The Foody's perspective on the Ukraine crisis

A lot is written about the Russian invasion of Ukraine and its impact upon oil, gas, and other key commodities. The human suffering and damage to private and shared physical property is clearly immense and growing.


However, even when invasion was just speculation, I discussed with friends the fact that this year Ukraine has a bumper agricultural result, whilst Russia suffered from poor Harvest. Whilst no doubt lower done on the causation list, it seems easy to forget that relationship between agricultural production, Ukraine and Russia has a long history.


The most famous in recent history is the terror famine from Stalin's soviet era, where between 4 - 7 million people directly perished according to recent scholarship. Many believe that the famine was planned and executed by Stalin to eliminate a Ukrainian independence movement. However, that is a disputed point that is debated furiously, along with the number of deaths.


Ukraine's famous soils




Ukraine's climate is like that of Kansas and punches above its land size when it comes to agricultural crops. Of its around 60 million hectares it is estimated that just over 30.4 million is sown and around 60% is suitable for crops. Although degraded in some areas, most soil and agriculture researchers believe Ukraine has significant scope to improve yield with better soil management and its soils are famous.


A quick comparison to Australia

Australian landmass - reported by awe.gov.au

As a comparison, despite Australia's massive landmass of 769.2 million hectares, 13x Ukraine, we only have 21.08 million hectares given over to cropping given that vast tracts of our land are desert or semi-arid with no nutrition in the soil.


Ukraine's mains crops are:

  • Wheat

  • Barley

  • Corn

  • Sunflower seeds

  • Sugar beat

Unlike Australia, the livestock industry has declined steadily since 1990's with more profitable ways to utilize land (unlike Australia with its semi-arid landmass) and as such Ukraine is known more for its crops.


One important note is that April is an especially critical month for planting crops in Ukraine. For some crops like Sunflower seeds, they only get one chance a year. Therefore, the ramifications of a widescale, extremely dangerous conflict is likely to have a massive impact on the production of agricultural products from Ukraine - even if it stops today. Business media has reported on this including Bloomberg and Foreign Policy.


To put this production tonnages in the context of Australia - see below:

Ukraine

Australia

Wheat

27.2m

36.3m

Barley

8m

13.7m

Corn/Maize

37.2m

.43m

Sugar

1.2m

29.5m

Peas

.6m

.4m

​Sunflower Seeds

19.8m

.05m

Like Australia, Ukraine is a major exporter of its crops. So, any dramatic reduction in planting, harvesting, % export will impact commodity markets - even if we do not feel shortages themselves.


Short- and long-term impacts


However, it isn't just Ukraine. Russia itself is a major exporter of Wheat, Barley, Peas, Chickpeas and Linseed. All these products are exported to export markets in which Australia competitiveness exports its own products.


The one product where we know that we will see impacts are on Sunflower Seeds and Oil. The withdrawal without notice of their supply is impacting vegetable oil markets significantly. They crush approximately 19mt of sunflower seeds into oil with 91% exported. S&P Global have a deep dive - but given just how frequently sunflower seeds are used in higher quality food manufacture - food inflation will be given yet another jolt.



So, whilst food inflation and security of supply are the lowest priority given the human suffering in Ukraine and the suffering of innocent people in Russia forced along for the ride (at least the British got to vote on Brexit), an already vulnerable food supply chain battered by obscene shipping prices, lack of container available and increasing harmful weather events will be both directly and indirectly impacted by the profoundly counterproductive decision of the Russian leadership.


The only winners will be (and I'm sure they would rather not be) will be Australian and Canadian farmers who will take advantage of higher prices and opportunities to build market share in commodities that have previously not been that competitive on the export market - if they can find a container to ship it in.

 

References