The increasing threat of Russian aggression into Ukraine, Europe’s breadbasket, will deleteriously impact the global food. Subsequently this supply and price shock could trigger socio-political instability not only in emerging countries but also well-established democratic economies.
After Russia’s incursion, beyond energy - natural/liquified gas, crude oil and coal - as I articulated in my SA article published 16 January 2022 Energy and Gold Prices to Soar After Likely Russian Invasion, food prices, specifically corn, wheat, barley and rye, will rise dramatically like their energy counterparts.
With the spring planting season approaching, regardless whether Russia decides on occupying a sliver of Ukrainian territory, notably the pro-Russian Donbas region, or larger swaths beyond Donbas, the issue will be whether Ukrainian agribusiness will be able to plant, harvest and sell their products.
Ukrainian Agricultural Overview
According to the International Trade Administration, agriculture is 9.3% of Ukraine’s GDP. Ukraine’s agricultural yields have been consistently good since 2013 harvesting at least 60 million tons of grains. The 2022 forecast projects a considerable increase. The average annual yield is three times Ukraine’s domestic needs making them one of the world’s largest agricultural exporters.
The following data are particulars for each crop provided by the World Data Center for Geoinformatics and Sustainable Development:
· With a climate similar to Kansas, Ukraine the main grain output encompasses wheat, corn, barley and rye.
· 4th largest exporter of corn (eastern and southern Ukraine), planted in April/May, harvested in September, and barley (eastern Ukraine), planted in April and harvested in August.
· 6th largest exporter of wheat (south and south-central Ukraine). It’s a winter wheat planted in fall and harvested the following summer.
· 7th largest exporter of soybeans.
· World’s leading sunflower seed oil exporter (southern and eastern regions), planted in April harvested in September. It’s their most profitable crop because of low production costs and high demand.
· Most exports are shipped to Spain and Italy, North Africa, the Middle East and East Asia (China, Japan, Korea).
Ukraine’s agribusiness’ biggest essential imported expenses are for seeds, pesticides, fuel, farm machinery and equipment. Agricultural yields correlate closely to the farmers’ ability to secure financial aid and credit for the aforementioned needs.
Russia | Weaponizing Food
For many years the Russians have had a stranglehold of energy exports to the heavily-dependent EU. Their newest ‘weapon’ could be Ukraine’s food exports. This vulnerability is outlined in the following overview of Ukraine’s agriculture:
· It is estimated that pro-Russian separatists now occupying the Donbas region and the Russian government’s annexation of Crimea has reduced total Ukrainian agricultural production by 10%.
· In late December 2018 Russia placed an embargo on Ukrainian agricultural imports for political reasons. Although Russia’s own agricultural yields have been robust, they have reduced their agricultural exports in order to maintain affordable prices for their citizens. If they leverage their occupation in Ukraine they can reduce those domestic prices further.
Global Food Supply & Prices
For the aforementioned reasons, there is great uncertainty after a Russian invasion and occupation regardless how territorially limited, as to what extent Ukraine will be permitted to continue agricultural operations and whether exports will be limited or restricted.
The world was adversely impacted in 2021 by inflationary prices for pesticides, fertilizers and severe meteorological events that impacted crop yields and exacerbated by supply chain disruptions.
Furthermore a Russian invasion and occupation will further squeeze an already tightening food market since many governments have, officially and unofficially, limited or even banned outright export of domestic agricultural products. This has been done for the purposes of food security and maintaining affordable food prices to avoid socio-political instability.
The food export restriction policy of even small countries impacts global food prices as illustrated on the following link called the exponential domino effect in which a seemingly small and insignificant factor becomes a powerful multiplier effect that triggers an outsized crisis far beyond its domestic borders.
Domestic Unrest
Russia’s control of Ukrainian agricultural production and exports will push up global agricultural prices and “goose” the present-day inflationary food prices. It could represent a tipping point that could trigger social unrest in the US as many families are unable to afford food and Food Banks are unable to meet the unrelenting demand.
© Copyright 2022 Cerulean Council LLC
The Cerulean Council is a NYC-based think-tank that provides prescient, beyond-the-horizon, contrarian perspectives and risk assessments on geopolitical dynamics and global urban security.