What Ukraine’s Falling Grain Production Means for Global Food Trade

Russia’s ongoing invasion of Ukraine is causing a global shift in the grain trade – which feeds billions of people every day – and this year’s Ukrainian harvest could be down by as much as 50%. war.

Both Ukraine and Russia were among the world’s top producers of commodities such as wheat and barley before war broke out in February 2022. But the conflict has driven up prices for wheat and corn. US term is affected. decade high (with a benchmark wheat contract hitting an all-time high) and causes fluctuations in global wheat prices all year. Prices are stable in 2023, down about 13% year-to-date.

“Trade flows are ever-changing and volatile,” said Andrew Whitelaw, co-founder and director of Episode 3, an agricultural analytics firm. “Remember that 20 years ago, Russia was not an important grain exporter… It has grown in the last 20 years. [and] Ukraine and Russia have now become the top exporters.”

And while last year’s production and exports of grains such as wheat from Ukraine were still substantial despite the war and port closure In the Black Sea, the amount of fishing and shipping this year is likely to decrease.

The Black Sea Grains Initiativea United Nations-brokered agreement in Turkey to guide ships safely leaving Ukrainian ports, extended only by 60 days in March – down from the previous 120-day deadline .

Whitelaw described last year’s wheat crop as “pretty good” in Ukraine and “absolutely excellent” in Russia, but said Ukraine’s harvest is likely to drop by around 20% in 2023 as farmers sow less than.

“This year, there are problems like — in Ukraine — lack of access to finance, lack of access to fertilizers, fuel, labor, and grain prices in Ukraine are also very low. So the motivation is very low. incentive for farmers to grow crops is lower,” he told CNBC by phone.

“We are seeing lower acreage or acreage devoted to these crops in Ukraine, which means it’s possible that its larger impact could be felt this year, from the fundamentals. on supply and demand. [perspective] than last year.”

Indeed, Data from the Food and Agriculture Organization of the United Nations suggests that 20-30% of the winter wheat area sown in Ukraine last year will not be harvested this summer because of a lack of fuel.

Aakash Doshi, head of commodities, North America at Citi Research, said Ukraine’s grain harvest and exports this year could fall by as much as 50% from pre-war levels.

Ukraine had a bumper corn crop with a production of 42 million tonnes (mmt) in 2021, according to Citi Research data, and the bank estimates this output will drop to between 21 and 22 million tonnes in 2023/24 .

For wheat, the 2021 harvest is 33 million tons, according to Citi Research, and its forecast for this year “could be 16-17 million tons,” Doshi told CNBC by email.

As well as crop yields, exports will also fall, he said. “Cereal trade flows from Ukraine will see a decrease in volume, but not by as much as a total decrease in output, due to weak domestic consumption. Ukraine’s grain exports (maize + wheat) crop year 2023/ 2024 could be 27-30 million tons, down 15-18 million tons compared to 2021/22,” he added.

Currently there is a surplus of Ukrainian grain in the countries of Central Europe, create a rift with countries including Poland, Hungary, Bulgaria and Slovakia.

Falling prices have sparked protests by Polish farmers as well as the resignation of Poland’s Agriculture Minister Henryk Kowalczyk this month. On April 7, his successor, Robert Telus, said grain exports from Ukraine to Poland would be restricted and halted “for the time being”. Reuters report.

In the long term, Doshi sees an opportunity to export grain from North and South America to the Middle East, North Africa and Asia, and if the crops are good, from Australia to East Asia.

“In other words, Ukraine’s losses will need to be offset over time elsewhere, including from Russia itself but with a greater focus on the export surpluses of the US, Canada, Brazil and Argentina,” Doshi said.

Agriculture analyst Whitelaw also said the market is likely to shift, including from Russia. “The flow of trade will have to change and there aren’t many places where you can get large volumes of grain to replace the volume that Russia already has. [providing]. And so, it’s really… the countries of South America, the United States, parts of Europe and Australia,” he said.

The war in Ukraine has contributed to rising food prices, with inflation above 5% in more than 80% of low-income countries, according to the report. World Bank data.

But while restrictions on exports from Ukraine have had an impact on food prices, rising energy and fertilizer costs could have an even bigger impact, according to research by a team at the University of Edinburgh. Peter Alexander is at the top. published in February. Research suggests that there could be an additional 1 million deaths in the Middle East, sub-Saharan Africa and North Africa if fertilizer prices soar this year.

In the long run, the picture is complex. According to Alexander, senior lecturer at the University of Edinburgh’s Institute of Agriculture and Global Food Systems, climate change causes extreme weather that has been damaging the food system. But how this might develop remains unclear, he told CNBC: “The impact of extreme weather in the future… drought, heat, flooding is not really understood.”

One major risk, Alexander adds, is if grain production is halted in several places at once, known as “multi-basket failure”.

“There’s certainly a chance we’ll see that kind of event in the future, which could have really negative consequences for a lot of people,” he added.

The factors that affect the prices and availability of goods and food in general are many and varied — bad weather in Morocco and Spain is believed to be the cause. lack of fruit and vegetables in the UK in February, but additional paperwork due to Brexit was also cited, plus high energy prices.

According to Alexander, the ways to prevent food shortages around the world are also not straightforward, with many “competitive stories”. For example, localizing the food chain may not help.

“The reason why we have a globalized food system, and the reason why food has gotten cheaper and cheaper over the past decades, is because of … a competitive advantage. [means] we produce food where it’s easiest to produce, where inputs are lowest… If we start bringing things back more locally, the food system is actually less efficient,” he said.

“In the UK, for example, we are self-sufficient in wheat, but we are still subject to global market adjustments in wheat prices,” he added.

Also, higher food prices are not necessarily a bad thing, according to Alexander. “Instead of trying to keep food prices artificially low, or food prices that don’t reflect all costs… perhaps we can create healthier, more sustainable foods. , we can subsidize them for everyone,” he suggested.

Reducing meat consumption in developed countries may also be an option. “We need a fairer and more efficient food system, which is most likely related to a shift in diet from a Western perspective,” Alexander added.

Another debate is how much grain should be used for biofuel versus food supply. In biofuels, grains are used to produce ethanol, which is blended with gasoline to reduce emissions.

A 50% reduction in the amount of grain used to produce ethanol in the US and Europe “will make up for all Ukraine’s lost exports of wheat, corn, barley and rye,” according to the research firm. Research World Resources Institute in a report. parcel published on April 1, 2022, about five weeks after Russia invaded Ukraine.

“We still have a huge amount of grain around the world that isn’t used as food…in our industrial processes, ethanol, biodiesel, those kinds of products. I hope. we’re going to see more of that debate over the next few years,” Whitelaw said.