How Russia’s war in Ukraine upended the breadbasket of Europe: an explainer
Please read this extremely detailed article from the Financial Times. The link below is to the article which has many useful graphics, but I can’t incorporate them here. This sets out as plainly as I have seen it set out how, exactly, the war in Europe is disrupting supply chains. It’s information we all need to have.
What’s it like now in the fields of Ukraine? Here’s the article:
“In the village of Semypolky, north-east of Kyiv, green shoots of winter wheat are sprouting in Mykola Gordiychuk’s field. But no one has been working the soil.
“These fields should have been filled with machinery” at this time of year, he says. “But it’s been empty. No one has been here.”
The farm, where Gordiychuk grows seed potatoes and wheat, halted work for a month when Russian forces attacked the area near Kyiv in late February, causing employees to scatter for safety. After a successful Ukrainian counteroffensive in late March, Gordiychuk is slowly getting the two farms back to work.
But before sending a tractor out to spread fertiliser, he had to call in military specialists to screen for unexploded ordnance. They found rocket fragments all over the field, delaying a return to work yet further.
They are now working against the clock to remount operations. “In agriculture if you lose a month in May, you lose time for certain crops,” he says. “If you don’t plant in time, you lose a year.”
Gordiychuk is one of hundreds of growers across Ukraine trying to salvage what they can of the spring planting season while coping with broken logistics chains, scarce supplies or spiking prices, as well as shortages of manpower. The disruption to farming will affect the food security of millions of Ukrainians, many of whom have been forced out of their homes and are wondering where their next meal will come from.
But the damage being done to Ukraine’s food and agriculture industry is having consequences for hunger and food security that stretch far beyond the country’s borders.
Ukraine has long been a land of natural bounty, not just for its own population but also for people around the world. Products made from its wheat, corn and sunflowers can be found in markets and kitchens from Estonia to Egypt. Its black soil is richly fertile. Its farmland is cheaper to run than that in Europe and the US. And its deep seaports have given it easy access to international markets. The combination has allowed Ukraine to become a key exporter of agricultural commodities, and to be described as the breadbasket of Europe.
Now the basket has been overturned. “The farmers, the agriculture workers went to war and continue to fight in the war, and some of their vehicles went to the war,” says the Ukrainian agriculture minister, Mykola Solsky. With swaths of farmland turning into battlefields and Ukraine’s road and port infrastructure being attacked by Russian missiles and bombs, the country’s food supply chain has seized up. “There are limitations on working hours because of curfews, and there are limits on the movement of agricultural equipment because of controls on the roads,” Solsky says.
The damage to Ukraine’s road network and food distribution infrastructure has made getting food to areas suddenly hosting millions of internally displaced people difficult. The World Food Programme estimates that 45 per cent of the population is worried about finding enough to eat.
But the war has also left a global supply gap. Ukraine accounts for 8 per cent of global wheat exports, 13 per cent of corn flows, and more than one third of the sunflower oil trade. Normally the country exports 40mn to 50mn tonnes of cereals every year, but Russia’s invasion has meant export volumes in March were a quarter of those in February, according to the agriculture ministry.
The agriculture sector sits at the heart of Ukraine’s economy. In some southern oblasts, areas that have witnessed some of the war’s most intense fighting, 80 per cent of land was under active cultivation in 2019. In total, 57 per cent of the land in Ukraine was used for growing crops in 2019 — making it one of the most highly-cultivated countries in the world. By comparison, in the same year the US actively used 17 per cent.
The goods grown in Ukraine make up a sizeable share of global agricultural production. The country accounts for 30 per cent of the world’s supply of sunflower oil, widely used in both industrial and domestic food production, and grows 4 per cent of the world’s wheat.
Some countries are particularly reliant on Ukraine for crucial food supplies. In Libya, for example, 44 per cent of the wheat supply used domestically came from Ukraine in 2018.
In India, 77 per cent of the domestic supply of sunflower oil came from Ukraine in 2019. In China, it was 63 per cent. Ukraine supplied 43 per cent of the corn used in the UK in 2019, much of it to feed livestock.
In the same year, China relied on Ukraine for 16 per cent of its domestic supply of barley, another key animal feed ingredient.
The war has caused food prices to rise sharply around the world — threatening a sharp increase in people going hungry. “The cost is devastating, and it has consequences which are going way beyond the borders of Ukraine,” says Arif Husain, chief economist at the World Food Programme, which provides aid to countries suffering from food poverty.
The disruption in food supplies comes at a time when the world is already struggling with the economic impact of the Covid-19 pandemic. The last time the world faced a food and fuel crisis, in 2007-08, many developing countries that depended on food imports faced social unrest.
