Ukraine and Russia are major food exporters. They each provide about 6% of global market shares in food calories. Russia’s invasion of Ukraine puts this at risk. Even in February 2022, before the invasion, food prices were at a record high (Figure 1), in particular because of the pick-up in demand in the COVID-19 recovery, and because the pandemic disrupted supply chains. The war in Ukraine and consequent sanctions could mean high food prices will endure.
The commodities for which Russia and Ukraine play the biggest roles are wheat, barley, maize, sunflower seeds and sunflower oils (Figure 2). The Ukrainian share of global exports of barley and wheat increased in 2021, to 14% and 10% respectively. The Russian share of global exports of barley and wheat increased in 2021, to 12% and 18% respectively.
Figure 3 shows the net food importers that are most exposed to a disruption in the food supplies from Ukraine and Russia. The uppermost countries in the chart are the least self-sufficient in terms of cereal supply. Countries to the right of the chart are those most reliant on cereal imports from Ukraine and Russia. This is important because logistics are crucial in the trade of cereals: switching to other, more distant suppliers, is very costly. The doubling of shipping fuel prices and charter rates compared to last year, implies that countries that currently rely on cheap and accessible Ukrainian and Russian cereals imports will find it particularly difficult and expensive to replace them.
The upper right corner of Figure 3 shows the most exposed countries. The most vulnerable countries are Middle Eastern and North African countries that rely almost exclusively on imports to sustain their cereal consumption, and import more than 10% of their cereals from Ukraine and Russia. The most at-risk, excluding high-income countries, are Jordan, Yemen, Israel and Lebanon. Yemen and Lebanon have major pre-existing food insecurity problems and import 31% and 47% of their cereals respectively from Ukraine and Russia. Libya does not appear on the chart due to lack of data, but is also extremely vulnerable, relying on imports for up to 90% of its cereal consumption. Ukraine (40%) and Russia (15%) account for 55% of Libya’s cereal imports (Comtrade data).
Some European and Central Asian countries have a higher share of domestic cereal production but rely completely on Ukraine and Russia for cereal that they do import. These include Armenia (92% of imports from the two countries), Georgia (85%) and Azerbaijan (77%).
A number of sub-Saharan African countries are also vulnerable because, though they rely on Ukraine and Russia only to a limited extent for cereals, they have little economic capacity to adapt to rising prices and supply disruptions. They include especially Sudan but also Congo Brazzaville.
Russia and Ukraine jointly account for 57% of global sunflower oil exports. Vegetable oil prices were already at historic highs in February 2022 (Figure 1). These prices have been the main driver of food inflation since the end of 2021. High prices for vegetable oils, which are found in most food goods, are the result of a combination of bad weather, bad harvest and surging energy prices. The war is set to increase pressure on vegetable oil prices, given the importance of the region for sunflower oil production (Figure 2). Between 35% and 40% of the EU’s sunflower oil comes from Ukraine.
The invasion will also impact food supply through fertiliser supply
Fertiliser prices were already on the rise before the war, reaching levels unseen since the global financial crisis (Figure 4). The price spike was mostly due to higher gas prices, which curbed production of important inputs into fertiliser production, such as ammonia. Already in September 2021, China imposed export restrictions on phosphate fertiliser until June 2022.
Russia and Belarus are respectively the first and sixth biggest global exporters of fertilisers, representing a total of 20% of global supply (Figure 5). Russia accounts for nearly a tenth of global nitrogen and phosphate fertilisers, and with Belarus accounts for around a third of potash production. The war will have a direct impact as Russia has already announced fertiliser exports bans to “non friendly countries”.
Indirect impacts will also be felt as fertiliser production is highly energy-intensive, relying especially on natural gas. Fertiliser production, ammonia especially, represents 1-2% of global energy consumption.
Disruption to the global fertiliser market will have major impacts on crop yields and farm income. In the EU, farmers will be affected by both price increases and renewed trade restrictions. The EU has already introduced sanctions on Belarussian potash exports. The EU relies on imports for 85% of its potash consumption, including 27% from Belarus.
Three illustrative scenarios
In addition to short-term disruption to exports from Ukraine, exports could also be limited in the medium- to long-term because of war-damaged infrastructure and crops could not be planted this year. In addition to these constraints both Ukraine and Russia have imposed export restrictions in the face of strained domestic supply. In March, Ukraine banned exports of a number of food products (rye, barley, buckwheat, millet, sugar, salt and meat) until the end of 2022. Figure 6 shows the most vulnerable countries: according to three different scenarios of cereal supply disruption.
Outcomes will depend on new developments. So far, big agricultural firms in Ukraine have suspended operations amid security concerns. Major infrastructure, especially ports from where most cereals are exported, remains intact but not operational. Agricultural maps show a concentration of important crops in conflict areas in the east and south-east of Ukraine, suggesting agricultural land could be damaged, or at least not seeded.
