Ukraine was once known as the breadbasket of the Soviet Union, and in more recent decades as ‘the breadbasket of Europe’, meaning the Russian invasion is poised to have an effect on food prices across the world, especially on those of food staples such as flour and pasta, and therefore affecting vulnerable countries the most.
According to the UN’s Comtrade, the main destinations of Ukrainian wheat in 2019 were Egypt ($3.65bn worth), Indonesia ($664.5m), Bangladesh ($418.6m), Turkey ($207.4m) and Tunisia ($195.5m). In 2020, Lebanon imported a total of $148.49m worth of wheat. Of that, $119.1m came from Ukraine and $22.9m from Russia. The effects of the war are likely to be felt on bread prices across countries like Lebanon that rely heavily on wheat from Ukraine.
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From the Flour War in 1775 France (which acted as a prelude to the French Revolution 14 years later), to the Arab Spring in 2011 (where a spike in grain prices caused initial unrest in Egypt), to more recent protests in Lebanon and Sudan, increases in the price of wheat can bring about widespread instability, so the invasion of Ukraine by Russia could have a ripple effect across the world in ways that go beyond military action.
Wheat prices were already poised to increase
To exacerbate the situation, wheat prices were already poised to increase, according to Erin Collier, economist at the trade and markets division of the UN’s Food and Agriculture Organisation (FAO). “Global wheat markets have been tighter this year than usual, and that is because there were reduced harvests,” she says.
“At the same time, demand has been really strong, so that has made wheat markets really vulnerable to any – even potential – supply shock.”
With both Russia and Ukraine being major exporters of wheat, this is only going to add pressure to wheat markets, she adds.
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By GlobalDataAlong with the harvest issues, logistic disruptions and high energy and transport costs are also affecting wheat prices. With Russia also being a major supplier of natural gas and fertilisers, sanctions could potentially disrupt wheat markets and make prices shoot up, says Collier.
The wider agribusiness sector and FDI in Ukraine are obviously already seeing the effect of the war. Agribusiness giant Nestlé has already halted operations in Ukraine, as has the France-based vegetable group Bonduelle, stopping production in a factory the company has in Russia near the Ukrainian border.
Why Ukraine's black soil is so heavily in demand
Ukraine’s agricultural strength is partly linked to its fertile black soil, with 25% of the world’s reserves on its land, according to the US Department of Commerce.
Black soil, or chernozem, covers about 7% of the ice-free land surface in the world, and is a highly fertile soil rich in minerals, organic carbon, and is at least 25cm deep, according to the FAO.
Chernozem covers an estimated 230 million hectares worldwide as a continuous belt in steppe and forest-steppe landscapes, mostly in Russia, Ukraine, the Great Plains of the US and northern Kazakhstan, along with some local concentrations and patches in central Europe.
This fertile land is behind Ukraine’s grain strength, helping it to become one of the world’s largest exporters of wheat and maize, as well as the world’s largest exporter of sunflower oil, which is the fourth most-consumed vegetable oil in the world.
However, despite having rich soils and a strong agricultural sector, between 1932 and 1933 Ukraine experienced one of the worst famines in global history, an event that is now recognised by many countries as genocide, which caused the deaths of between 3.5 million and seven million people. Known as the Holodomor, which roughly translates as 'death by hunger', the famine is considered within Ukraine to be a product of Joseph Stalin’s plan to keep control of the country, during which time he made it almost impossible for farmers and the rural population to feed themselves or the rest of the population.
Ukraine invasion will impact the global agriculture industry
With the invasion of Ukraine advancing by the minute and sanctions towards Russia increasing, the importance of Ukraine to the world when it comes to not just agriculture but numerous other industries is becoming more and more clear. Ukraine may have a strong emotional and geopolitical appeal to Russian President Vladimir Putin, but the riches that lie within its boundaries will also have been a consideration.
As such, from the Holodomor to the more recent annexation of Crimea in 2014 and now the full-blown invasion, Russia has wreaked havoc in Ukraine time and time again. With global supply chains already highly vulnerable, however, and many countries round the world reliant on Ukraine's agricultural produce, the impact of Putin's action will have repercussions that are much more widespread than many imagine. A rise in wheat prices can have a huge knock-on effect given the importance of bread to daily diets the world over. The human cost of the invasion within Ukraine is already tragic, but the possibility of other potential impacts due to the country's importance to the global agriculture market cannot be ignored.
More coverage of the Ukraine invasion from Investment Monitor:
- ‘Who’s going to travel here or invest now?’: The impact of the Ukraine crisis
- Taiwan’s semiconductor ban could spell catastrophe for Russia
- Which countries are most exposed to interruption in Ukraine food exports?
- From hamburgers to helmets: How foreign companies in Ukraine are supporting the war effort
- Tax havens blur who Russia’s allies are when it comes to investment
- Germany’s stance on Ukraine-Russia dispute isn’t just about gas
- Why central bank sanctions should have Putin and Russia worried
- Ukraine: an FDI snapshot
- The impact of the Russia-Ukraine conflict on real assets
- Which multinational companies are most exposed to the Ukraine-Russia conflict?
- Institutional investors respond to the Russian invasion of Ukraine
