July 23, 2024

Potential ramifications of attack on Europe’s ‘breadbasket’

CHESTERFIELD, Mo. — Russia’s invasion of Ukraine has created not only instability in the geopolitical climate, but also uncertainty in the agriculture sphere.

Ukraine has been referred to as the “breadbasket of Europe” for many years and exported $6.12 billion in agricultural products to the European Union in 2020, down from $7.01 billion in 2019. In addition, Ukraine replaced the United States as China’s top corn supplier in 2021.

Ukraine harvested 32.7 million metric tons of wheat, 9.6 million metric tons of barley, 600,000 metric tons of rye and a record 40 million metric tons of corn in 2021, according to the U.S. Department of Agriculture’s Foreign Agricultural Service.

Of Ukraine’s total land area of 60 million hectares, roughly 42 million is classified as agricultural land, which includes cultivated land — grains, technical crops, forages, potatoes and vegetables, and fallow — gardens, orchards, vineyards, and permanent meadows and pastures.

According to the CIA World Factbook, Ukraine produced 25% of all agricultural output when it was part of the former Soviet Union.

The National Corn Growers Association looked at the implications of the Ukraine situation in a recent podcast featuring Mark Purdy, executive vice president and chief operating officer at Aimpoint Research, a strategic consulting firm that specializes in applying a military tactical mindset to business problems. Purdy is a former Army colonel.

NCGA’s “Wherever Jon May Roam” podcast was hosted by NCGA CEO Jon Doggett and Dusty Weis, president of Podcamp Media.

Here is a portion of the podcast.

Weis: The fact that this is a very rich, fertile farming region that’s in play here and certainly served to provide food for a lot of the Soviet Union, do you think that’s part of the enticement that’s in play here, too?

Purdy: Well, I think it’s certainly a factor. When you think about resources, that is certainly a national and global piece. If you have control of those resources, whether it’s fuel, whether it’s certain minerals, oil, but food is definitely important.

Russia being able to control that, Russia being a large producer of wheat, Ukraine being home to some of that most fertile black soil, and the production power of Ukraine is not fully realized, that would certainly be a resource that Russia could enjoy if they did have control over that region.

Doggett: What are some of the immediate implications for food, not only in Europe, but around the world?

Purdy: Yeah, this is big, just Ukraine being termed as the breadbasket, especially for Europe there in a big way. Just take two commodities that are near to us in the United States, in corn and wheat — wheat definitely, if you take Russia, Ukraine, throw in maybe the stands there, that’s one-third of the world wheat that’s coming out of that area.

A conflict for sure is going to disrupt a third of the world wheat, and that has huge implications when it comes to food. Think about, what was the impetus for the Arab Spring? I mean, it was this tight wheat, we can trace that right back to that significant point in recent history, and we can see similar things, so the effects can reverberate across the globe.

Now corn, not as big, but when you’re talking 10%, 12%, 15% of anything global, that’s huge, so we’ll see second and third order effects as we talk about what’s happening around the globe.

It’ll be tight supplies, it’ll be high commodity prices maybe for a point in time, which means people are going to have a hard time getting a hold of the food that they need, food inflation and things like that.

Weis: That’s what happens in the immediate sense, but longer term, how does that all play out for growers here in the United States?

Purdy: I think in the near term there’s likely to be some spike in commodity prices, but then how does the rest of the globe react? Do they start looking for alternate sources, alternate types of food to meet the demand? I think the impact could be volatility.

And then when we think about one area of outlet for food for some of our commodities versus fuel, versus some of the other uses it’s going to, I think it creates a lot of volatility.

It might be some near-term gains, but probably, in the long term, we’ll see some wild swings to high and low commodity prices. And then just layer that in with some of the other things that we already have going on, with inflation, with input costs and things like that.

We’ve kept this conversation to Russia and Ukraine, but we’ve got a lot of other things going on around the world when it comes to competition and conflict.

Doggett: We have a number of hot spots around the globe. We have China, we still have situation in Syria, we are just getting off of two of the longest lasting wars that this country’s ever been involved in, in Afghanistan and in Iraq, and those certainly are by no means settled. We have narco-terrorism south of the border. What about these hotspots? What about China? What about the Middle East?

Purdy: That’s a great point, because if you take what’s the relation between Ukraine and Russia to China? Well, it’s big. China looks to Ukraine to offset its dependency on any U.S. commodities for corn and soybeans, especially when we’re seeing what we’re seeing in South America with the lingering effects of La Niña.

Our disputes and competition with China certainly play into this, but that’s just as big. When you think about the layering effects of volatility, so China comes to the U.S. because we have what they need. When they can get it elsewhere, sometimes they do so the predictability there is not always there, so that leads to volatility.

Doggett: The big difference of where we are right now versus where we were in the ‘80s and in the ‘90s is we’re energy independent, a huge gain for this country. And I think it’s one of the things, a lot of folks, our organization included, worked on, is to develop more energy sources. And we’ve had the development of the natural gas with fracking and all of those things, and I think it really helps a lot, but how secure are we with our food supply right now? We can produce a lot of food in this country, but in light of what happened after COVID, how fragile are we with this food security in this country?

Purdy: I think it comes down to our distribution, but if you think about, there’s several world leaders out there that have said you’re only three meals away from chaos, regardless of how developed your society is or how fortunate you are, and we saw some of that in COVID. I mean, just the runs on the stores when we even thought we might have a shortage.

Security, when it comes to the stability of society, we’re a little more fragile than we thought, and that has to do with some distribution. When we look at, I call it food power, so when we’re talking about what we in the U.S. have, we have food power, which means we can feed a good portion of the rest of the world.

It means that others look to us for stability. It means that we can feed our population in a way that we are able to build our economic power, and we use food for diplomatic power.

Our military power, if you think about it, it doesn’t happen without having this food security. Our center of gravity in the U.S. is not only the ability to produce food for our population, but our national security, if you think about center of gravity, is our ability to overproduce and supply the rest of the world.

Where are we on that? I think we’re at a point of intersection, because as we look at some of the drivers out there, just this volatility in the market and demand around the world, but then also the move for a focus on the environment, which we need to do and we need to embrace it, but we need to incentivize environmentally sustainable practices that maintain and increase the ability to produce.

That’s where I’m hopeful and concerned at the same time, because returning to practices of two centuries ago, to help the environment, is not where we need to go to maintain our food power.

We need to take care of this planet, we need to take care of our soils, waters and the air, but we need to do it focused on the newest and best technology, which we have, and incentivize that so that we maintain our position of food power in the world.

I’m pretty passionate about that because food security is national security, and it’s really America’s food power, which are corn growers, growers of all type, deliver.

We need to do this right. We need to focus on our environment and we need to take care of it, but we got to do it right.

Tom Doran

Tom C. Doran

Field Editor