, with Russia’s biggest export markets including Egypt, Turkey, Syria and Iran.

This amounted to Russia last year cornering 14 percent of global market share — a number that is precipitously set to plummet in 2010 from the disastrous interventions of Mother Nature and rising temperatures.

The wildfires raging across Russia this summer have destroyed as much as 25 percent of Russia’s wheat crop, with widespread drought diminishing yields of surviving fields. The United States Department of Agriculture (USDA) issued a revised forecast predicting that by year’s end the crop will shrink to 45 million tons from 2009’s 60 million.

In response, Prime Minister Vladimir Putin at the beginning of last month imposed a moratorium on grain exports for the rest of the year to protect domestic supplies and stave off inflation in the price of local foodstuffs. Russians consumed 42 million tons of wheat in 2009 — slightly less than the total expected crop this year, helping to explain the export ban.

Yet the move surprised many international observers, who expected Russian leaders to continue to complete export sales by tapping into government inventories, as moves to restrict trade can damage a country’s reputation as a reliable exporter. 

Futures contracts for wheat were dipping to nine-month lows in early June, trading at $4.30 per bushel — some $158 per ton — on the Chicago Board of Trade (CBOT), effectively the world benchmark for wheat prices. Prices rose quickly as the Russian fires spread and reports emerged that other major wheat producing countries — such as Canada and the Ukraine — were also facing crops losses. Wheat spiked following Putin’s announcement, reaching near $285 on the CBOT [See graph page 24].

Abdolreza Abbassian, senior grains economist at the United Nation’s Food and Agriculture Organization, told international press on August 6 that: “a situation which was not serious has now become serious.”

A New York-based commodity, who was not authorized to speak to the media, told Executive that wheat “futures have been very volatile recently,” adding, “they made new highs right after the Russian export ban… but have come off [those highs].”

As Executive went to print at the end of August, the CBOT’s price-per-ton was about $243.

Production vs consumption of wheat (millions of tons)

Imports vs exports of wheat (millions of tons)

Last time around

In 2007, an unusually volatile spate of natural disasters beginning in the summer caused widespread crop damage across the globe. This, coupled with rapidly rising fuel prices, spurred sharp inflation in foodstuffs globally. The price of wheat tripled on world markets, leading to social unrest and violence in many developing countries,  including Egypt, where rioters clashed with police when bread prices doubled.

This international food crisis revealed the interconnectivity of the modern world’s food and commodities markets, and exposed how dependent many countries are on these markets for their political and social stability.  

Russia’s sudden wheat export ban will force the Egyptian government to fork out $877 million extra to secure new supplies

Russian wheat in the Middle East

Egypt, as the world’s largest importer of wheat, has been particularly affected by Moscow’s export ban. The country’s total wheat consumption was 17 million tons in 2009, vastly outstripping domestic wheat production of 8 million — meaning Cairo must import the difference. The Egyptian government has said Russia’s sudden halt to wheat exports will force it to fork out $877 million to secure new supplies [For more see story on page 26].

Neighboring Jordan has taken steps to shore up its domestic stores of wheat last month, floating a tender for 100,000 tons, which was filled by Germany at a cost of $328 per ton on August 13. However, the increased price of wheat is not expected to cause a corresponding price uptick in Jordan’s bread market because of government flour subsidies, which cost Amman some $169 million in 2009.

“Despite the rise in international wheat prices, which will increase the cost of the government bread subsidy, we will continue supporting bread with the same mechanism,” said Amer Hadidi, the Jordanian Minister of Industry and Trade, to the Jordan Times. 

Syria and Lebanon will also have to import significant amounts of wheat this year. The effects of the Russian wildfires have combined with a ‘wheat rust’ fungicide epidemic, which has affected Syria particularly badly. According to the USDA, “the concentration of rust-affected crops is the highest in north-east Syria and southern and south-east Turkey, where the governments reported outbreaks in the prime wheat growing regions.” 

