The war between two of the world’s top grain exporters, Russia and Ukraine, has sent prices to record levels and raised fears in importing countries in Europe, Asia, the Middle East and Africa of potential shortages later in the year.
Together, Russia and Ukraine account for more than a quarter of the global wheat trade and nearly a fifth of corn, as reported previously by bne IntelliNews. Buyers of grain are now looking to second-tier producers such as Kazakhstan, Poland and Romania, as well as the smaller suppliers from Central and Southeast Europe, to fill part of the shortfall – but this will not be enough to make up for the loss of Russian and Ukrainian grain.
The war in Ukraine has already resulted in the closure of its Black Sea and Sea of Azov ports to shipping. Kherson was captured by Russian forces soon after the invasion, besieged Mariupol is the site of an unfolding humanitarian catastrophe and Odesa could become Russia’s next target if Mariupol falls.
With large parts of Ukraine under attack on several fronts and millions fleeing the Russian invasion, the spring sowing season will not be able to go ahead in much of the country.
Russia’s ability – and willingness – to supply grain this year is also in question. Russian President Vladimir Putin has announced that Moscow is striking back at the West with counter-sanctions. The details haven’t been announced yet, but Putin plans to ban the export of Russian commodities until the end of 2022.
Putin's March 8 decree allows for "special economic measures" until December 31, 2022, including curbs on imports and exports of goods and/or commodities to the countries to be determined by the Russian government. Aside from the sanctions on western nations, the economy ministry said on March 10 that Russia plans to suspend exports of wheat, meslin, rye, barley and corn to the Eurasian Economic Union (EEU) until the end of August. By doing this, Russia would effectively boost domestic supply, helping to prevent a spike in prices.
Some Russian exporters are still fulfilling existing contracts; however, Russian shipping is being disrupted by the war. And with the details of Putin’s sanctions plans not yet known, traders are avoiding Russian grain, as they can’t be sure they will be able to fulfil their contacts.
Wheat prices have already soared above the levels that triggered the Arab Spring protests back in 2011. Many countries in the Middle East and North Africa are heavily dependent on Ukrainian grain, among them Egypt, Libya, Yemen and Lebanon. They are now looking to alternative sources, as are the wheat-importing countries of Southeast Europe such as Albania and North Macedonia. Egypt's deputy supply and internal trade minister Ibrahim Ashmawy told Reuters on March 7 that the country is considering importing wheat from EU countries this year, and "will not exclude" exporters such as the US, Kazakhstan and Romania.
The war and consequent disruption of global grain markets comes at a particularly bad time, as it follows droughts in the Mediterranean region last year, while China’s agriculture minister has warned of a poor winter wheat harvest.
On top of the weather-related issues, soaring prices of oil, fertiliser and other agricultural inputs since mid-2021, caused by the recovery of the global economy from the coronacrisis, had already pushed grain prices up before the Russian invasion. The Food and Agriculture Organization’s Food Price Index reached a record high in February. With prices changing daily, it is still unclear to what extent higher prices for wheat and other grains will compensate for the higher input prices for farmers.
A difficult year for Poland
This is the case in Poland, emerging Europe’s next-largest producer in 2021 after Russia and Ukraine, where the grain harvest would be in for a difficult year even without prices of energy turbo-charged by the war in Ukraine. Before Russia’s attack shook markets, the forecasts for Poland’s grain harvest were for a decline driven by rising cost of electricity, transport, and – above all – fertilisers.
Poland’s grain harvest last year was in line with the long-term trend, dropping just 3% to 34.44mn tonnes, the second best result in history. The biggest part of the harvest – soft wheat – was at 12.12mn tonnes, or 35.2% of overall production, last year.
There are no exact forecasts regarding Poland’s harvest in 2022, however, as the market situation was volatile enough before the war and is only getting more volatile now.
“The 2022 harvest in some important production areas will be depleted, relative to the potential, by reduced fertiliser use. That will be due to their limited availability and the historically low level of the relation between the prices of cereals and the prices of fertilisers, reducing the profitability of their use. In addition, the increase in gas prices, due to the reduction in supplies by Russia in the second half of December, is likely to bring about further increases in fertiliser prices,” Polish bank PKO BP wrote in December.
