Ukrainian Wheat and the Impending Global Food Crisis
America's wheat has biological ties to Ukraine. The flavorful grains we used beginning in the 18th century were varieties native to Ukraine/Poland's famed Black Earth districts of Crimea and Galicia.
Ukraine is a "market mover" in the crops and countries it trades.
In 2021 Ukraine exported more than $27 billion in agricultural products to the world.
Ukraine's wheat is one of its primary products and amounts to $5.1 billion in export sales.
Farmers in Ukraine plant most of their crops in April and May. Due to the disruption of the war, farmers will plant fewer acres, but the mix of crops will also change, impacting which crops are harvested.
Wheat is grown primarily in the southern and southeastern portions of the country, and harvest begins in late June, spanning until August when it begins exportation. As much as 1/5 of Ukrainian agricultural land is currently in Russian hands.
RUSSIAN EXPORT BAN AND FERTILIZER
On March 10th, 2022, Russia announced a ban on medical, telecom, auto, electrical, tech, and agriculture exports to 48 countries, including the US and EU, who have committed "unfriendly actions." The ban is currently in effect until the end of 2022. The catch here is that only 6.2% of Russian wheat exports were to these 48 countries "guilty of unfriendly actions." Furthermore, the banned exports result from diminished harvest in Russia as their most fertile land borders Ukraine and are currently being used as a staging ground for military activity.
In the past few months, the availability and price of fertilizer have been a significant concern for farmers worldwide. This is because Western sanctions and Russia's export ban do substantially impact "unfriendly countries" access to fertilizer. Russia is the largest exporter of nitrogen globally and ranks in the top three exporters of phosphate and potassium–the three nutrients that compose fertilizer. This will impact every country that grows anything and will be a contributing factor in the rise of food prices across the globe as fertilizer will be more challenging to obtain and, therefore, more expensive. Russia supplies 40% of Europe's gas and 25% of its oil. However, natural gas accounts for 70-90% of the cost of nitrogen fertilizer, so the market will remain volatile for some time.
With crops yet to be planted and wheat already in the ground, it will be challenging for farmers to find fuel for their machinery and fertilizer for their fields, reducing the total harvest on planted areas.
UKRAINE'S TIME BOMB
Ukrainian infrastructure is one of the biggest concerns for all exports as there is no telling the extent of damage to its roads, ports, bridges, and rail lines over the next few months.
Ukrainian ports ship up to 90% of Ukraine's agricultural exports. On an average working day, 3,000 carloads of grain arrive and are stored in silos and, in peacetime, shipped across the black sea, through the Bosporus, and around the world. However, with ports blocked by Russia's naval ships and floating mines, exports are blocked, and silos are full. Ukraine currently holds 40 million metric tons of grain, with half of that needing to be exported by the start of the season in July. Without the grain being exported, there will be no place to store this year's harvest. This is a ticking time bomb as grain production accounts for 1/5 of Ukrainian export revenue and feeds millions of people around the globe.
Ukraine is currently trying to find a solution in shipping the wheat to bordering countries' ports and exporting it from there. Poland's Prime Minister has now offered ports in Gdansk on the Baltic Sea for Ukraine to use. This would be a great solution, except that many of the railways in Ukraine are backlogged or damaged, and even if you could get the wheat to the border, the track gauges for Europe are thinner than Ukraine's wider, Soviet-era tracks. In addition, the process of switching the product to the European tracks is incredibly complex and time-consuming. Even under ideal conditions, trucks and trains can only carry a fraction of the grain typically shipped out of Ukrainian ports.
MILLIONS AT RISK OF STARVATION
Up to 50 million people will face starvation in the coming months unless Ukrainian grain is released. Africa and the Middle East will be particularly affected with global wheat prices leaping 20% in March. The World Food Program buys half its wheat from Ukraine and warns of 'catastrophic consequences' if Ukrainian ports remain blocked.
Operational costs for the World Food Program have increased by $70 million to assist the same number of people due to rising food prices.
In Yemen, which has been in a dire hunger crisis for years, the WFP has had to halve the food rations for 8 million people. Food insecurity could exacerbate existing conflicts in these regions.
In 2021, the top destinations for Ukrainian wheat were:
These top countries account for nearly 50% of Ukraine's wheat exports.
Egypt gets 85% of its supply from Ukraine/Russia, and 1/3 of the population lives below the poverty line, relying on state-subsidized bread. Flour prices have risen 15%, with general inflation for April 2022 just over 13%, putting additional pressure on families who are already struggling to survive. Other countries impacted are Lebanon, which gets 60% of its wheat supply from Ukraine, and Somalia and Benin, which depend on Ukraine for 100% of its wheat supply.
Many countries looked to India as an alternative provider of grain, but on Friday, May 13th, 2022, India banned wheat exports amid concerns of its own food insecurity after a recent heatwave in the south of the country threatened crops.
RISING GLOBAL FOOD COSTS
The Food Price Index (FFPI) measures the price of a basket of food commodities on the international market. Between February 2021 and February 2022, the FFPI increased by 18.7%, representing an all-time high according to the United Nations Food and Agriculture Organization.
The German Foreign Minister, Annalena Baerbock, said the following at a news conference on Saturday, May 14th, 2022:
"We must not be naïve. Russia has now expanded the war against Ukraine to many states as a war on grain," adding, "It is not collateral damage. It is an instrument in a hybrid war that is intended to weaken cohesion against Russia's war."
RUSSIA STEALING UKRAINIAN GRAIN
Russia is the world's leading wheat exporter and stands to gain from the continued disruption to Ukrainian wheat exports. Russian attacks have damaged at least six-grain facilities in Eastern Ukraine; however, Russian attacks on Odesa have not yet targeted port infrastructure, possibly holding back from an aerial assault on these facilities in hopes of capturing Odesa and leveraging the ports for its own needs later on.
Ukraine has accused Russia of stealing grain from occupied regions for export, with satellite images showing the bulk carrier 'Matros Pozynich' being loaded with wheat in Crimea and transporting the stolen grain to Syria after being turned down at the port of Alexandria in Egypt at the behest of Ukraine.
Although these problems are thousands of miles from consumers in the United States, the USDA estimates average farm prices of wheat for the 2021/2022 marketing year to be $7.70/bushel–an 18% increase from the USDA's projection this time last year. For 2022/2023, the USDA expects that price to increase to $10.75/bushel–the highest US wheat price in history and $2.73 above the record of $8.02 in 2008.
As the war rages on with ports blocked and July's wheat harvest looming, NATO will be forced to act on this pressing issue. With almost no practical solution, the global food crisis is all but sure to continue its downward spiral as people worldwide suffer the consequences of Vladimir Putin's decision to invade a sovereign nation that posed no threat to him or his country.