The soaring cost of livestock feed, fertiliser and fuel is also having an impact on farmers around the world. The invasion threatens “not only [countries’] food supplies”, says Beth Bechdol, deputy director general of the UN Food and Agricultural Organization, “but also their own agricultural production systems”.
Sowing seeds under fire: the perils of farming in a war zone
When Gordiychuk and his crew returned to his Kyiv farm in early April, after Ukrainian troops routed the Russians out of the capital’s satellite towns, they found a projectile that appeared to be part of a Russian rocket sticking out of the soil.
Russian troops had also shelled Gordiychuk’s farm in Chernihiv and stolen equipment including computers, security cameras, tools and a brand-new generator. On the last day of the Ukrainian counteroffensive, a rocket hit dry grass on the ground and started a fire, which villagers managed to douse.
The damage illustrates the enormous challenge of getting Ukrainian agriculture back in operation while the conflict continues. Before the invasion, Ukrland farming — one of Ukraine’s biggest food producers — had nearly 300,000 laying hens at its egg facility in Makariv, west of Kyiv.
Rocket and mortar shelling in the area cut power supply to the farm. While many staff scattered to safety, the farm’s manager, Oleksandr Komarov, and a skeleton staff hooked up a single diesel generator to keep ventilation and climate control running. Ukrainian troops recaptured the area in late March. But the liberation came too late for the chickens, which died from a lack of feed. The farm is now out of commission. “We don’t even know where our people are,” says Komarov. “Many were running away from the war, from this nightmare.”
In areas where fighting continues, returning to farm work is perilous. Farmers wear bulletproof vests and helmets driving tractors in wide open fields, becoming potential targets for air strikes. “The problem you’ve got is that you don’t really want to be in a tractor with all the lights switched on in the middle of a field in the middle of a war zone,” says Mike Lee, an agronomist and consultant on Ukraine farming. “At this moment, driving trucks in the fields is absolutely terrifying.”
All this comes at a crucial time of year for the country’s agriculture industry. The winter wheat, planted in October and November, needs to be fertilised for the harvest in June and July. Spring crops, including corn, barley and sunflowers, must be planted during April.
The physical danger to farm workers from military activity is just one of several factors behind the FAO’s estimate that between 20 and 30 per cent of the areas producing these crops will either remain unharvested or not be planted this spring.
For cereals, land preparation happens in October, while planting and growing occurs from November through June and harvesting takes place in July and August. For vegetables, preparation and growing takes place from late February through June and harvesting occurs during the same period in July and August. The chart shows that Russia’s invasion, starting on February 24, coincided with the start of land preparation for vegetables and in the middle of planting for cereals.
Bottlenecks at the border: import and export routes cut off by war
The war’s dangers and demands on manpower aside, many farmers are struggling to find more basic things key to working a farm. Prior to the war, Russia and Belarus accounted for the bulk of Ukraine’s fuel imports, and several depots around the country have been targeted by Russian airstrikes.
With Putin’s naval forces blockading Odesa, Mariupol and other ports on the Black Sea, Ukraine has been forced to rely on rail and road for imports. The Ukrainian government says its farmers report only having 20 per cent of the required fuel for operating at usual capacity.
Just as the sea blockades are preventing fuel getting in, they are stopping goods getting out. For example, about 15mn tonnes, or about 40 per cent, of Ukraine’s corn harvest remains in grain silos, according to Michael Magdovitz, an agriculture analyst at financial services company Rabobank.
“Farmers can’t sell their grain that they put aside from last year and get money for their business,” says Solsky, the agriculture minister. “Prior to the war, we could export more than 5mn tonnes of agricultural products through the Black Sea ports per month. But today, it is impossible due to the current situation. Our exports have almost stopped. At present, the capacity to supply abroad has fallen to 0.5mn tonnes of grain per month.”
By targeting Ukraine’s entire agricultural economy, destroying fields, farm equipment, warehouses, roads, bridges and ports, Russia intends to cut off a big source of Ukraine’s income, says Caitlin Welsh, director at the Centre for Strategic & International Studies’ global food security programme.
Induced famines in Ukraine?
Ukrainian officials have also accused Russia of using food as a weapon of war, a historically resonant claim in a country that lost millions to the Holodomor famines induced by the Soviet Union in the 1930s. During Russia’s assaults on some Ukrainian cities, most notably the port of Mariupol, food ran short after Russian troops blocked essential goods from going into them. Lyudmila Denisova, the Ukrainian human rights ombudsman, recently said that Russians “want to repeat the famine not only in Ukraine, but to cause famine in the world”.
Moscow has also signalled its readiness to use food as a strategic tool internationally. Russia is the world’s largest exporter of wheat and Dmitry Medvedev, former president, called food its “silent weapon”. Now deputy chair of Russia’s Security Council, Medvedev said Russia would not export agricultural goods “to our enemies” on the Telegram messaging app earlier this month.