Poland’s grain exports last year came in at 8.58mn tonnes, a fall of 6.3% versus 2020. As the euro and US dollar gained against the zloty, however, the value of exports grew 12% to PLN1.93bn (€400mn). Between July 2020 and April 2021 (the latest available data from Poland’s state agriculture data hub KOWR), Poland mostly exported grain to Germany – 42% of total exports – with Saudi Arabia and Algeria at around 13% and 11% respectively. Spain and the Netherlands were at 7% each, Morocco at 4%, South Africa at 3% and Turkey at 2%.
Some analysts say that war-driven disruption to exports from Ukraine and Russia could open up Middle Eastern and North African markets to Polish producers.
Polish Deputy Prime Minister and Agriculture Minister Henryk Kowalczyk said on March 8 that the war will have a "huge impact through, for example, the increase in cereal prices in the world and in Poland.”
The minister also said that this would "obviously lead to an increase in the prices of other agri-food products" but assured that when it comes to food security, Poland is “safe". "Poland is a large exporter of food and it is enough not only to feed the country's population, but also for refugees from Ukraine," Kowalczyk said, Poland's state newswire PAP reported.
Lithuania faces fertiliser shortages
With the sowing season behind the corner, neighbouring Lithuania is short of roughly one fifth of the fertilisers it needs. The news on Ukraine’s grain export ban is exacerbating the situation, with many Lithuanian farmers predicting exorbitant bread prices down the road.
“The first wave of a grain price surge was last autumn. It stood at around 30-50% and was due to the disruptions in grain supply, a result of the COVID pandemic. We were expecting a bottoming-out, but the Ukraine war changes things dramatically. As Ukraine and Russia are the largest grain exporters, the war means a direct impact on the market, a very, very tangible one. The daily fluctuations on grain bourses are insane – 5-15%, meaning that the price for a tonne of wheat can go up €70 daily. Meanwhile, the old harvest is getting expensive too,” Karolis Simas, head of Agrokoncerno grudai, a major Lithuanian grain market player, said.
Local farmers are also bracing for the ban on Russian fertiliser exports. Simas says Lithuania will have to import fertilisers from as far away as Canada, Chile and Morocco.
As reported, the Lithuanian government has severed contract with Belaruskali, a major potash-based fertiliser exporter and a big cash cow of the authoritarian Belarusian government.
“Many farmers are just confused as to what do next. Many play a waiting game, meaning that the prices will go up,” Simas said. The executive added that, for now, Lithuania holds around 1.5mn tonnes of grain from last year’s harvest, which can last up to one year.
Drought on the steppe
After Poland, Kazakhstan was the region’s fourth-biggest grain exporter in 2021, a year marked by a devastating drought across Central Asia that dragged Kazakhstan’s harvest down by 18% year on year to just 17mn tonnes – the lowest in a decade.
The nation originally expected to support its supplies in the 2021-2022 season via high stocks and imports of grain from Russia. It is unclear how the sanctions on Russia are going to affect these plans. In addition, after the 2021 drought that caused crop failure and the deaths of thousands of livestock, Central Asia is expected to be hit with a similar drought in 2022 as well.
Kazakhstan plans 7.3mn tonnes of grain deliveries for this marketing year, which began on July 1, 2021, above the 6.5mn tonnes sold in the previous marketing year but below the 9mn tonnes the Central Asian nation hopes to export in the upcoming year, Interfax news agency reported on February 17, citing figures from the agriculture ministry.
After the invasion, Kazakhstan began increasing its grain exports via the Trans-Caspian International Transport Route (TCITR) in order to circumvent routes tied to Russia. The sale of grain to Turkey is seen as the most immediate profit Kazakhstan is set to make via the TCITR. Kazakhstan is set to benefit from the sharp rise in grain prices since the Ukraine war began.
Record harvest in Romania
In contrast to Kazakhstan, Romania’s 2021 wheat harvest reached a 14-year high of 11.3mn tonnes, with production rebounding after the drought in 2020. Even before the war, Romania benefited from the Russian decision to impose export taxes on grain after concerns over mounting food costs and rising inflation. This enabled Romania to gain market share in countries like Egypt that usually import large amounts of Russian grain.
