Insight Focus
- Fertiliser shortage seen hitting food supply.
- India exporting wheat, South Africa corn.
- Some countries restrict exports for domestic food security.
Russia’s invasion of Ukraine has created the perfect storm for supply chains, resulting in mounting fears about food security.
The surge in the price of natural gas, a key raw material for fertiliser production, caused by the conflict and Russia urging domestic manufacturers not to export fertiliser means that “it’s not whether we are moving into a global food crisis – it’s how large the crisis will be,” Yara CEO Svein Tore Holsether told the BBC.
Yara, one of the world’s largest fertiliser producers, said it had been forced to cut production at its plants in Ferrara, Italy and Le Havre, France (pictured below) because of the surge in gas prices caused by the conflict. The company said it expected its European ammonia and urea production to be operating at around 45% of capacity by the 11th March.
“We have to keep in mind that in the last two years, there’s been an increase of 100 million more people that go to bed hungry… so for this [the Russian invasion of Ukraine] to come on top of it is really worrying,” Holsether said.
Agriculture ministers from the G7 countries are set to hold a meeting on 11th March to discuss the impact of Russia’s invasion of Ukraine on global food security and how to best stabilize food markets, Reuters reported.
The UN’s Food and Agriculture Organisation said in a preliminary assessment that the global supply gap caused by the war could push up international food and feed prices by 8-22% above already high levels.
Disruption to Black Sea Grain Sowing Possible
Farmers in the Black Sea region could see their spring planting operations ruined if the situation in Ukraine intensifies and spreads to more rural areas, the UK’s Farmers Weekly quoted analysts as saying.
The 2022 sowing campaign in Ukraine will start wherever possible, taking military action into account, agriculture minister Roman Leshchenko said.
“We have no choice but to go and sow. In general, we are working on the following mechanism: where we can sow, where the situation allows, we go out and work. We have sown wheat, barley; we have winter crops; we are not giving up, as it is a matter of food,” the official Ukrinform news agency quoted him as saying.
However, the FAO said that 20-30% of the area under winter cereals, maize and sunflower seed in Ukraine will either not be planted or remain unharvested during the 2022/23 season as a result of the conflict, with the yields of these crops also likely to be hit.
North Africa Vulnerable
Egypt is particularly vulnerable to any disruption to Black Sea wheat trading as 80% of its imports come from Russia and Ukraine. The spike in prices on international markets should increase the cost of its wheat imports by between USD 762 million and 952 million, Al-Ahram quoted Finance Minister Mohamed Maait as saying.
It added that Prime Minister Mostafa Madbouly has called for periodic monitoring of local markets to prevent any price gouging attempts and warned that the government will not allow such practices since Egypt had already managed to secure a strategic reserve of basic commodities.
Algeria’s agriculture minister, Mohamed Abdelhafid Henni, has said the country has enough grain reserves to last until the end of the year, the state news agency, APS, reported.
Panic Buying
In Russia, the local media, monitored by the BBC, reported panic buying as the sanctions-induced collapse of the Ruble began to bite.
TV6 reported that the minimum monthly wage would buy just one litre of vegetable oil, two cans of stew and a loaf of bread in Moscow.
Across the Black Sea in Turkey, there was a run on sunflower oil. The country imports large quantities of sunflower oil from Russia and Ukraine. A warning from the Vegetable Oil Manufacturers Association that stocks could run out next month sparked a rush to stock up, Al-Monitor reports.
According to Euronews Source, the situation was similar in Spain, with some supermarkets rationing the amounts customers could buy.
In India too, there was panic buying of vegetable oils, Reuters reported. Russia and Ukraine account for over 90% of Indian sunflower oil imports, although sunflower oil makes up only around 14% of total edible oil imports.
Supplies of other edible oils – such as palm, soy, rapeseed oil and ground nut – are sufficient and there’s no need to panic, said B.V. Mehta, executive director of the Mumbai-based Solvent Extractors’ Association of India.
Alternative Food Supplies Sought
The absence of Russian and Ukrainian grain and sunflower oil from the world market has meant countries have scrambled to find alternative supplies.
