Effect of Ukraine invasion on food chains

Before Invasion

Today, Russia and Ukraine export approximately 12% of total calories traded globally, and the two nations are among the top five worldwide exporters of various essential grains and oilseeds, including wheat, barley, sunflowers, and maize.

Ukraine is known as the “breadbasket of Europe” because it produces wheat, barley, and rye, on which most of Europe relies. Ukraine is also a significant source of sunflower seed oil, accounting for over half of the global market. It is also a major corn producer. In addition, Ukraine’s wheat and corn are used in the Middle East, Africa, and China; in fact, Ukraine beat the United States as China’s top corn supplier in 2021.

Effect of Ukraine invasion on food chains

According to the United Nations Food and Agriculture Organization, Russia accounts for around 20% of global wheat exports, while Ukraine accounts for 10%. They account for around 29% of global wheat export market. The primary products imported from Russia are food industry wastes and residues, such as oilcakes and feed components, oilseeds, animal or vegetable fats and oils, drinks, and cereals. Beverages, culinary preparations, leftovers and waste from the food sector, oilseeds, live trees and other plants, and cocoa are among the EU’s exports to Russia.

According to COCERAL, FEDIOL, and FEFAC, Ukraine exports approximately 60 million tonnes of grain globally. It was expected to export approximately 33 million tonnes of corn and 24 million tonnes of wheat during the current marketing year. Maize is the largest imported product from Ukraine for Europe, with an annual average of 11 million tonnes, plus around 2 million tonnes of sunflower oil. COCERAL is the European Union’s trade organisation for cereals, oilseeds, grains, pulses, olive oil, oils and fats, and animal feed. FEDIOL represents the EU vegetable oil and protein meal business, whereas FEFAC represents feed producers.

War consequences

With vast segments of Ukraine currently in conflict, food distribution has been badly affected, with factories closing or working at reduced capacity, transportation disrupted, and retail establishments either closing or selling fewer commodities.

Russia’s invasion of Ukraine could further disrupt global markets and have a short-term negative impact on global grain supplies. This might worsen already-high food price inflation and have huge consequences for low-income net food importers, many of which have suffered a rise in malnourishment rates in recent years as a result of pandemic disruptions.

Military actions may have short- and long-term effects on Ukraine’s ability to shift grain produce within and beyond its borders, particularly if port infrastructure and railroads are damaged. In terms of crops for 2022, the Luhansk and Donetsk provinces account for approximately 5% of Ukraine’s barley production, 8% of wheat production, 9% of sunflower seed production, and a small portion of maize production.

The Russian invasion on Ukraine would most certainly have a major impact on European food security and agri-food markets. Some of the issues are a result of the sanctions, such as reduced exports of wines, fruits, vegetables, and other food products.

But the disturbance in the supply of wheat, soybeans, vegetable oils, and chicken meat, all of which Ukraine is a major producer, is an even more catastrophic effect. They must assure the European people that this war will not leave Europe with empty plates.

The invasion of Ukraine has already had an adverse effect on global wheat prices, which have risen to new highs in 2022, equivalent to those seen during the global financial crisis of 2008. Furthermore, if the situation continues, Ukraine and Russia may impose export taxes or trade restrictions, including export bans on wheat, in order to meet domestic food demands.

Sudan is likely to be the most badly affected by the ongoing conflict, followed by Kenya and Ethiopia, due to the amount of wheat demand and over-reliance on imports from Russia and Ukraine.

Effect of Ukraine invasion on food chains
Highlights:

1) Multinational corporations operating in the region are confronted with a problem.

Danone has suspended one of its two operations in Ukraine, while Nestlé, which has three factories and 5,000 employees in the country, has ceased production and distribution. Companies like Nestlé, Danone, Mondelez International, and Mars, who are international food companies, have long ago localised their food businesses in Russia. They have legal entities in Russia, as well as factories. As a result, the laws of Russia protect these international corporations in Russia.

2) Importers and exporters face problems as a result of sanctions and trade flow interruptions.

Despite the fact that food products are exempt from the financial restrictions, disruptions in food shipments cause supply issues in various locations, forcing governments to interfere in markets to ensure domestic food supplies.

3) Grain, oilseed, and fertiliser prices are rising globally.

Increased cost inflation in food supply chains is worsened by higher grain, vegetable oil, and fertiliser prices, and purchasing decisions are made more difficult because of increased market volatility.

4) Trade interruptions result in an increase in crop demand in other producing regions.

It appears reasonable to expect that during the 2022/23 season, producers all over the world would hunt for ways to increase production and compensate for the supply shortage.

5) Higher energy prices are passed on to all European food industries as a result of the conflict.

Food makers are under additional cost pressure as energy costs go up.

6) Food firms’ expansion will be limited by a poor macroeconomic outlook. Lower economic growth in nations most affected by the war, on the other hand, might have a negative influence on household spending.

Effect of Ukraine invasion on food chains
Possible next steps

The invasion of Ukraine by Russia presents severe threats to world food security, demanding a variety of responses from nations and international organisations. 

The international response to the Ukrainian crisis should include a significant global food security component, and any restrictions imposed on Russia should not affect other parties who rely on Russian exports.

Food and fertiliser exports should be permitted to continue as much as possible; if this is not possible, remedial packages should be supplied to impacted third-party nations.

Conclusion

The Ukraine conflict has huge consequences for the food supply chain that includes interruptions in corporate operations and trade flows, rising commodity and energy costs, and a weaker economic outlook. Too many food and agricultural organizations in Europe and internationally are facing the impacts.

Read our latest article on: Introduction to the Online Food Supply Chain

References

https://www.thespec.com/opinion/contributors/2022/03/08/putins-invasion-of-ukraine-threatens-global-food-chain.html

https://www.trtworld.com/magazine/how-russia-s-invasion-of-ukraine-will-impact-the-global-food-supply-55212

https://reliefweb.int/report/burundi/implications-ukraine-conflict-food-access-and-availability-eastern-africa-region

https://www.just-food.com/special-focus/ukraine-crisis/ukraine-crisis-raises-short-and-long-term-questions-over-food-supply-chains/

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