By Omotayo Edubi
Wheat and other cereals are again at the heart of geopolitics after the invasion of Ukraine by Russia, with both countries playing a major role in the global agricultural market.
Agricultural exchanges between the countries of the continent and Russia and Ukraine are significant. African countries imported agricultural products worth USD 4 billion in 2020 from Russia. About 90% of these products were wheat, and 6% sunflower oil. The main importing country was Egypt, which accounted for nearly half of imports, followed by Sudan, Nigeria, Tanzania, Algeria, Kenya and South Africa.
Similarly, Ukraine exported US$2.9 billion worth of agricultural products to the African continent in 2020. About 48% of these products were wheat, 31% corn, the rest being sunflower oil, barley and soybeans.
Russia and Ukraine are leading players in the global commodity market. Russia supplies around 10% of the world’s wheat, while Ukraine produces 4%. Collectively, this represents almost all of the wheat produced in the European Union. This cereal is intended for domestic consumption and export markets. Together, these two countries account for a quarter of the world’s wheat exports; in 2020, they amounted to 18% for Russia and 8% for Ukraine.
These two countries are also key players in the maize sector, with a combined production of 4%. However, when it comes to exports, the contribution of Ukraine and Russia is much larger, with 14% of world corn exports in 2020 . They are also among the main producers and exporters of sunflower oil. In 2020, sunflower oil exports from Ukraine accounted for 40% of global exports, compared to 18% for Russia.
Russia’s military action has caused panic among some analysts, who fear that the escalation of the conflict could disrupt trade, with serious repercussions for global food stability.
I share these concerns, particularly with regard to the consequences of a surge in world grain and oilseed prices. These have been among the driving forces behind rising global food prices since 2020. This is mainly due to droughts in South America and Indonesia, which led to poor harvests, as well as a increased demand in China and India.
The disruption of trade, due to the invasion, in this important grain-producing region of the Black Sea would contribute to higher international prices for agricultural commodities, with potential negative repercussions on the prices of food in the world. An increase in commodity prices was visible just days after the start of the conflict.
This situation is worrying for the African continent, which is a net importer of wheat and sunflower oil. In addition, drought-related concerns are being expressed in some parts of the continent. The interruption of shipments of basic necessities would only add to the general concern about inflation in food prices in a region that is an importer of wheat.
The magnitude of the potential increase in world grain and oilseed prices will depend on the magnitude of the trade disruption and its duration.
For now, we can consider that the trend is upward for world prices of agricultural products, which are already high. In January 2022, the FAO Food Price Index averaged an increase of 136 points, up 1% from December 2021, its highest figure since April 2011.
Vegetable oils and dairy products mainly contributed to these increases.
In the days leading up to Russia’s decision, the prices of a number of raw materials skyrocketed internationally, compared to the corresponding period of the previous year; for example: corn (21%), wheat (35%), soya (20%) and sunflower oil (11%). It should be noted that the prices for 2021 were already high.
As far as African agriculture is concerned, the impact of the war will ripple through the global agricultural commodity price chain in the short term.
A price increase will benefit farmers. For grain and oilseed producers, soaring prices represent an opportunity to make a profit; these will be very welcome given the rising cost of fertilizers which has taken a toll on farmers’ finances.
The Russian-Ukrainian conflict is also breaking out at a time when drought in South America and growing demand for grains and oilseeds in India and China are putting pressure on prices.
Commodity price inflation, on the other hand, is bad news for consumers who have already experienced food price increases over the past two years.
This conflict means that price pressure will persist. These two countries are major contributors to the world grain supply. The impact on prices due to events affecting their production cannot be underestimated.
Some countries on the continent, such as South Africa, benefit from exporting fruit to Russia. In 2020, South Africa’s citrus exports to Russia amounted to 7% in terms of value. And in the same year, the Russian market accounted for 12% of apple and pear exports from South Africa, the country’s second largest market.
But, for Africa, Russia and Ukraine’s agricultural imports from the continent are marginal – only USD 1.6 billion on average over the past three years. The dominant products are fruits, tobacco, coffee and beverages in both countries.
All actors in the agricultural sector are closely following the development of the situation in the Black Sea region. The effects will be felt in other regions, such as the Middle East and Asia, which also import a significant volume of grains and oilseeds from Ukraine and Russia. They too will be directly affected by the cessation of trade.
There are still many things that are not known about the geopolitical challenges ahead. However, African countries have reason to be concerned, given their reliance on grain imports. In the short term, countries are likely to realize the consequences of this situation through soaring prices, rather than an actual shortage of basic necessities. Other wheat exporting countries, such as Canada, Australia and the United States, should benefit from any increase in demand in the short term.
Ultimately, the goal should be to make gestures towards de-escalating the conflict to defuse the conflict. Russia and Ukraine are deeply entrenched in global agricultural and food markets, not only through supplies, but also through agricultural inputs, such as oil and fertilizers.