This goes against the FAO’s recommendations that export restrictions should be avoided because, it said, they exacerbated price volatility, limited the buffer capacity of the global market, and had a negative impact over the medium term.
China’s state planning body, the National Development and Reform Commission, was quoted by Reuters as saying the government would guarantee the supply-demand balance of grain, edible oil, sugar and fertilisers through the effective use of reserves and imports.
The NDRC added that China would ensure that grain acreage for the year stays above 117.33 million hectares and would raise domestic production of soybeans and other oilseed crops.
However, the Minister of Agriculture and Rural Affairs, Tang Renjian, said the condition of the country’s winter wheat crop could be the “worst in history”.
The EU also discussed reducing its dependence on imported food and agricultural inputs at its 10-11th March summit, Reuters reported.
However, Spain’s Agriculture Minister, Luis Planas, said in an interview with Bloomberg that the EU could consider temporarily lifting a ban on imports of genetically modified grains from the USA and South America.
He added that Spain and France had also proposed a waiver on agricultural goods with traces of herbicide to increase stocks and seek alternative suppliers, mainly of corn.
Export Opportunities Eyed
India is in a good position to meet some of the gap in the wheat market left by Russia and Ukraine because of its large reserves, the Business Standard reports. It said India’s central pool of wheat stocks was pegged at around 26 million tonnes, more than three times the quantity required to be stored on 1st April each year. Reuters added that India had recently signed contracts to export about 500,000 tonnes of wheat.
Pakistan’s Business Recorder also reported on a new route for Indian sugar exports via Afghanistan. It said Pakistan had dispatched the first transit cargo containing Indian sugar to landlocked Uzbekistan under the Pakistan Uzbekistan Transit Trade Agreement.
South Africa’s corn exporters are also set to benefit from the invasion restricting Russian and Ukrainian supply, Reuters cited analysts as saying.
Others Limit Exports
On the other hand, some exporters of agricultural commodities are looking to keep domestic prices low by limiting the amounts leaving the country.
The economic dislocation brought about by the Russian invasion has caused Ukraine to introduce export licenses for its key agriculture commodities wheat, corn and sunflower oil, Ukrinform reported.
Meanwhile, Russia said it would suspend exports of wheat, rye, barley and corn to the Eurasian Economic Union (EEU) until the 31st August to secure enough food for the domestic market, Reuters reported. In addition to Russia, the EEU consists of Armenia, Belarus, Kazakhstan and Kyrgyzstan.
Russia will also ban sugar exports to third countries until the 31st August but some exceptions will be possible for the EEU countries, the Economy Ministry said.
In its preliminary assessment, the FAO said there was uncertainty over the impact of sanctions on food exports, adding that over the medium term, any resulting loss of export markets could depress farmer incomes and negatively affect future production decisions.
Indonesia restricted exports of palm oil from the 10th March to increase domestic supplies to help contain a surge in cooking oil prices, Trade Minister Muhammad Lutfi was quoted as saying by Reuters.
The world’s biggest producer and exporter of palm oil will require companies to sell 30% of their planned exports of crude palm oil and olein domestically, up from 20%.
Serbia will prohibit exports of vegetable oil, maize, wheat, and flour starting Thursday in a move to ensure stable prices for both the country and the region in case Russia halts exports of wheat and corn, President Aleksandar Vucic said, according to the SeeNews website.
Biofuels
Soaring global oil prices because of the Russian invasion have caused Brazilian state-controlled oil company, Petrobras, to raise its ex-refinery gasoline prices by 18.7%. Ethanol overwhelmingly produced from sugarcane competes with gasoline as a fuel for small vehicles in Brazil, the Brazilian Report said.
In India moves to use more sugarcane for fuel ethanol continue. Triveni Engineering & Industries, the country’s second largest sugar producer, will commission its two ethanol plants next month taking the company’s total capacity to 540k litres a day from current 320k. The company is targeting a further increase to 660k litres/day before start of next season, the Hindu Business Line reported.
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Explainers That May Be of Interest…