Syria imported 2 million tons of wheat this past year, which is its third consecutive year as a net importer after years of drought.

Wheat Futures US cents/bushel

GCC prepared and spared

Gulf States appear to be better equipped to manage the price spikes and supply shortages, with Saudi Arabia intending to wait another five months before issuing its next wheat tender. The kingdom is betting that wheat prices will drop in the interim period and that it won’t have to pay the current, inflated price. 

Speaking to Reuters, Waleed el-Khereiji, director general of the Saudi Grain Silos and Flour Mills Organization said: “I don’t foresee a crisis, or a crisis similar to what happened in 2007 and the prices now are still below their level in 2007.” 

Saudi stores of wheat are enough to meet domestic needs until April 2011; not counting another 200,000 tons of wheat that will be delivered in September. The kingdom imported just under 2 million tons of wheat in 2009, none of which originated in Russia.

The United Arab Emirates also appears to be minimally affected by the inferno that burned across the Russian heartland.

According to a report issued by the Department of Analysis and Business Information, 89 percent of the UAE’s wheat imports originate in Canada, Germany, Australia and Argentina. Russia by contrast, provides only 2 percent of the total.

“I don’t foresee a crisis, or a crisis similar to what happened in 2007 and the prices now are still below their level in 2007” 

The next harvest

Fortunately, there is some optimism that a good wheat harvest in other parts of the world will make up for the damage caused by the loss of Russia’s crop.

The USDA has reported that North Africa produced 20.2 million tons of wheat in the  2009-2010 season, up from 14.4 million tons the previous year. Factoring in Russia’s harvest failure, the USDA forecast for the 2010-2011 global wheat supply was only slightly adjusted from 676 million tons to 651 million tons, as other countries are stepping in to close the supply gap left by the Russians, led by the United States and Australia.

The prospect of Russia being forced to import grain from other countries over the next year, however, caused price volatility toward the end of August, with Dow Jones Newswires reporting Moscow may import up to four million tons of various grains through the 2011 harvest season.

Speculators are also adding momentum to the price swings and were a major factor in the steep rise in prices seen in the past month, according to Makram Makarem, senior financial consultant at FFA Private Bank in Lebanon

“This up-move [of prices] is led by investors buying back their short positions after Russia banned grain exports, as well as speculators and hedge fund managers wanting to ride the wave,” said Makarem to Executive.

He pointed out that people should keep things in perspective, however, when making comparisons to price hikes that caused the 2007-2008 food crisis.

“We need to note that wheat reached a high of $13.34 per bushel in February 2008 after a much steeper increase in price,” remarked Makarem, while the highest prices peaked last month was $7.75 per bushel.

Mohamad Ajami’s 65 beehives overlook the pastoral idyll of the Litani River Valley, with Jebel El Sheikh looming in the distance and Beaufort Castle laying to the right. Last year Ajami’s business was flourishing; he had a bumper honey harvest, generating 650 kilos. He was optimistic that this year would be even better, purchasing extra hives and equipment in anticipation of producing one ton of honey. At $25 for a 900-gram jar, Ajami should have netted more than $25,000.

But three months ago he started realizing all was not well. The winds had been continuously blowing from the east, dry, desert winds instead of the westerly winds that provide the right moisture and dew for flora to thrive, and for the bees to pollinate and produce nectar. Ajami also noticed that the bees were not breeding, meaning he could not artificially swarm them and build up the number of colonies to allow him to have more hives.

“That was when I realized something wasn’t right,” he said. “And while the summer flowers did come, there were no forager bees in the hives. Something did not encourage them to generate honey, something — beyond my understanding — that is beyond normal events.”

When it came to harvesting, Ajami’s suspicions turned out to be even more warranted than he had thought: “I only generated 50 kilos. It was not a harvest, it is solely for family consumption this year,” he said.

