Threats the War in Ukraine Poses to the Global Food Security

Black Sea region is the leader of agricultural goods supply to the global market.

The countries of the region, mainly Ukraine and Russia, account for aggregated 29% of wheat export, 19% of corn export, and 80% of sunflower oil export. In the current season (July 2021 – June 2022), projected grain export from Ukraine constituted 56-60 million tons – over 30 million tons of which were exported by the end of last year. Russian grain export potential for the current season is 43 million tons, over a half already exported. The estimated number of people on the globe, directly or indirectly depending on these goods, constitutes at least half a billion.

That is what the overview of the season looked like – and it had every chance of coming true.

On February 24, 2022, Russia began the war against Ukraine.

Two weeks into the full-scale war, the export of the last harvest grains from both countries continues. Neither the military actions of the aggressor nor the sanctions imposed on Russia due to them stopped it.

In the sanctions package of the USA, both export and import of agricultural goods from Russia as well as medical supplies are exempt from the embargo. The American side justified this exemption in slightly vague wording of minimizing the risks of “unintended consequences for the third parties.” They most likely meant humanitarian programs implemented in the countries with a short supply of those goods. At the same time, the sanctions apply to the Russian Agricultural Bank – the institution has already stated they will meet or try to meet their commitments before the partners. It is highly probable to work out since this bank operates on the internal market and does not use the resources of the American debt market to which the sanctions restrict access.

Thus, de jure exports of Russian agricultural products may continue. De facto, under a formally free trade regime, a number of partners began to implement self-sanctions. Ethical considerations are unlikely to prevail here: buyers are deterred by the risk of physical disruptions to supplies, increased insurance premiums, and the unpredictable situation in the Azov and Black Seas. There are already examples of logistical collapses – for example, about 380,000 tons of sunflower oil worth $ 570 million from the Black Sea region could not be sent to India due to port failures in Russia and Ukraine. New purchases have been suspended, and Indian traders, who buy about 1.3 million tonnes of oil a year, have switched to soy and palm counterparts.

At the same time, there are difficulties with contractors: the largest container lines, which serve more than a third of the world market, stop working with Russia. Maersk, Mediterranean Shipping Company and CMA CGM, in particular, have officially announced the suspension of bookings.

The Russian Ministry of Agriculture reports that “importers of Russian grain do not abandon agreements, but do not conclude new ones”.

Ukraine also continues to export grain. Traders are in a hurry to close the contracts, while the sea routes are open and until the government comes to its senses and closes exports. Given that the chances of a full crop are slim and the prospects for the next harvest are in question, it is likely that a decision will be made to leave the resource inside the country.

Current exports are the last remnants of the “normality” of the world food situation. Whether Ukraine will be able to generate export potential next season directly depends on how and to what extent the spring sowing campaign will be conducted.

Wartime Sowing

Traditionally, the spring sowing campaign in Ukraine starts in late February – early March from the southern regions. In 2022, the South of the country is one of the epicenters of active military operations, where it is physically impossible to enter the field. One of the agricultural producers concisely described the current agrarian climate as follows: “The fields are occupied with tanks.”

But even in relatively peaceful regions, such as Poltava region, problems arise due to the rupture of logistics chains – for example, warehouses of plant protection, seeds, fertilizers can be located near Kyiv, or in other places where it is impossible to reach due to fighting or destroyed infrastructure. Provision of resources in a significant part of farms is 30-50%.

According to the survey of agrarian producers conducted by Mind, the main issue is fuel. The following problem deals with the lack of fertilizers, seeds, plant protection substances, parts of agricultural vehicles. Some households complain that they ordered all necessary stuff in autumn but now they do not have a possibility of receiving it. One more issue is the lack of working capital. The majority of resources’ suppliers demand full payment. Whereas, previously, agrarians could make payments after harvesting and selling a part of a crop. This format does not work now. Even those companies who are ready to start working, are backing off because they cannot pay season workers.

The possibility of purchasing plant protection substances, seeds and fertilizers in Poland is being secretly discussed, but it still does not solve the issue of logistics of resources within the country.

The Ministry of Agriculture does its best to start sowing in regions where it is possible.

Consequences and beneficiaries

Global food prices are already approaching long-standing maximums – and that is not the limit. According to the Director-General of the Agrarian Business Club, Roman Slasten, over the first week of the war, prices for grains skyrocketed from $300 to $400 per ton.

Wheat prices increased to reach the 14-year maximum of March 2008. Global prices for edible oils hit records of long-lasting maximums.

April 1 is a conditional deadline for us to engage in sowing works, – he says, reminding, that otherwise, even if there are supplies on the global market, they will be highly expensive.

The first manifestations of such conjuncture are obvious. Egypt, one of the largest global wheat importers, had to cancel a tender twice this year – on February 24 and February 28 due to the increase of the prices for over $80 per ton compared to the previous acquisition. Reminder: the share of Russia and Ukraine in global import in 2021 constituted 50% and 30%, respectively.

According to the Speaker of the Cabinet of Ministers of Israel Nader Saad, the country has to schedule imports from other regions. Egypt has a total of 14 countries it can import wheat from, including the USA, Canada, and Argentina.

Global importers of wheat, corn, and oil will probably look for alternative suppliers outside the Black Sea region.

It is impossible to drastically increase yield and, respectively, export resources within one season, though. Besides, logistics does not allow to compare supply prices from the middle of Europe and, say, Argentina.

India may be called a conditional beneficiary of the war. It may increase amounts of wheat and vegetable oils sales to Turkey, Egypt, and Bangladesh and poultry meat and food eggs to the Middle East countries. The estimated surplus of wheat India can channel to export is 24.2 million tons which is twice the internal amount in this food category.

Today trade in grains with the Black Sea region is ceased – except previously concluded contracts. The buyers are not sure they will receive the contracted consignments, while agricultural sellers rightfully believe it is better to preserve their capital in grain with the prices skyrocketing speedily. Future crop formation remains doubtful.

In the meantime, the world is approaching a humanitarian disaster.

However, FAO – the agricultural department of the UN – failed to make a clear statement on the issue, the problem remains hushed up. The sooner international institutions step up and make efforts to stop the aggressor – the higher are the chances to prevent global starvation in the world.

Mind.ua

Tags: Ukraine, Russia, grain, war