March 16, 2022


Ukraine-Russia war: World faces a rude surprise, with upheaval in global grain trade

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The world's biggest wheat producers include China, India and the United States as well as Russia and Ukraine.


Just last February, Argus highlighted that animal feed buyers in the European Union were "gradually shifting to feed wheat purchases… from imports of corn," which lost most of its "competitiveness with feed wheat."


Furthermore, as reported in late January by Hellenic Shipping News, the EU has "awarded 77,833 tonnes of Ukrainian wheat imports for February under its tariff-rate quota (TRQ) scheme," leaving another 852,570 tonnes for the rest of this year in a "one million tonne tranche for Ukrainian wheat, after the EU already granted 69,597 tonnes for January."


But, on February 24, those aforementioned developments were put into question: following years of simmering tensions with Kyiv, Russia launched a full-scale invasion of the country on that day, a conflict still ongoing at the time of this writing (March 16).


Moscow is now slapped with sanctions for its widely condemned aggression and suffers serious blows to its economy. However, the world faces the potential of a worsening energy crisis and an emerging food shortage as a result of the war.


Markets that depend on wheat are also getting the jitters, concerned over securing supply from Ukraine.


Underscoring the dependence on Ukrainian wheat, farmers in Europe are pushing the European Commission to permit "cultivation of all available land this spring" as farmers in Ukraine cope with an uphill challenge of preparing fields for spring crops, according to an Agri-Pulse report.


Outside Europe, countries likely to feel some of the most severe brunts of tight wheat supplies are Middle Eastern and North African (MENA) nations — case in point, Egypt sourced 70% of its wheat from Russia and Ukraine while Lebanon brings in 60% of the grain from Ukraine, DW News reported.


In terms of the significant disruptions to global supply, Ukraine's corn is the same boat as its wheat. Nearly 80% of Ukrainian corn grown was exported, S&P Global stated. The grain was also Europe’s main imported product from Ukraine, with a yearly average of 11 million tonnes, a joint statement by COCERAL, FEDIOL and FEFAC said.


The absence of export activities in Ukraine means buyers — specifically China and the European Union, key destinations for Ukrainian corn — may turn to US corn, "the available option in the market, as the South American corn harvest is still a few months away," S&P Global added. Furthermore, the situation is not abating any sooner as Ukraine announced a ban on exporting its wheat to prevent a humanitarian crisis in the country.


Before the conflict, livestock sectors in some countries were struggling with the high costs of animal feed. It's without question how the war would make it more arduous for these industries to get affordable grains for making animal feed.


But it is not just about exports being shut from a major wheat producer; as the US punished Russia by also banning imports of the latter's oil — an action which would spike gasoline prices further — the double whammy of costlier animal feed and rising fuel prices could prove too much for US farmers to bear.


As reported by NBC News, farmers in the US Midwest may end up paying double for animal feed. While farmers could save costs by feeding animals with alternative foods like grass and silage, fattening would not happen as fast, said economics professor Ernie Goss.


On the other hand, China's efforts at self-sufficiency in food production have paid off in this period.


Although it was the biggest buyer of Ukrainian corn, only 9.4% of China’s corn consumption last year was from imports, while 5.9% of its wheat consumption was imported, a Citi report stated. The country is not completely spared from price increases in grains, but a strong focus on domestic food production and security has enabled it to handle well the consequential impact of the Ukraine-Russia war on food prices, analysts said.


As for the rest of the world, when grain prices would stabilise would be contingent on the outcome of talks between Kyiv and Moscow to end the war.


Global supply chains may even enter a new era of reordering as Tinglong Dai, writing for The Conversation, suggested the possibility of a "supply chain Iron Curtain… with Russia and its allies on one side and the West on the other." Dai also posited that "companies will no longer be able to separate business from geopolitics."


The occurrence of an unexpected war this year reminds us that global trade developments cannot be entirely anticipated.


And right now, the world is witnessing how the global trade of grains is once more changing dramatically — but to what end is anybody’s guess.


- Terry Tan, eFeedLink

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