Ajami’s experience is not an exception; beekeepers throughout Lebanon have had a bad season, with rough estimates — in lieu of official statistics — of a 50 percent decline in production from an annual average of 200 tons. For Wadih Yazbek, a beekeeper and equipment distributor in Beirut, hardware sales are down 60 to 70 percent, indicative of the overall decline in the honey sector. “Beekeepers aren’t needing the extra hives and secondly, with not a lot of honey, keepers are not keen on purchasing new extractors or filters,” said Yazbek.

It is not just honey production that has been affected by the unusual weather patterns Lebanon has witnessed over the past year. Abnormal precipitation in the winter and spring — on average the same quantity but occurring over half the number of days — and a heat wave in prime harvesting time has also hit other agricultural sectors.

“We’ve had a lot of problems this year, particularly with grapes, olives, vegetables, apples and potatoes”

Leaner times

The United States Department of Agriculture’s (USDA) Foreign Agriculture Service estimates Lebanon will produce 100,000 tons of wheat this year, a 23 percent drop from the 130,000 tons grown in 2009. Green leafed vegetables have been frazzled by the sun, and fruits are ripening earlier than usual. “We’ve had a lot of problems this year, particularly with grapes, olives, vegetables, apples and potatoes,” said Elia Choueiri, head of the department of plant protection at the Agriculture Ministry’s Lebanese Agricultural Research Institute (LARI) at the Tal Amara Station in the Bekaa valley.

In some areas the olive harvest is down between 30 and 50 percent, particularly in areas where olives trees were not irrigated or had supplemental irrigation. At two major vineyards in the Bekaa some 70 percent of the grapes were lost, while vineyards at higher elevations have also been affected, particularly white grapes.

“The heat wave had an impact on the physiological status of the vine: a rapid increase of alcohol content because of the increased sugar content in grapes over a very short period,” said Carlos Adem, president of the Syndicate of Wines and Spirits. “In general, the year 2010 will not be one of the great vintages, like 2003 for example.”

In the north, trees have brought forth fruit but not enough leaves, due to it not getting cold enough over the winter. Japanese plums are down 40 percent and forest fires have also wrought damage.

“Each plant has a life cycle, but they are flowering before time, so the life-cycle is shorter. It’s because of climatic change,” said Roula Faris, Middle East representative of the Research Institute of Organic Agriculture. “Leafed vegetables and herbs have flowered early due to the temperature, and they are unmarketable.”

While the Bekaa has had temperatures this summer of up to 45 degrees, in the country’s mountainous regions — where a significant amount of produce is grown, whether fruit trees or in greenhouses — temperatures have soared to unprecedented levels.

“For the first time in Lebanon, even the mountains are hotter than the coast,” revealed Faris. On top of all this, phytoplasma diseases have affected stone fruits such as peaches and almonds, killing more than 100,000 trees within three years. LARI’s Choueiri said: “We have tested over 100 insects to find the pathogen, but don’t know what kind of insect is spreading the disease… Also, due to the hot weather, the activity of these insects is higher, and we’ve seen large infections of peach trees in the south and the Bekaa. The diffusion is getting higher year after year.”

So far this year, LARI has recorded a further 40,000 trees in the south affected by the phytoplasma which, curiously, on a regional basis is only affecting Lebanon and Iran.

Give them bread

The extent of losses in the agricultural sector will not be fully known until harvesting is finished and all the data is collated. While early indications imply it has been a bad year, it has not been a total disaster, with some regions affected far more than others.

Lebanon has not experienced the drought that neighboring Syria has gone through over the past five years, which has hit agricultural output hard and affected the livelihoods of more than one million people. But the reduced yields have coincided with poor crops globally, particularly in fire-ravaged Russia, which has driven up global wheat prices, and the disastrous flooding in Pakistan, which has reduced rice cultivation [see story on page 32].

As global food prices are on an upward curve, Lebanon is sure to be affected. The country imports some 70 percent of the food it consumes, according to the United Nations’ Food and Agricultural Organization (FAO). Indeed, with wheat production in Lebanon down 42 percent, the government banned exports at the beginning of August, preventing a ship loaded with 4,000 tons of grain at the Beirut port from setting sail.

