Agriculture is one of the sectors that is impacted the most by the Russian-Ukrainian war. Many countries around the world report shortage of wheat, corn and sunflower oil. Farmers are concerned the most about reduced availability of mineral fertilizers and rapid price rise, as well as more expensive fuel.
Since March, when Russia’s aggression in Ukraine was condemned heavily and economic sanctions were imposed on Russia, resulting in the country’s isolation, we have experienced the first consequences from these events. First of all there is comprehensive and sustained inflation, new challenges with availability of energy resources and other raw materials, as well as reorientation of many sectors towards other supply chains. Together with availability of raw materials, logistics of agricultural products are made more complicated.
The war in Ukraine has put much of this year’s planned export on hold. The aid provided to Ukraine by Europe, US and other countries does offer some hope.
Transport roads are the biggest problem right now
«According to estimates, Ukraine’s share in the global wheat export was around 10%. Russia’s share was 16%. Assuming part of these export volumes are cancelled (due to war or sanctions), it creates an enormous impact on the global market,» says SEB Bank economist Dainis Gašpuitis.
It is for this reason the United Nations Food and Agriculture Organisation has commenced talks about a global food crisis, which could impact African countries and the Middle East the most. As for Ukraine, the main problem is the damages caused to sea ports and land transport infrastructure – in March 2022 Ukraine’s grains export volumes were four times below the volumes observed in February.
Wheat prices have increased from approximately 200 EUR/t last year to 350 EUR/t this year.
The Black Sea is the main export route used to carry Ukrainian agricultural products from the country. 80% of grains are exported through Chornomorsk, Mikolaev and Odessa sea ports in the south-west of the country. To avoid taking risks, many shipping companies refrain from sending their ships to Ukraine. The war has also made freight insurance considerably more expensive.
«The end of the war would mean Ukraine could start restoration of its transport infrastructure. It should be said that it is impossible to create alternative infrastructure that would allow transporting an average of 4.5 million tonnes of grains every month,» says Gašpuitis.
This is why it is currently important to keep in mind that the costs of carrying grains using sea ports of neighbouring countries, such as Romania, may be four times higher as well.
Polish media report that the country is not prepared to reorient Ukrainian export because border-crossing situation in the country’s east is too tense right now. Right now Latvian and Lithuania sea ports seem the most perspective recipients of Ukrainian grains.
The European Commission is working on transit routes to ensure supplies of raw materials and prevent excessive price growth.
Everyone will experience the drop of Ukrainian exports
Most of last year’s harvest has already been carried from Ukraine. It’s this year’s harvest that is in danger. According to estimates, the war has already cost export markets about 5 to 6 tonnes of wheat (about a quarter of the annual export volumes), as well as 15 million tonnes of corn (about half of annual export volumes) and 3 million tonnes of sunflower oil (approximately half of annual export volumes). A shortage of this size will cause consequences – it generates an enormous rise in demand, which is followed by price rise.
Ukraine lacks fuel and labourers, as well as seeds and mineral fertilizers to plant summer crops.
This will have a considerable impact on April’s corn and sunflower harvest, which, according to estimates, could turn out 30% to 50% below expected volumes. It should be said that the war also makes efforts to harvest crops more difficult. Although wheat and colza fields are sown, it is expected that the Russian invasion will reduce this year’s grain by at least one-fifth when compared to last year.
Baltic States as a global producer
Latvia’s grain harvest a year is about 3.5 – 4 million tonnes, which is the second biggest index among Baltic States (7.3 million tonnes in Lithuania). «Approximately one-third of this volume is kept for domestic consumption. Baltic States may offer a large portion of grains to the global market. We are currently the second biggest exporter of wheat among EU member states, only slight behind the leader – France. We are one of the biggest players in Europe when it comes to exports of colza,» says Gašpuitis.
Mineral fertilizers at affordable prices remain a major challenge for Baltic farmers. Fertilizers previously supplied by Russia and Belarus will need to be replaced by fertilizers from other countries (with the price tripled). Less mineral fertilizers and reduced use of plant protection substances will mean smaller harvests.
The other major factor that impacts the agriculture sector is the rapid fuel and other energy resource price rise.
It should be added that before Russia’s invasion of Ukraine, the main concerns held by farmers were related to Europe’s green course and requirement to reduce emissions. Europe’s established sustainable development goals are not cancelled. This is why when planning the future of agricultural sectors of Baltic States, it is necessary to consider use of energy and technological innovations that would help raise effectiveness and reduce the use of plant protection substances.
One of the ways to deal with these challenges is cooperation, which generates discussions of topics related to logistics, supplies and procurement on the one hand, and other other hand – creates an environment for sharing experience and knowledge.