The Russian invasion of Ukraine – More Than a Humanitarian Crisis
Most people watching the ongoing war in Ukraine are focused on the daily bombardment of cities and the subsequent fleeing of women and children across the Ukraine border to Poland and Moldovia. The intense shelling by the Russians has left Mariupol looking like a dystopian city. However, there is another ugly side to this war: the looming food and commodity shortage and the rising prices associated with the shortage.
Russia and Ukraine combine to produce about a quarter of the world’s supply of wheat. Ukraine is a massive country of 45 million people, with a landmass the size of the United States Midwest. About half of the land is dedicated to agriculture, employing 15 million people. Most of the wheat cultivation is carried out in the eastern region of Donbas currently under bombardment by Russia. Grain is used to produce bread and pasta, considered a common man’s food. A disruption affecting the supply of grain will have a significant effect on the global food supply. We are already seeing this effect in Afghanistan and Egypt and to – a larger extent—throughout the middle east. These countries/regions rely on wheat products as a major part of their diet. The Russia-Ukraine region also produces, in addition to wheat, a significant quantity of the world’s Sunflower seeds oil, barley, and corn. Barley is a key ingredient in beer production. Corn is a major animal feed. The downstream effect of these shortages will be massive.
As if food supply disruption isn’t enough, the disruption of fertilizer export is turning out to be even more significant. Russia is the single biggest fertilizer exporter in the world, and it has been limiting its fertilizer exports. A lot of countries depend on fertilizers to adequately farm their fields. The current sanctions against Russia and the disruption to ocean liners plowing the black sea, compounded with the supply chain gridlock that was already affecting shipping has put additional pressure on the regular supply of fertilizers farmers badly need. During the course of the war, we have seen the DTN’s National Index of Anhydrous [the two major types of fertilizer] go up more than 100% according to the DTN’s National Index. There has been outright panic in Brazil and other Latin American countries that depend on Russian fertilizers for their crops and animal feeds.
The conflict has also had a severe effect on commodity prices. About 40% of Europe’s gas comes from Russia. Russia also supplies a significant amount of natural crude and coal to Europe. Disruption of these supplies will place massive stress on Europe’s energy demands. The North Stream pipeline that supplies gas directly to Germany and bypasses Ukraine—which has been a priority for both countries—has been suspended. If Russia turns off the gas, it will be literally lights out in Germany. Russia is also one of the top three producers of nickel which is needed for EV batteries and platinum needed for hydrolysis. Russia is also a top-five producer of nuclear reactors for nuclear electrical supply. So, the importance of Russia’s impact on food and commodity supply cannot be understated. As the war rages on, the world will slowly begin to feel the impact.
The disruption of food and commodity supply from the Russian-Ukraine conflict could not have come at a worse time for the global economy. The shortages /disruptions of food and commodities supply are happening at a time when the global economy is suffering from a severe supply chain gridlock. This-- coupled with the increase in covid-19 cases in China and the subsequent lockdown by the Chinese authorities--has led to the exacerbation of the supply-side inflation we are currently witnessing all over the world. Gas prices in the United States have risen more than 40% compared to the same period last year. Global crude oil prices have risen more than 40%. Fertilizers cost--in some cases--have increased by more than 60%. If the situation continues, people in hunger-stricken areas such as Afghanistan and Yemen who depend on the international community for food [most of which is grain] will starve and likely die.
As the war in Ukraine accelerates, the international community must realize this crisis is not just a humanitarian crisis confined within the borders of Europe. The effects will hit developing countries within the next couple of months. This war should be viewed as a global crisis and Africa and Latin America will begin to feel the effect beginning in the 3rd quarter of 2022. It is important for the international community to come together as a true “United Nations” and bring this conflict to a speedy end.