Posted 24 March 2014
A monthly comment from a member of staff at Harper Adams University.
By Senior Lecturer Dr Richard Bryne, Stablisation Agriculture and Food Defence Specialist.
"The continuing political upheaval in Ukraine has grabbed the headlines for a number of weeks now, but the wider impacts of this crisis are starting to be felt outside of the region.
Ukraine is a major grain producer with an agricultural economy worth about $20billion each year and making up around 10% of the country's GDP. Agriculture and food processing are important parts of the labour market and, in a country with unemployment rates of around 7.5%, maintenance of this sector is vital to exports.
Often referred to as the “breadbasket” of Europe, Ukraine's climate and soils combine not only to produce quality wheat and rye but also barley, oats, sunflower and rapeseed oil. It is also a growing producer of a number of organic products. Ukraine exports commodities to many countries including Russia, Poland, Belarus, Kazakhstan and north African states. As the sixth biggest grain exporter in the world, the continuing economic and political turmoil could have profound effect on food security and food prices across a number of continents.
It is the prospect of rising costs that currently we should be most aware of. Ukraine exports most of its grains via the Black Sea, and Crimea - which is now part of Russia - is where most of the bulk handling facilities are. This leaves the rail network as the alternative export route. While Ukraine has a large and well developed freight network, it will undoubtedly increase costs. It is also highly vulnerable to energy supply interference and interdiction if conflict were to arise. The market has already seem some shifts, with a few Asian buyers moving away from Ukrainian grain over the fear of supply disruption, putting pressure on supply elsewhere and affecting prices.
Further supply issues may arise as farmers hold onto grain supplies in the face of devaluing currency. The United States Department of Agriculture estimates that some five million tonnes of wheat are held currently in Ukraine. To further complicate matters, the economic turmoil makes it harder for growers to finance new planting and a heavy reliance on Russia for imports of crop protection and fertiliser might mean up to 20% of land may go uncropped, according to estimates from the Agriculture and Horticulture Development Board.
The final risk to Ukraine's grain production may not be down to conflict - but to the weather. A few years ago drought forced Ukraine to suspend exports. It was a hard summer and conflict or the threat of it could have profound effects on the stability of the market and Ukraine's agricultural future.
It’s clear the next few weeks will be tense and Ukraine will have to adapt to the changing economic landscape as indeed we all will. Grain prices are sure to react to the situation and this will impact across the globe as supplies are rebalanced. One thing we can be sure of is that things will never be quite the same again."