Author: Adrien PERNET
Date of Publication: 11/05/2022
For several months now, military operations in Ukraine have multiplied, revealing an area of great tension. This war will have important consequences, both geo-political and human. Nevertheless, it would be appropriate to focus on other consequences that we sometimes tend to forget: the consequences related to agriculture. Didn't you notice that wheat prices have increased considerably? There is no doubt that there may be a link with the war in Ukraine, and that is what you will see in this article.
What are the direct consequences for Agriculture in Ukraine?
No doubt that a conflict in Ukraine is not insignificant for this country. Indeed, like Russia, it is a country that has focused on its agriculture, especially during the last twenty years. Also, the Black Sea basin is today a strategic place in terms of agricultural resources. So, the production of Ukraine, in field crops, is mainly composed of cereals, oilseeds, rape, wheat, corn or sunflower (largest producer of sunflower oil in the world).
This important production would represent some 110 million tons, which is 3 times more than what Ukraine produced 10 years ago. This means that agriculture plays an essential role in Ukraine, which is sometimes called "the granary of Europe".
For this reason, logically, it is appropriate to look directly at companies. Yes, the companies involved in this agricultural production are currently facing a major crisis. At present, no one can say what their state will be after the war. The national companies are in difficulties, but also the international companies established in Ukraine which sometimes take the decision to simply stop their activity. Therefore the future of these companies and subsidiaries in Ukraine is completely uncertain.
More than Ukraine, the whole world is impacted:
But the consequences are obviously not limited to Ukraine alone. It is the whole world that has been impacted since the beginning of the military operations. Consequently, there are many problems related to logistics, but also simply due to the instability in the region which considerably limits trade. Indeed, many Ukrainian ports are blocked and can simply not export their agricultural products.
If this directly affects Ukraine, which earns a lot from its exports, many countries used to import various products from Ukrainian agriculture. In the end, Russia and Ukraine are so productive in the agricultural sector that they can generate substantial surpluses that can be exported to world markets.
To give some figures, Ukraine and Russia are responsible for 30% of the world's wheat exports, almost a third. For example, Ukraine alone represents a market share of about 12% for wheat exports, 15 to 20% for corn, and even more important: sunflower oil. So, more than half of the world's sunflower oil exports come directly from Ukraine (between 50 and 60%), which is of course colossal.
How have prices of agricultural products been affected by the conflict between Russia and Ukraine?
In this context, it is not surprising to see prices heavily impacted by the conflict between Russia and Ukraine. As the supply of agricultural products has become more and more limited due to this drop in exports, prices have increased considerably. According to the FAO (Food and Agriculture Organization) report from the United Nations, the food price index increased by 24.1 over last year, reflecting heavy inflation.
However, there is a simple explanation for this significant price increase. In particular, the entire agricultural sector has been disrupted since the beginning of the conflict, with disruptions that have greatly affected the supply chain. So, many Ukrainian farmers will not be able to harvest and sell their crops, as an example among many others.
In addition, prices were already on the rise before the conflict began and the situation could therefore get worse. To give an idea of the price increase in the world of agriculture, we can already quote the prices of wheat and barley, which have jumped by +31% in the year 2021.
In the same way, other resources such as fertilizers or even resources indirectly related to agriculture have been affected, such as gas but also oil. Specifically, many agricultural vehicles run on gasoline, making the life of a farmer even more difficult.
Is there a risk for global food security?
We can legitimately ask ourselves this question: should we fear a period of food insecurity in the world? Indeed, since Russia and Ukraine are very large importers, especially to certain regions of the world that are very dependent, it is easy to see a risk.
According to the FAO, 26 countries generally import more than 50% of their wheat from Ukraine, including African countries in the Sahel region, which is already suffering from several food problems. Other countries in Africa, especially in the West, could be affected. Also, many European countries are used to importing from Ukraine, which leads to deregulation.
Even if some see it more as a market response, rather than simple solidarity, Europe has relaunched a production-driven agriculture at the end of March. This could partly fill the gaps in the countries most in difficulty and which were essentially dependent on Ukraine. For example, Egypt is one of the world's main buyers of Russian and Ukrainian wheat (60% of its imported wheat comes from Russia and 30% from Ukraine). Thus the Egyptian government is forced to intervene, notably through public subsidies.
What should you retain from this article?
Ultimately, the consequences of the war in Ukraine are far from insignificant for the agricultural world. Ukraine, under tension, is strongly impacted, including some other companies. In the same way, several companies installed in Ukraine question their activity there and have already stopped all activity.
Moreover, agriculture has always been a key sector for Ukraine, which exports a large part of its agricultural resources to the whole world. For example, it sends products either to Europe or Africa in the same way as Russia, which is also a very large exporter. So, numerous disturbances have then appeared since the beginning of the hostilities, having big consequences on the prices, which have risen very strongly.
Therefore this can legitimize certain concerns about food security in the world. Indeed, some countries have always been very dependent on Russian and Ukrainian exports, particularly African countries. There is no doubt, therefore, that this war will leave its mark.
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