Russian forces have officially launched a military attack on the Ukraine at the behest of President Vladimir Putin. Russia’s troops broke the border in a number of locations in the north, south and east – including Belarus, which is a long-time Russian ally. Fighting has been reported in parts of eastern Ukraine.
The Ukraine is largely regarded as “Europe’s bread basket”, which means that the country is one of the world’s top four maize exporters. It also makes up approximately 15% of the world’s maize exports. Russia, in turn, is one of the world’s top wheat exporters, with its export rate making up about 20%. With these countries at odds, a knock-on effect of food insecurity may be starting.
Why are Ukraine and Russia at odds?
President Putin went on television moments before the invasion began, claiming that Russia could not feel “secure, develop or exist” because of the “continuous threat” posed by contemporary Ukraine. Putin’s goal, according to him, was to defend individuals who had been bullied or subjected to genocide and to “de-Nazify” the Ukraine.
However, many news outlets have reported this as both false and irrational reasoning.
Since Ukraine’s pro-Russian president, Viktor Yanukovych, was overthrown in 2014 after months of protests against his government, Putin has regularly accused the country of being taken over by extremists. Russia reacted by taking Crimea’s southern border and sparking a rebellion in the east, supporting separatists against Ukrainian soldiers in a war that has claimed 14 000 lives to date.
He began sending large numbers of Russian troops close to Ukraine’s borders in late 2021. Then, last week, he cancelled a 2015 peace agreement for the east and declared rebel-controlled areas independent. Russia has long opposed Ukraine’s accession to the European Union and Nato, the Western military alliance. He accused Nato of endangering “Russia’s historic future”.
How the war may impact international food supply chains
Ukraine produces wheat, barley and rye – which are important crops in Europe – and is also a major supplier of corn. While the country’s harvest season is still some months away, prolonged conflict may cause a delay in the harvesting process. This, according to analysts, is predicted a knock-on effect by creating a shortage of bread and increase prices for consumers.
However, it will not just impact those within the European Union (EU). African and Middle Eastern countries rely upon the Ukraine’s corn and wheat exports, so a disruption in the supply chain may have a knock-on effect on already food insecure nations.
“China is also a big recipient of Ukrainian corn – in fact, Ukraine replaced the US as China’s top corn supplier in 2021,” said Dawn Tiura, president at Sourcing Industry Group, to CNBC.
Prices for wheat and grain were already increasing before the war was announced. Wheat futures in Chicago have increased by around 12% since the beginning of the year, while corn futures have increased by 14.5%.
According to Per Hong, a senior parter at Kearney consulting firm, predicts that if agricultural hubs within the Ukraine are seized by Russia, already-high food prices will skyrocket even further.
Furthermore, any disruptions in natural gas supply will have an impact on the manufacture of energy-intensive products like fertilisers, which will inevitably hurt agriculture. Last year, Russia held the spot as the top supplier of oil and natural gas to the EU. Ukraine’s exports have continuously expanded over time, and it is now a big supplier of raw materials, chemical goods, and machinery such as transportation equipment.
While European importers may transfer to other suppliers, such as the United States, logistical constraints (the United States exports liquefied natural gas) would increase costs and provide little relief in the short term.
“Ukraine’s currency began declining in value since Russian troops started gathering at the border. This will increase the cost of their exports,” Tiura said.
Effect on agricultural products and exports
Military activities in Ukraine could result in the displacement of 1.5 – 5 million people, resulting in a massive food catastrophe. Conflicts remain a major driver of global food insecurity, according to the State of Food Security and Nutrition and the Global Report on Food Crisis report by the FAO.
According to the International Food Policy Research Institute (IFPRI), North Africa and the Middle East import more than half of their cereal requirements, including a significant amount of wheat and barley from Ukraine and Russia.
“Looking forward to 2022 crops, the Luhansk and Donetsk oblasts account for about 5% of Ukraine’s barley production, 8% of wheat production, 9% of sunflower seed production, and a negligible share of maize production. The occupied areas of Luhansk and Donetsk are in the easternmost part of the oblasts bordering with Russia,” the organisation said.
“However, large areas of production are in other parts of Ukraine that directly border with Russia and Belarus where Russian troops have also massed: Between 25%-30% of maize and sunflower seed production, 10%-15% of barley production and 20 to 25% of wheat production are in such oblasts. Spring barley will begin in March while maize planting typically begins in April. Winter wheat won’t typically be planted until September.
“Natural gas is also an important feedstock for the production of nitrogenous fertilizers such as ammonia and urea. The impact on fertiliser prices would be further exacerbated by the fact that Russia is an important supplier of nitrogenous fertilisers and potash. Russia account for 15% of global trade in nitrogenous fertilisers and 17% of global potash fertiliser exports. Belarus, an ally of Russia and staging ground for the current invasion and already being targeted by some international sanctions, accounts for an additional 16% of global market share of potash exports. Dependency for some countries, including Ukraine, on the supply from these two countries could be quite extreme.”
Meanwhile, the Bureau for Food and Agricultural Policy (BFAP) in South Africa says that the country’s local prices of maize, wheat and vegetable oil will be significantly increased due to the war.
“The risks associated with rising tensions between Russia and Ukraine could influence both international commodity prices and investor risk sentiments which may lead to depreciation in the Rand exchange rate,” it said via a statement. “Through its influence on energy, international commodity prices and exchange rate depreciation, possible escalation of tensions in the Black Sea region presents a major risk factor to food inflation.”
In South Africa, food and non-alcoholic beverage inflation increased 0.9% month-on-month and 5.7% year-on-year. The industry contributed one percentage point to the 5.7% headline inflation rate in the consumer price index.
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