Agriculture is one of the sectors most affected by the war in Ukraine, as the availability of wheat, corn and sunflower oil is declining, while farmers feel the most about the availability of mineral fertilizers and rising prices, as well as more expensive fuel, notes Dainis Gašpuitis, an economist at SEB banka.
He also points out that along with the availability of raw materials, the logistics of agricultural products are also difficult. The war in Ukraine has halted much of this year’s planned exports, but the support of Europe, the United States and other countries in Ukraine’s fight against the aggressor makes the tunnel light.
It is estimated that Ukraine’s share of world wheat exports was about 10% and Russia’s 16%. Assuming that some of these exports are canceled due to war or sanctions, this has a major impact on the world market, Gashpuitis points out, adding that it is not for nothing that the Food and Agriculture Organization is talking about a global food crisis that could pose a particular threat to Africa and the Middle East. Eastern countries.
For Ukraine, the main problem is the damage done to ports and land transport infrastructure: Ukraine’s grain exports were four times lower in March than in February. Wheat prices have risen from about 200 euros per tonne at the end of last year to 350 euros per tonne this year, informs Gašpuitis.
The main export route for Ukrainian agricultural products is the Black Sea – 80% of grain is exported through the ports of Chornomorsk, Mykolaiv and Odessa in the south-west of the country. Reluctant to take risks, many shipping companies are reluctant to send ships to Ukraine, and the war situation has made cargo insurance significantly more expensive.
According to Gashpitt, the cessation of hostilities would mean that Ukraine, together with international support, could begin rebuilding its transport infrastructure. It should be borne in mind that an alternative to the infrastructure, which has allowed an average of 4.5 million tonnes of grain per month to be transported, cannot be developed in the short term, so that the cost of transporting grain through ports in neighboring Romania times higher.
The Polish press reports that Poland is not ready to reorient Ukraine’s food exports because crossing the border in eastern Poland is too tense. Gašpuitis points out that the ports of Lithuania and Latvia look the most promising for Ukrainian grain exports, but the European Commission (EC) is working on transit routes to ensure the supply of raw materials and prevent excessive rise in food prices.
Most of last year’s harvest has already been taken from Ukraine, but this year’s harvest and its transportation are threatened, the economist informs. It is estimated that about five to six million tonnes of wheat, about a quarter of annual exports, 15 million tonnes of maize, about half of half of annual exports. Gašpuitis emphasizes that a shortage of this magnitude cannot go unnoticed – it leads to a huge increase in demand, followed by rising prices.
During the summer sowing, Ukrainian farms are short of fuel and labor, as well as seeds and fertilizers. This will have a significant impact on the yield of maize and sunflower sown in April, which is estimated to be 30% to 50% lower. It must be borne in mind that the war will make it difficult to harvest. Although wheat and rapeseed fields are sown, the Russian invasion is expected to reduce this year’s grain harvest by at least a fifth compared to last year. The average wheat harvest in Ukraine is between 27 and 29 million tonnes, while exports are usually around 20 million tonnes.
Gašpuitis informs that the annual grain harvest in Latvia is about 3.5 to four million tons, which is the second largest figure in the Baltic States after Lithuania, where last year’s harvest was 7.3 million tons. Leaving about a third of the harvest for self-consumption, the Baltic States can supply a significant part of the global demand for cereals – we are currently the second largest exporter of wheat in the European Union (EU), only slightly behind the leader France. We are one of the largest players in rapeseed exports in Europe.
However, a significant challenge for Baltic farmers is and will be the provision of mineral fertilizers at an adequate price – mineral fertilizers imported from Russia and Belarus will have to be replaced in the coming seasons and their price has tripled. The economist emphasizes that reducing the use of fertilizers and plant protection products would mean lower yields. The second major factor affecting the agricultural sector is the sharp rise in fuel prices and other energy prices.
Gašpuitis recalls that before the Russian invasion of Ukraine, the main concerns of farmers were related to the introduction of the European green course and requirements to reduce harmful emissions. The sustainability goals defined by Europe have not been abolished, so when planning the future of Baltic agriculture, it is necessary to think about both the use of energy and technological innovations that would increase efficiency and reduce the use of plant protection products.
One of the ways to meet these challenges is cooperation, which on the one hand creates more power in negotiations on logistics solutions, supplies and procurement, but on the other hand – creates a very valuable environment for knowledge transfer, Gašpuitis points out.
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