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The Revealed Consequences of the Russia-Ukraine War on Agri-food
2022-04-14

  Russia's war against Ukraine has been going on for 50 days, and the outcome is still unknown; but for Ukrainians, it is a human tragedy of pain, death and destruction, but also courageous resistance. It could get worse, though, not just for Ukrainians and Russians, but for many of us as well.

  The war in Ukraine has affected the agri-food market. Overall, world fertilizer prices had risen sharply before the war and are continuing to rise now. Russia is a major fertilizer exporter, but economic sanctions will reduce its sales. It is estimated that the price of urea will double this year compared to last year, while the price of liquid ammonia and ammonium phosphate will rise by 65%. World oil prices, which also rose sharply after the war, have now fallen, but have also increased fuel costs for farmers.

  Prices of potash fertilizers in China rose 86 percent from a year earlier. Nitrogen fertilizer prices rose by 39% and phosphate fertilizer prices by 10%. According to a farmer's cooperative in Shandong, local fertilizer prices have risen 40 percent since the beginning of this year, making it almost impossible to make money as a farmer.

  The war is not over, and the effects will continue, while nations are reacting to erratic food supplies. The Economist said last month that while commodity trading has been thrown into disarray, ordinary people have not yet fully felt the effects of higher oil prices, hunger and political instability, which will come sooner or later. Russia's attack on Ukraine is triggering the biggest shock to commodities since 1973 and the worst disruption to wheat supplies since World War I.

  Some agricultural policy scholars say that we are now experiencing a "food catastrophe". The UN Food and Agriculture Organization's World Food Index is at its highest level since 1973. Global wheat prices were at their highest level in 14 years in early March; Chicago wheat futures have surged more than 50% since the war began.

  The end result is that many people will get hungrier. Skyrocketing prices will only reduce demand in a not-so-good way and be the way we get through this crisis - people will eat less, and will have to eat less meat and more soy and plant-based proteins. into plant meat.

  Meat has been hit by high grain prices and has made raising livestock even less profitable, leaving livestock farmers struggling with losses or lower profit margins. While beef prices are rising, both ends of the beef supply chain are severely squeezed. Research shows that it's not actually the food retailers that are eating the profits, it's the packers, who have been making money.

  The same is true across the continent, where such high grain prices have turned major meat producers, livestock producers such as the Netherlands, Spain and Belgium, into net importers of grain and protein.

  While the global agricultural supply chain has been severely disrupted by the war, it has also pushed up the price of soybean meal in China. China's domestic crushers crush soybeans into soybean meal to meet huge demand for animal husbandry and edible oil. Fortunately, China's soybean imports in the first two months of 2022 have increased year-on-year by 4.1%, exceeding market expectations. This has helped ease domestic soybean meal prices, however, the price trend of soybean meal in the past two years has been surging and still at a high level.

  Russia and Ukraine fought fiercely, and COFCO's vegetable oil factory in the northern part of the city of Mariupol in Ukraine also suffered. The sunflower oil processing plant in Mariupol, as the only factory of COFCO in Ukraine, did not escape the war and was attacked by artillery fire. Planet Labs PBC's latest satellite imagery shows several holes in the plant's two main buildings that were not seen in images from earlier this year. The latest images also show dozens of bomb craters near the factory and some nearby houses destroyed, although the main structure and storage warehouses appear to be intact.

  This processing plant of COFCO was built in 2012, with a daily production capacity of 1,500 tons and an annual output of more than 300,000 to 400,000 tons. This accounts for 10% of Ukraine's vegetable oil supply and 25% of exports. The raw materials for sunflower oil here come from the local area, and most of the products are exported to China. In 2020, China's sunflower oil production is 900,000 tons, but its consumption is 2.2 million tons, which means that more than half of it needs to be imported.

  Ukraine's Ministry of Agriculture said that due to ongoing fighting and conflict in many regions, the sunflower seed sown in Ukraine may fall to 4.81 million hectares in 2022 from 6.66 million hectares in 2021. As a result, Ukrainian sunflowerseed production may fall by 42% this year to 9.6 million tons.

  Ukraine and Russia mainly grow winter wheat, and they are already in the ground. For Ukraine, the big unknown is whether the wheat in the fields will be taken care of, and what will happen when it comes to harvest?

  It is uncertain who will buy the Russian wheat, and China may be one of the customers, however, with the Black Sea ports closed due to the war, there are still questions about how the wheat will be shipped. Ukraine might be able to deliver grain to European buyers by truck and train, but Russia has no such option. Russia has ports in the Far East but lacks the capacity to handle all of the country's grain exports.

  The U.S. Department of Agriculture forecasts a combined 12 percent decline in wheat exports from Ukraine and Russia, which, combined with higher prices, will see countries from Europe to Asia and Africa reduce wheat imports in the coming months. Fortunately, Australia and India have plenty of grain to sell, which may partially offset the impact of reduced production in Ukraine and Russia.

  Reduced food supplies in Ukraine and Russia are a boon for other grain-producing countries, as almost all crops are profitable. High food prices will put pressure on governments and farmers, possibly forcing them to take some of their protected land to produce more food, although doing so would be a mistake. In the short term, people need to eat, so countries across the globe are doing what they can to make sure everyone can eat, but it's not a good idea to convert protected areas into farmland, especially land set aside for climate change.

  A recent study shows that world agriculture is not as productive and efficient as previously thought, and many go so far as to believe that higher productivity is actually putting more land into production. To increase productivity, we have to come up with other solutions, and it has to be done in a highly sustainable way. We need more global cooperation, not less. We are all part of a global system that needs to work well to ensure that we can produce the affordable, accessible food that people need. Hope this war ends soon!