The war against Ukraine directly impacts agricultural markets: It impedes delivery of existing stocks and the upcoming sowing of many types of grains. Due to the occupation and destruction of major ports, exports will continue to collapse. Agricultural exports from Russia are currently still possible on the main transport route via a few ports on the Black Sea. However, shipping companies report limiting their transport due to the perceived danger and concerns about loss of business. Very recently, Ukraine announced that it would restrict its own exports for domestic supply security reasons.
Ukraine and Russia have become key players for the export of both grain and sunflower (oil) in the post-Soviet era. For quite some time, their crop yields have therefore influenced international volumes and prices: Ukraine provided on average 10 per cent of the world’s wheat export supply, Russia as much as 24 per cent. For maize, Ukraine supplied 15 per cent of the important feed and fodder supply. The international market for fertiliser is even more concentrated: With trade shares of individual fertiliser components reaching up to 50 per cent, Russia dominates the market for ammonium nitrate, and Belarus with 16 per cent for potash fertiliser.
The financial sanctions of numerous states and the EU against Russia currently affect agricultural exports indirectly – due to general business uncertainty – while specific fertiliser sanctions directly target respective exports: Due to the handling of the political opposition in Belarus, the EU had already imposed fertiliser sanctions on the market-dominating Belarusian potash producer “Belaruskali” in summer 2021 and extended them last week.
War weighs on an already tense market situation for agricultural and fertiliser products
Prices for many agricultural products determined by the Food and Agriculture Organisation of the United Nations currently already exceed the historic highs during the food price crises of 2007 and 2011. Fertiliser prices have also been rising to record levels for months. In addition, shortages due to reduced or cancelled supplies of grain and fertiliser from Russia, Ukraine, and Belarus are driving up prices. Since the beginning of the Covid-19 pandemic, Russia, like many countries, has been using export restrictions on agricultural products to secure its own supplies – despite international warnings against these price-increasing measures. Just last week, the Russian government recommended that Russian companies also limit fertiliser exports.
Besides Ukraine, crop and supply shortfalls initially affect countries that import agricultural products from the war-affected region and are currently looking for readily available alternative sources. This drives up prices on global markets, thereby burdening all importers worldwide but hitting low-income countries and people the hardest. Egypt has an import share of 60 per cent of Russian grain and 20 per cent Ukrainian grain. To date, other countries that are already vulnerable to supply insecurity, such as Lebanon, Libya, Yemen, Bangladesh, and Turkey, also purchase the majority of their grain from the region. The African countries of Chad and Niger imported up to 80 per cent of their fertilisers and raw materials from Russia and Belarus, and Europe as well as many countries in Latin America also purchased large shares.
Absorbing short-term bottlenecks with higher costs and open trade
Affected countries have different options for adjustment: Egypt still has limited but probably sufficient grain stocks of its own for the time being, despite strong supply dependence vis-à-vis the region. In Lebanon, on the other hand, the 2020 explosion at the port of Beirut destroyed wheat warehouses, reducing storage capacity from six months to one month, therefore a continuous flow of supplies is needed.
Remaining supply gaps that cannot be solved in importing countries by means of shifts in consumption towards more food rather than energy use, require food and also fertiliser support. However, these are becoming more expensive as a result of rising prices for procurement and delivery. Transport and delivery must additionally be protected when sourcing from the region along vulnerable routes.
Trade must remain open and possibly protected on routes perceived as dangerous by shipping lines. Typical crisis-induced but price-pushing export restrictions must be avoided, both within the EU and internationally.
Judicious “food first” strategy needed for medium-term risks
Failing supplies from the major agricultural region will show their full effects in the coming autumn crop season, which may only be offset to a certain extent by crops from other major producers, such as Australia, the United States, and the EU.
Large agricultural countries could pursue forward-looking, coordinated market relaxation in order to quickly identify food supply potentials. However, in order to avoid symbolic politics or protectionist reflexes to support domestic production, the volume and price effects of possible approaches – suspension of set-aside programmes, reduced use of agro-fuels, or land rededication from fodder to food production – need to be assessed accurately. If a contribution to market relaxation is to be expected, corresponding measures should be quickly initiated for the upcoming crop year as a temporary crisis measure. Similarly, the United States is discussing the suspension of the conservation reserve programme to allow farmers to bring set-aside area into production. Price-driving sanctions with regard to fertilisers and agricultural goods should be avoided – or at least be accompanied by aid concepts to absorb linked supply risks.
As during the onset of the Covid-19 crisis, the Agricultural Market Information System (AMIS) – a monitoring system developed by the G20 in response to past food price crises – should be used for an international information campaign to prevent price-pushing export restrictions by means of appeals. However, more important than appeals would be the adoption of strict criteria and deadlines for these measures that are enforceable at the WTO level.
In the future, AMIS should cover not only agricultural products, fertilisers, and energy sources, but also the condition of and access to trade infrastructure. Here, restrictions heavily influence supply and price and should therefore be included in a comprehensive warning system for international supply potential.
Furthermore, a future international political offensive for fertilisers and their raw materials is needed. Not only must the market situation be monitored and – in the event of shortages – be accompanied by aid early on. Technologies to make their use more efficient and to increase fertiliser production capacities as well as approaches to their substitution – whether technologically or by cultivation – are also needed.