Lebanon imports some 400,000 tons of wheat per year, and the government went to the international markets to purchase an immediate 50,000 tons last month, either for strategic reserves or to regulate domestic wheat and flour prices.

“With wheat prices at today’s level, around $320 for a ton, flour should be around $450 per ton or more but the ceiling for bread prices was set [by the government] at a maximum of $320 for a ton of bread,” said Arslan Sinno of Dora Flour Mills and president of the Syndicate of Agrifood Traders. “Someone must pay the difference, certainly not the millers, nor the bakers, so either the consumer by liberalizing the price of bread — which may increase the pack price from LL 1500 ($1) to maybe LL1800 ($1.20) or LL2000 ($1.33) — or the state by subsidizing the wheat by about $200 per ton.”

If the government subsidizes wheat it will come at a heavy cost to the state’s coffers. The alternative is higher costs for the Lebanese populace and potential rioting if bread prices do spike, as happened in Beirut in January 2008, when rumors spread that prices were to rise.

The new agricultural plan

The agricultural sector as a whole in Lebanon is underinvested, which has only compounded the losses caused by the topsy-turvy weather this year. According to the Lebanese Farmers Syndicate, agriculture generated some $1.5 billion in gross revenues in 2009, but could generate $3.5 billion if there was sufficient infrastructure investment.

According to research at the American University of Beirut (AUB),  some 50 percent of rural families rely on agro-food production. AUB also said that around 20 to 25 percent of the country’s workforce is employed in agriculture, although the Ministry of Agriculture puts this figure at nine percent. Either way, climatic change clearly poses a threat to agriculture’s potential and therefore to the income generation of a good swathe of the populace.

This importance finally seems to be coming to the forefront in politics, with Agriculture Minister Hussein Hajj Hassan releasing a four-year plan to address the sector’s core problems.

“As of this year, the agriculture ministry has started to be more active,” said LARI’s Choueiri, adding that LARI has taken on a further 70 staff to improve research. “If you compared 10 years ago to today, our work has improved incredibly.”

Implementing reforms requires data, which is currently sorely lacking; the last census on the agricultural sector was in 1988. FAO is carrying out a new census for the whole country, slated for release in October. “We’ve a horizontal project for synergy between all the ministries for efficiently developing the agricultural sector to help realize its potential,” said Ali Moumen, FAO’s representative in Lebanon.

LARI and the Ministry of Agriculture have implemented a strategy to boost and retain production levels. “We are working on new varieties that support dry climatic conditions, such as introducing new apple varieties at an altitude of 700 meters instead of the old varieties of the Bekaa,” said Choueiri.

Farmers are being given codes for identification purposes in the event of disease, nurseries are being monitored, workshops are being held on growing techniques and pesticide use, and a forecast service by LARI kicked off this year that sends text messages to farmers about disease and climatic change.

Organic agriculture, although very much in its nascence, is also improving, with the number of hectares rising from 250 to 2,465, and organic farmers increasing from 17 to 331 since 2000. “Organic agriculture can reduce global warming as there is lower water usage, it increases biodiversity and improves soil fertility,” said Faris.

Improvements in the sector will certainly help offset climatic change, but for the immediate year ahead, much will depend on future temperatures and whether precipitation is better spread and rainwater retained.

“If this year there is again hot weather over the winter period, it will be a big problem for apples, pears and cherries,” said Choueiri.

While the proactive approach of the ministry may offer room for cautious optimism — though very much weather dependent — many agriculturalists will be feeling the sting this winter.

For beekeeper Mohamad Ajami, the income he planned to live off has disappeared.

“I am really concerned about saving the bees for a harvest next year. Adding insult to injury, my whole land was burned as it was so dry and someone must have flicked a lit cigarette,” he said. “My focus was this line of work, but I’ll have to do something else to survive the rest of the year.”