‘Wheat OPEC’ idea faces uphill battle
A BRICS grain exchange won’t work, say analysts.
Russia’s proposal to create a new international grain exchange was recently approved by the BRICS group of countries at a summit in Russia.
BRICS is an intergovernmental organization comprising Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia and the United Arab Emirates.
It includes some of the world’s biggest crop importers and exporters.
“The main stage of the process has been completed,” Eduard Zernin, head of Russia’s Grain Exporters Union, recently told Reuters.
“The initiative to create an exchange has been approved at the level of BRICS country leaders.”
He said it would take years of preparation before the exchange is launched.
Dennis Voznesenski, an Australian agricultural economist and author of War and Wheat, said some fear the proposed exchange would morph into a grain version of the Organization of the Petroleum Exporting Countries (OPEC).
“It may surprise you to discover that a ‘wheat OPEC’ already existed, and it was put forward by western nations,” he said in a LinkedIn post.
He is referring to the 1933 International Wheat Agreement signed by some of the world’s largest wheat producers.
“The aim of the agreement was to stabilize price fluctuations in international wheat markets,” said Voznesenski.
They wanted to avoid the boom and bust cycle that occurred during and immediately following the First World War.
There were also attempts during the Second World War to deal with a large oversupply of wheat and support global prices.
“The U.S., Canada, Argentina and Australia co-ordinated to reduce area planted, fix prices and put limitations on exports,” he said.
“The measures struggled significantly. The problem with reducing area to raise prices is that every large exporter has to abide by the rules.”
Australia reduced its wheat area, while the other countries did not follow suit. And then the country was hit by drought.
“The result was a dangerous undersupply,” said Voznesenski.
“The undersupply was so severe at one point that an Allied grain vessel earmarked for war-torn Europe was redirected to Australia.”
Another attempt to support prices through export quotas failed when large producers such as the Soviet Union refused to participate and exported more grain to take advantage of improved prices.
“A grain OPEC may sound plausible, but due to grain production being less concentrated than oil (especially for wheat), the possibility of sustainable co-ordination is limited,” he said.
“Instead, the result is significant volatility in production and advantage to the countries not taking part.”
MarketsFarm analyst Bruce Burnett agrees with Voznesenski’s analysis.
“I don’t think it’s going to work,” he said.
“It’s extremely weird because Egypt is part of the BRICS complex as well, and they have a completely counter interest in this whole thing.”
Russia is the world’s largest wheat exporter and Egypt is the world’s largest importer in most years. The two are not going to see eye to eye on many aspects of the proposed exchange.
“It’s just going to blow up in their face,” said Burnett.
He noted that previous attempts at controlling grain production and prices had the support of most of the world’s leading exporters and they still failed.
The proposed BRICS exchange has one key exporter. Russia is expected to account for 22 per cent of world wheat trade in 2024-25. Brazil is a distant second at a little more than one per cent.
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