The UN Food and Agriculture Organisation so far expects that between 20% and 30% of land usually destined for cereals, maize and sunflower seeds will not produce crops for next year’s harvest. In our worst-case scenario Ukraine will need all it can produce domestically and exports will drop by 100%. In the second worst-case scenario, Ukraine will still be able to bring half of its normal production to export markets. And in the best-case scenario, which would likely only materialise if hostilities end quickly, Ukraine might only lose 33% of its exports.
For Russian exports, the three scenarios anticipate a reduction of shipments by 10%, 20% and 30%. Risks are concentrated on export restrictions. So far, Russia has closed the Asov Sea to commercial vessels but has kept its Black Sea port open, from where most of its cereals are shipped. In the face of surging food prices, Russia started curbing exports as early as December 2021. In March 2022, cereal exports to Central Asia were suspended.
Finally, a fertiliser shortfall would imply reduced food production elsewhere in the world, leading either to higher import needs in food-importing countries, or reduced exports from exporting countries. In our worst-case scenario, fertiliser exports from Russia and Belarus would be largely stopped and high gas prices would substantially curtail fertiliser production elsewhere. We assume a resulting loss of 10% of global food export volumes. The second-worst scenario would see global food exports drop by 5%. In the best case, there would be no reduction this year.
In the worst-case scenario, more than 30 countries will lose more than a quarter of their normal imports, while in the best-case scenario only seven most-vulnerable countries will be affected, losing over 10% of their normal imports.
The most vulnerable countries include Tunisia, Lebanon, Egypt, Armenia, Sudan, Georgia and Turkey. However, the most notable result is that the countries most exposed would be low- and middle-income countries in Central Asia, eastern Europe and the Middle East and North Africa. The supply shock will translate into higher prices and thus import reliance and the ability to swallow a higher import bill are the most important determinants. Sub-Saharan African countries that do not feature so prominently as being at risk in Figure 6 but which have high import-dependency ratios, including Mauritius, Cape Verde, Botswana, Lesotho and Namibia, could be just as impacted as those that are historically reliant on imports from Ukraine and Russia. In addition, countries with low disposable income have financial situations significantly worsened by the COVID-19 pandemic.
Shifting the supply routes for agriculture commodities will also be challenging from a transport perspective. Many Middle Eastern and North African countries rely on the Black Sea route, considered a ‘chokepoint’ for agriculture trade. For low- and middle-income countries, the costs of importing from further away will be more difficult to absorb, especially as freight prices increase with commodity prices in general, which will be aggravated by the spike in energy prices.
How these risks play out over time will depend on several factors. Harvests in parts of Asia and Africa are expected to be below average, which could further undermine supplies. Stockpiles in some countries may soften or delay the blow. Wheat stocks in North Africa of 13.4 MN tonnes represent about half of last year’s imports (28 MNt). While some export restrictions may be eased if the market becomes less tight in the coming months, uncertainty around the Black Sea region could last, and sanctions against Russia appear unlikely to be lifted soon.
Lower food supply and higher prices will persist in the coming months. Global inflation will surge with the combined historic rise in energy and food prices. As the prices of staples surge, humanitarian needs and political risks will increase. The last time food prices reached current highs (Figure 1), they set the stage for the Arab Spring uprisings. A number of countries are already applying export restrictions to secure their own supplies while exacerbating the problems for most vulnerable countries.
The full impact will not be felt until next autumn’s crop season. Anticipating future shortfalls could significantly help soften the blow and limit the humanitarian impacts of food supply shocks. Major producers including the EU, the United States and Australia can prepare. These economies have very efficient agro-industries and could boost production on fallow land. The EU especially, with its proximity to the most vulnerable markets, needs to enable its farmers to drastically step-up grain production. Crops for food consumption should be prioritised where possible over fodder and biofuels (which are in high demand in developed countries because of spiking energy prices). The EU currently produces energy crops on about 15% of its arable land. In addition, given the magnitude of the current shock, a requirement for EU farmers to leave 5% of arable land as ‘ecological focus areas’ – uncultivated and without fertiliser use – should be lifted for the current planting season. The flexibility for the current planting season for grains, which typically runs until late March, is likely very limited, but for the next season it will be crucial to ensure that food stocks are replenished.
A major challenge for EU farmers remains the spike in input prices, including fertilisers and fuel. This might justify targeted support to ensure farms remain economically sustainable. Some European farmers may be safe from this year’s fertiliser shock because they have already what they need, but the shock will be felt fully next year. This year, significant differences in exposure should be monitored. As the energy crisis is set to last, global measures improving the efficiency of fertiliser use should also be taken.
Given the uncertainty, multilateral engagement to limit protectionist measures on food and fertiliser needs to be stepped up. The G20’s Agricultural Market Information System, meant to enhance international transparency and encourage coordination of food trade policies, could play an important role. Global food production will, even in the worst case, be sufficient to feed the global population, but the uneven geographical impact of supply disruptions and the devastating effects of high food prices on the poorest, call both for pushing up supply and finding ways to deliver food where it is needed.
Weil, P. and G. Zachmann (2022) ‘The impact of the war in Ukraine on food security’, Bruegel Blog, 21 March