Posted at 10:00 a.m.
Humanity has just received a new blow with the invasion of Ukraine by Russia. Just thinking about the humanitarian aspect of the conflict is beyond comprehension. But the impacts on the agri-food sector are already manifesting themselves on many fronts.
Firstly, Ukraine being the breadbasket of Europe, this conflict will affect world commodity markets significantly. Wheat and corn futures are slowly reaching record highs. Ukraine is the ninth-largest wheat producer in the world, harvesting slightly less than Canada each year. Ukraine also ranks fifth in the world for corn production, accounting for 13% of all exports.
Agricultural activity occupies about 70% of the country’s land and about 25% of the world’s black soil reserves are in Ukraine. The country has exceptional agricultural production conditions.
But this conflict obviously includes Russia. The two countries together account for 25% of world wheat exports. Barley and rye crops also abound in their territories.
For many agri-food companies, access to all of these main ingredients at a good price is becoming more complicated. The invasion led to the prohibition of passage of all commercial ships in the Inland Sea of Azov, the main sea route to reach the Black Sea where the Ukrainian ports are located.
Nearly 90% of Ukrainian grain exports are transported by ship, and maritime logistics in the region are severely compromised.
Given what has been happening in the world over the past few months with supply chain difficulties, to say that food price inflation will stem from this conflict is an understatement. If you think Canada is immune to all of this, given its domestic agricultural production, think again! Agricultural products are traded on world markets, and what happens in Ukraine and Russia affects us. The world, especially that of the agri-food sector, is deeply interconnected.
Oil, too, is now trading between $90 and $110 a barrel, the highest price since 2014. Russia exports about five million barrels of crude a day, nearly half of which goes to Europe.
Countries are trying to penalize Vladimir Putin’s regime without disrupting Russia’s energy exports, to help the world recover from the pandemic. It demonstrates how tricky the situation is getting and how Putin strategically chose his moment to invade his neighbour.
But if energy costs weren’t the current food inflation problem, they certainly are now. We expect freight costs to be impacted within weeks, if not days.
The fertilizer market is also affected by this conflict. The region exports nitrogen, potash and phosphorus in large quantities. Last week’s invasion raised the price of fertilizers by more than $200 a ton overnight all over the world. Needless to say, this news does not bring joy to farmers who were looking to increase their yields this year due to rising prices. Fertilizers already had a high price before the conflict in Ukraine. Canadian farmers will likely do well with the markets, but prohibitive fertilizer prices could impact agricultural production in the northern hemisphere, including Canada. If Mother Nature plays the spoilsport again, our farmers could face another difficult year.
Rising fertilizer prices in the industry have always created a problem, and US Secretary of Agriculture Tom Vilsack has previously warned companies not to inflate fertilizer prices unnecessarily. This sector remains unknown to most consumers, but without the proper soil science supported by effective fertilizers, the cost of our food simply could not stay the same.
Vladimir Putin is not simply focused on reclaiming lost Soviet territory; he is preparing to establish Russian influence again. For Russia, China is an ally. So controlling global food supply chains with China is an effective way to do this. Given their production, the two countries combined become agriculturally influential.
In short, Western economies are once again being destabilized. For two years, we suffered the repercussions of a virus, and now it’s the turn of a tyrant to do his thing.
Essentially, this conflict will bring another dose of uncertainty to the agri-food sector at the worst possible time. As consumers, we must wish and hope that this conflict does not last too long. In the meantime, we must defend the Ukrainians because they are simply the victims of evil.