Why can’t Ukraine export?
Before Russia’s invasion, Ukraine exported 90 per cent of its agricultural products through ports on the Black Sea. However, intense fighting and Russian territorial gains in the south-east have blocked access to these crucial sea routes.
Delta Wilmar Ukraine, a company that runs a sunflower oil processing plant near Odesa, previously sent most of its finished products out directly on ships from the port. With sea routes blocked, Delta now has to rearrange its logistics, sending goods on to rail or Danube river barges.
“Normally we ship to Europe, Asia, and worldwide,” says Shamil Khakirov, Delta’s commercial manager of the plant. “Now we only have Europe, as we don’t have access to the sea — and our land infrastructure was not ready.” Kernel, Ukraine’s biggest sunflower producer, says there is little chance of it exporting even 30 per cent of its pre-war volumes.
Delta and Kernel are among many businesses attempting to redirect usually sea-bound goods to the railways for export over land via the western border. But the rail network’s capacity is limited, partly due to damaged infrastructure and the threat from Russian forces, says Volodymyr Shemaev, director of international investments for Ukrainian Railways, the state-owned operator. “They are shelling trains on the go.”
Nevertheless, the railway has become an important mode of transport for evacuating civilians from besieged areas to western Ukraine and Europe, as well as moving 60 to 100 wagons of aid daily in the other direction.
The bottleneck for agricultural cargo is not the railroad itself, Shemaev says, but “whether we and western railways can handle this much at the border”. Because the gauge, or gap between tracks, on Ukrainian railway lines is wider than that of its European neighbours, border crossings require cargo to be fully unloaded and re-loaded on to a new train, or wagons transferred on to a different set of wheels.
With the terminals not set up to handle such large volumes, Ukrainian Railways is looking for ways to expand capacity across the five border countries. At Jagodin station, near Dorohusk in Poland, a maximum of 56 wagons can be handled per day.
New wheels on wagons: how to exchange ‘bogies’
Although this system means that freight and passengers don’t have to be moved from the carriages, it is a time-consuming process and can take several hours depending on the length of the train.
At a border crossing where track gauges change, jacks are positioned to raise the carriage body off of its original bogies, or the trucks beneath where the wheels are attached. Once the carriage is raised and the bogies are rolled away, new bogies with a gauge matching the width of the other track are rolled into place. The carriage is lowered onto the new bogies and can continue on the other gauge.
Ukraine has bogie exchange systems at Chop, connecting to Hungary and Slovakia, as well as at Jagodin and Mostyska, connecting to Poland.
Overall, a maximum of 467 cars can be handled per day, across eight railway border crossings with Poland, Hungary, Romania and Slovakia. One train can carry about a tenth of the amount of grain that a vessel can.
The roads do not offer an easy alternative: Ukraine does not have enough drivers to take trucks into the EU because the country is under martial law, and there is a bar on most military age men leaving the country. The lack of drivers is why “we don’t have a lot of sunflower oil in [overseas] supermarkets”, says Delta’s Khakirov.
Ukraine’s problems with exporting goods are being felt especially keenly in Africa and the Middle East, where much of the country’s wheat goes.
Ukraine accounts for 80 per cent of Lebanon’s imports and is a leading supplier for countries including Somalia, Syria and Libya. Russia also provides its Black Sea neighbour Turkey with more than 60 per cent of its wheat imports. In March, food inflation in Turkey jumped to 70 per cent.
Egypt buys almost two-thirds of the wheat it consumes from international markets, making it the world’s largest wheat importer. It relies on Russia and Ukraine for more than 80 per cent of the wheat it imports, and last month turned to the IMF for support after the war sent prices of wheat, cooking oil and fuel soaring.
But it will not be just countries, which buy directly from the two countries, that are affected. Global trade has been built around the expectation of uninterrupted supply flows, and the impact of the war has rippled throughout the international grain and vegetable oil markets.
Many governments in developing countries, where food costs make up a larger portion of household spending, are on high alert to avert social unrest. Protests have already erupted in several countries, including Sri Lanka, where the war has further pushed up already high food prices, especially for imported commodities such as wheat, pulses and sugar.
“Policymakers are facing this very unpalatable trade-off because they are under pressure to continue or even increase subsidies on food in a situation where public finances are already under strain,” says Beata Javorcik, the European Bank for Reconstruction and Development’s chief economist.
Poor countries, which are already facing widespread hunger, will feel the pain the most, warn international food agencies. The World Bank has warned that for each percentage point increase in food prices, 10mn people are thrown into extreme poverty worldwide, and multilateral organisations and developed countries are working on a co-ordinated response to the mounting global food crisis.
