The story so far: Russia’s invasion of Ukraine has not only created instability in the region and displaced millions of people but has also led to a global food shortage. Earlier in June, the Food and Agriculture Organisation of the United Nations (FAO) released a report that outlines the importance of Ukraine and Russia for agricultural markets and the risks associated with the war that broke out in Ukraine in February 2022 when Russia invaded the country.
Both Russia and Ukraine are among the top producers of agricultural commodities in the world. In 2021, both ranked among the top three exporters of wheat, barley, maize, and sunflower seed and oil, globally.
Share in global production of selected crops (2016/17-2020/21 average) | Photo Credit: FAO
People living in eastern Ukraine were already displaced or impacted by war since 2014 when Russia annexed Crimea. A countrywide war has pressured Ukraine’s agricultural production and limited its economic activity, thus further reducing the purchasing power of its people. Food insecurity and malnutrition are also on the rise.
FAO projections suggest that if the war causes a prolonged impact on food exports by Russia and Ukraine, the number of undernourished people around the world can increase by 8-13 million in 2022-23.
Wheat
Russia shipped 32.9 million tonnes of wheat and meslin (in product weight) in 2021, making it the second-largest wheat exporter. Ukraine exported 20 million tonnes and ranked sixth.
Wheat exports by country share in 2021. (Note: Processed products are excluded from these estimates) | Photo Credit: Trade Data Monitor (TDM), FAO calculations
The war has disproportionately affected least developed countries (LDCs) and low-income food-deficit countries (LIFDCs) since a large number of countries that import food and fertilizers from Russia and Ukraine fall into these categories.
Eritrea, the African country on the UN list of LDCs, was one of the main buyers of wheat from Russia and Ukraine in 2021. Russia accounted for over 50 per cent of Eritrea’s wheat import while the rest of it came from Ukraine. Other LDCs that imported more than 50 per cent of their total wheat export from Russia include Rwanda, Congo, Madagascar, Senegal, Togo, and Burundi.
Apart from these countries, Russia also accounted for almost all of Georgia, Azerbaijan, Mongolia, and Armenia’s wheat import in 2021.
International prices of wheat and barley rose 31 per cent through the course of 2021, compared to the prices in 2020. This was caused due to high global demand and weather-related production limitations in countries that produce the grains. Prices surged further in March 2022, compounded by export disruptions in Ukraine and uncertainties about Russia’s export capacity due to the ongoing war. Export restrictions adopted by other countries, including India, further added to the gap in global demand and supply. Amid the war, India has emerged as a significant wheat producer.
FAO’s forecasts, considering that war-related disruptions can persist, say that Ukraine’s wheat export could decline by 50 per cent in 2022-23, compared to the already reduced 2021-22 level. Maize production by the country could see a 32 per cent decline.
Sunflower seed oil
Ukraine and Russia together cover around 72 per cent of the sunflower seed oil’s world export share.
Sunflower seed oil exports by country share in 2021. (Note: Processed products are excluded from these estimates) | Photo Credit: Trade Data Monitor (TDM), FAO calculations
Ukraine and Russia lead the global sunflower seed oil market, and disruptions to shipment are bound to have a significant impact on major importers of the product, including India, China, the European Union (EU), Iran, and Turkey (Turkiye). However, sunflower seed oil is not the only oil market that has been impacted by the Russia-Ukraine war. Alternative supplies to sunflower seed oil are limited, and importers have tried to switch to substitutes like palm and soy oils. The spillover effect of the war has been seen in the increase in global vegetable and other cooking oil costs.
Fertilizers
Ukraine is not a fertilizer exporter that countries heavily depend on, except for purchases by India. In 2021, Russia was ranked the top exporter of nitrogen fertilizers, the second-largest supplier of potassium fertilizers, and the third-largest exporter of phosphorus fertilizers.
Fertilizer exports by country share in 2021. (Note: Processed products are excluded from these estimates) | Photo Credit: Trade Data Monitor (TDM), FAO calculations
In May 2022, prices of urea – an important nitrogen-based fertilizer – were recorded to be two and a half times over the December 2020 level. Despite easing in June 2022, nitrogen fertilizer costs are still around three times their longer-term average. Potassium fertilizer costs have also recorded multi-year highs in recent months.
Energy
Apart from its other essential utilities, energy sources are absolutely crucial for agriculture too, especially in developed areas. The war will also affect agricultural produce in developed areas that depend on Russia for energy.
Russia is one of the world’s leading producers of energy. Higher energy prices – an important input cost – will eventually increase the prices of food grains, thus threatening global food security.
Russia accounts for 18 per cent of coal, 11 per cent of oil, and 20 per cent of global gas exports. Energy imports from Russia are crucial for the European Union (EU).
EU energy imports | Photo Credit: FAO
The war has caused crude oil prices to rise, but if the trend continues beyond the 2022-23 season with limited exports from Russia and Ukraine, a significant supply gap in global grain and sunflower seed markets is likely to develop. As a result, global prices can potentially stay well above baseline levels.
Harvest cycle and shipping
There are concerns if the usual harvest cycles will be completed in Ukraine this year amid the war. Export of crops has already been affected due to the closure of ports and oilseed crushing factories in Ukraine. In Russia, financial sanctions have made exports uncertain.
In Ukraine, active fighting has damaged transportation and shipping operations. Ukraine’s national maritime shipping capacity, which handles around 90 per cent of the country’s commodity exports, has been extensively damaged due to the war. Per the report, this cannot be completely compensated by other means of transport, although efforts to do so by rail via neighbouring countries and river barges are ongoing.
Fighting has affected all stages of agricultural production. In Ukraine, activities right from sowing crops to harvesting and shipping them have been reduced. Many international companies in the grain and oilseed export sectors stopped operating in Ukraine when Russia invaded the country in order to safeguard their employees. As fighting in some parts of the country has eased, farmers who are returning to their fields need to first remove any unexploded ordnance or physical remains of the war before moving on to adding fertilizers for winter crops or preparing land for spring crops.
In Russia, although ground activities are not affected since there is no active fighting within its territory, economic sanctions have disrupted the country’s ability to import agricultural products like pesticides and seeds. This is likelyto have a detrimental impact on the quality and volume of crops produced by Russia in the upcoming harvest cycles.