Despite the current crisis, Romania’s government has decided not to ban grain exports. After meeting bakers and grain traders on March 9, Minister of Agriculture Adrian Chesnoiu concluded that there are no reasons to expect shortages on the market, though he said monitoring will continue.
The authorities must secure the safe supply on the local market but also “preserve country’s position as a credible grain exporter,” the president of the Romanian Association of Agricultural Product Traders (ARCPA), Vasile Varvaroi, argued at the meeting.
Chesnoiu pointed out that Romania can produce over 11mn tonnes of wheat in a good year, while domestic consumption is somewhere around 4.3mn tonnes. Farmers' representatives say the rainfall in the first part of March indicates 2022 will be a normal agricultural year.
Export bans fuel fears of shortages
Some of the smaller exporters in Central and Southeast Europe have taken a different approach, banning or restricting grain exports.
Hungary’s agriculture ministry announced controls on grain exports on March 6. Wheat, rye, barley, oats, maize, soybeans and sunflowers intended for export will have to be registered with the National Food Chain Safety Authority, and the government will have a priority right to buy them until May 15. Agriculture Minister Istvan Nagy said the decision was made after prices of grain and feedstock rose sharply; demand for Hungarian grain rose after the Russian invasion of Ukraine.
The decision caused consternation in neighbouring Slovenia, which gets around half of its grain imports from Hungary. Slovenian Agriculture Minister Joze Podgorsek expressed concerns on March 8 that the ban imposed by Hungary on exports of grains would cause supply chain disruptions in the food sector.
Serbian President Aleksandar Vucic announced a ban on the export of oil, wheat, corn and flour from March 10. Speaking about the situation with wheat and corn, Vucic said that Serbia will have enough for itself and the region and that he is waiting to see if Russia will ban the export of the two cereals.
Despite the drought that affected production of vegetables and other crops in summer 2021, Serbia had a strong wheat harvest, with the crop increasing by 23.1% to 3.538mn tonnes, according to statistics office data.
Serbia has already committed to sending grain to fellow Open Balkan founder North Macedonia; Vucic said that Serbia will deliver 50,000 tonnes of wheat and 25,000 tonnes of corn to its neighbour. Albania, which recently received its final shipment of Russian wheat, is also keen to secure Serbian grain amid fears of shortages.
Bulgaria hasn’t announced a formal ban on exports, but the National Association of Grain Producers (NAZ) said that Bulgaria is slowing the loading of grain vessels by increasing the number of administrative checks in an attempt to lower exports. The association claims the cargo is being blocked at ports unofficially and in breach of the EU legislation.
The government clarified its position on March 9, when Finance Minister Assen Vassilev said it will spend BGN1.1bn (€511.3mn) on wheat, corn and sunflower seeds to compensate for the lack of imports from Ukraine. Sofia also intends to investigate claims that exports are being obstructed.
Other states in the region have not announced restrictions but officials are anxiously monitoring prices. Czechia, for example, produces about 8mn tonnes of grain each year, of which domestic consumption amounts to 5mn tonnes. Thus according to available data, Czechia should not be threatened by grain shortages. However, this will probably not protect the country from food price increases. "Reducing production will have an effect on global prices, which will go up, which will indirectly affect prices in the Czech Republic," said agrarian analyst Petr Havel, according to daily Denik.cz.
The surge in the price of grain is particularly of concern to bakers, whose cost had already significantly increased at the end of last year due to the rising price of energy. "We are not afraid that there will be no bread, but it will be more expensive," said Bohumil Hlavaty, executive director of the Bakers and Confectioners Association.
The Czech Agrarian Chamber, which represents large farmers, wants the government to change its approach to the agriculture industry in the future, especially the planned organic projects and restrictions on the use of plant protection products. "All this will lead to a drop in production that Europe cannot afford now," said director Jan Dolezal.
Contributions from bne IntelliNews reporters in Almaty, Bucharest, Prague, Skopje, Vilnius and Warsaw.