“There’s only so much you can get squeezed,” says Husain of the WFP. “The middle class and the poor are already paying a big price, and this is just putting more fuel on a raging fire.”
Will it be solved this year?
The crisis could last well into 2023 if farmers struggle to buy necessary inputs such as seeds and fertilisers for the planting season later this year. Farmers’ existing seed stocks are likely to be used up by then, and their inability to export means their cash running out, says Gaël Hili, regional director in Europe, Africa and the Middle East for the agrichemical group Syngenta. He says the company has resorted to accepting the grain currently stuck in Ukraine as payment for seeds, despite the fact it is not insurable.
Back in Semypolky, the potato and wheat farmer Gordiychuk is slowly returning to business. With Kyiv and Chernihiv now freed from the Russians, and his farm manager Igor, who had fled to safety in western Ukraine, back on the farm, he is mapping out priorities.
“We have two tasks now: to load seed potatoes to farmers, and to plant potatoes on our own farm. And to put fertiliser on our winter wheat,” he says.
But even if he manages to plant and harvest his crops, Gordiychuk is aware of the challenges getting the commodities out of the country. “Many of my colleagues are saying if the ports are still blocked in autumn, it will be very difficult to sell crops,” he says.
If the ports are not functioning, the country’s farmers, who have sent crops such as wheat and sunflowers to countries such as Egypt and Turkey by sea, will need to look for other customers. “Now we have to develop a new supply chain via Europe”, says Gordiychuk. “And that doesn’t happen in two to three months.””
As usual, Europe will be relatively protected from hunger: Africa will, as usual, bear the brunt of the shortages. India will also suffer: climatically it is already in trouble this year, with heatwaves starting ahead of the usual season. While we may not actually go hungry, millions across the world will. Expect food to be more expensive as the increased draw down on other types of carbohydrates increases e.g. rice prices and protectionism increases.
Food prices have increased hugely in response to the war, comments Arif Husain, chief economist at the World Food Programme.
“The cost is devastating, and it has consequences which are going beyond the borders of Ukraine,” For poorer countries already struggling with the economic impact of Covid-19, the impact is appalling as prices of fertiliser, animal food and fuel shoot up.”
There is also a growing problem of crop protectionism. Indonesia, the world’s biggest exporter of palm oil, this week banned supplies leaving the country in a bid to contain surging domestic prices. One analyst said the move was “yet another reminder of the vulnerability present across agricultural supply chains in an environment of already historically tight inventories, compounded by the indefinite loss of Ukrainian export volumes and historically high production costs.”
There is hope that some of the strain may be alleviated from supplies in Latin America, but the outlook remains bleak.
Surging food prices are also moving their way up domestic political agendas. There are tensions at the heart of the UK government over whether Britain should unilaterally cut tariffs on food imports after new data showed grocery prices have risen 5.9 per cent in the past year, equivalent to £271 a year for the average household, the biggest jump since December 2011.
What else does the FT have to say?
War in Ukraine is acting as a “multiplier of disruption in an already disrupted world” says FT chief economics commentator Martin Wolf in his latest column.
“Wars are also big economic shocks. The Vietnam war destabilised US public finances. The Korean war of 1950-53 and the Yom Kippur war of 1973 triggered huge increases in prices of vital commodities. This time, too, a war directly involving a huge energy exporter, Russia, and, with Ukraine, an important exporter of many other commodities, notably cereals, is raising inflation and causing sharp reductions in the real incomes of consumers. More important, the war has added to already pervasive stresses on economies, international relations and global governance. The walkout by western ministers and central bankers from last week’s G20 meeting, as the Russian delegation spoke, was a sobering reminder of our divided world.
Even before Russia’s invasion of Ukraine, the world had not recovered from the economic costs of Covid, let alone its wider social and political effects. Supply disruptions were pervasive and inflation had soared to unexpectedly high levels. Monetary policy was set to tighten sharply. The risk of recession, worsened by defaults and financial disruption, was high. To this had to be added growing tensions between China and the west and their divergent policies on Covid.
This war follows pestilence and threatens famine,” says Wolf. “Together these are three of Ezekiel’s four “disastrous” judgments of the Lord. Alas, the fourth, death, follows from the other three.”
A sobering set of analyses here, to consider as we make our plans – not panicking or catastrophising, but considering that we are more fortunate than many, and that if we are about to enter into times more difficult than those we have experienced in our lives up until now, it is never to late to learn how to practice personal resilience, build a community, and do our best. The mythical “spirit of the Blitz” that is often invoked in times of hardship is just that: mythical, because during WWII, although the government of the time would never have admitted it, there were plenty of people who profiteered, who took advantage, who preyed on the vulnerable. But we are neither prey nor predators: we are self-determining individuals who are dealing with the changes in our lives with good sense, good will, strength and courage.