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Impact of the Russia-Ukraine War on Agriculture
2022-02-28

  Russia this week began its war on neighboring Ukraine on the orders of Vladimir Putin. As a major producer and exporter of European agricultural products, Ukraine's agriculture and food are important strategic economic assets, although this may not have been a major consideration for the Kremlin's war effort. However, the ongoing war will almost certainly lead to disruptions to the global food supply chain, just as the outbreak of the Covid-19 pandemic has done to supply chains.

  Ukraine has long been known as the "granary of Europe", with an area of 339,000 square kilometers of arable land, ranking tenth in the world and the largest in Europe. It has a quarter of the world's fertile black soil and contains high levels of elements such as humus, phosphorus, phosphoric acid and ammonia. Industrial ammonia, synthetic nitrogen fertilizers, and other minerals are also Ukraine's main exports.

  When it comes to grain, Ukraine ranks among the top ten in the world for the production of wheat, corn, barley, rye, potatoes and buckwheat (along with several other vegetables, fruits, poultry, eggs and honey). Ukraine's national flower is the sunflower, and it happens to be the world's largest producer and exporter of sunflower oil. There are only a few countries in the world that can match Ukraine's agri-food production capabilities, including Russia, which is invading it.

  Russia and Ukraine together produce 14% of the world's wheat and supply 29% of the world's wheat exports. These two countries account for 14 percent of global barley production and one-third of global exports. Together, they also contribute 17% of world corn exports, while the combined exports of sunflowers from both countries account for 76% of the global supply.

  So it is clear that the actions of the Kremlin will not only directly affect Ukraine's ability to provide food to the world, but also itself, as the economic sanctions of the international community will bring losses. The impact of the war has reverberated strongly across the globe. Food prices are now at record levels in many parts of the world. In January, the Food and Agriculture Organization's food price index rose to its highest level since 2011. The index measures monthly changes in the average prices of meat, dairy, grains, vegetable oils and sugars.

FAO's Food Price Index

  A Russian invasion of Ukraine is set to disrupt regional exports, further tighten global commodity supplies and push up inflation, sending food prices even higher. And, in the gloom of war, no shipowner would risk sending ships to warring areas.

  Maersk Group cancelled all vessel services in the region and closed its office in Ukraine. An ocean-going freighter chartered by Cargill came under shelling in the Black Sea on Thursday, but the ship was lucky enough to keep sailing and its crew safe. The world's four largest grain merchants, Bunge and ADM, have also closed their offices and grain terminals in Ukraine.

  The crisis comes at a time when global food stocks are already stretched, in part because of extreme weather, including droughts in South America and last year's drought in North America, which disrupted crop production across western Canada and parts of the U.S. plains.

  With the outbreak of the Ukraine war, the Chicago benchmark wheat price for March rose 5.7% to close the daily limit, hitting a high price not seen since 2008, but fell back on Friday; March Kansas City wheat closed up 5.4%; in Europe, EU wheat The contract rose 10%. Prices for vegetable oil contracts rose across the board amid a global shortage of vegetable oils, with black sea sunflower oil futures up 11% so far this year.

  If the supply of certain agricultural products slows, food can become more scarce and expensive, and in some places disappear entirely from shelves. Food supplies for developing countries that depend on crops from Ukraine and Russia are likely to be hit the hardest. Markets with the largest increases in wheat imports include North and Sub-Saharan Africa, the Middle East and Southeast Asia, according to a USDA report released on Feb. 9; however, Ethiopia, Kenya and Somalia are experiencing severe droughts that limit local food availability Production.

  Russia is also one of the top exporters of the three fertilizers (nitrogen, phosphorus and potassium), and supply cuts and economic sanctions could further drive up fertilizer prices. Russia's export ban on ammonium nitrate fertilizers, which will last until March 31, will affect top buyer Brazil, as the South American country begins planting its huge second crop of corn.

  Although some other major agricultural producing areas do not directly import Russian fertilizers, with the planting of spring crops soon, the increase in fertilizer prices will affect production costs, because fertilizer costs generally account for 33% to 44% of a grower's total operating cost.

  However, it is not just food production itself that will be affected, many technologies that support and optimize agricultural production will also be adversely affected. In addition to being major producers of agricultural commodities, Ukraine and Russia are also major exporters of iron ore, concentrates, finished/semi-finished steel, metal pipes, and insulated wires and cables. They are also one of the main suppliers of neon and palladium, both vital to the manufacture of semiconductors.

  These are also key components of tech-enabled agriculture to enable connectivity between sensors, smartphones and agricultural machinery to enable farmers to monitor, manage and optimize farm operations; increase yields, reduce long-term costs and increase farmers’ incomes.

  Also not to be overlooked is the human resource contribution of Ukraine to agro-tech. To some extent, Ukraine has become a center for software development, with a well-educated and skilled workforce that costs less than other parts of Europe. As a result, many tech startups outsource development engineering to Ukraine.

  The war will also have several unintended consequences. For example, according to foreign media reports, about 200,000 Ukrainian programmers are still in the war zone, and many will be drafted into the army or actively armed to defend their country, vowing to live and die with their homeland.

  With so much of the world's food, fertilizers and tech essentials coming from Ukraine and Russia, Vladimir Putin's willfulness has us all facing another global food crisis, but don't forget that the crisis of the Covid-19 pandemic is not yet lifted. We already have many problems, and the last thing we need is Ukraine. This is madness, not only is it a tragedy for Ukraine and the Ukrainian people, but its ramifications will go far beyond that.

  According to the United Nations World Food Programme, regional conflicts have been a key driver of rising global hunger rates. The world simply cannot afford another conflict as food insecurity in 2021 increases due to economic shocks from natural disasters and the pandemic. And war, war never changes!

  Drawing on lessons from the pandemic, the Ukrainian war reaffirmed the need to move towards distributed, localized food production. When there are so many people on the planet to feed, it is unsustainable to be overly dependent on a few locations to provide the food, fertilizer and other critical commodities they need. Technologies that enable this kind of agri-food distribution, such as urban farming, vertical farming, biofertilizers, and cellular farming, to name a few, are in dire need of development and become increasingly powerful.