June 27, 2022

War’s potential impact on global food security

NORMAL, Ill. — Corn and sunflower planting season has arrived for Ukrainian farmers, bringing a multitude of other concerns and uncertainties that stretch across the globe as Russia continues its invasion.

Ukraine is about the size of Texas, has approximately 30% of the world’s fertile black soil and plays a vital role in the global export market for its corn, sunflower seed and oil, and wheat production. Ukraine has 81.3 million acres of arable land, 57% of its total area.

Iuliia Tetteh, a Ukrainian native and Illinois State University assistant professor of agribusiness, gave her personal insights into the war’s impact in a recent webinar hosted by the Illinois Corn Growers Association.

Tetteh grew up in Ukraine and worked on her grandparents’ wheat and potato farm in that country.

“My parents, my sister and her family are still there, as well as a lot of my friends who stayed after we graduated from the university and work there in the ag business field. It’s definitely very close to my heart and very heavy,” she said.

“The agriculture sector is the largest export industry in Ukraine, representing 9.3% of the gross domestic product. That’s why agriculture is so crucial to the Ukraine economy, but also to food security around the globe.”

Ukraine produces 32.7% of the world’s sunflowers, accounting for 50.2% of global sunflower seed and oil exports and making it the largest exporter of the commodity in the world.

It produces 3% of the world’s corn production and accounts for 14.5% of global corn exports to make it the fourth largest corn exporter.

“My heart is heavy, but I remain hopeful.”

—  Iuliia Tetteh, assistant professor of agribusiness, Illinois State University

Ukraine produces 3.7% of the world’s total wheat production, but represents 9.5% of world wheat exports, making it the fifth largest wheat exporter globally.

“All that being said, it’s small, but mighty. It’s a small country, but a pretty relevant country in the global grain market,” Tetteh said.

Logistics

About 80% of Ukraine’s freight is transported by rail with 12,427 miles of train track to move grain. It also has two ports in the southern part of Ukraine.

“We move about 95% of grain through those ports down to North Africa and the Middle East. That remains a key area for Ukrainians in particular because of the importance of this infrastructure to agriculture,” Tetteh said.

Customers

Numerous countries depend on Ukraine’s agricultural products, just as Ukrainian farmers depend on that demand to support prices

India and China account for 31% and 20%, respectively, of Ukraine’s total sunflower seed and oil exports.

China receives 28% of Ukraine’s total corn exports, followed by the Netherlands at 11%, Egypt at 10%, Spain at 9% and Turkey at 5%.

Egypt with 27% of Ukraine’s exports, Indonesia with 12% and Pakistan with 11% are the leading destinations for Ukraine’s wheat exports.

“If Ukraine is not able to serve those markets and they go somewhere else, they will have to re-establish those relationships again. The question then becomes how reliant these buyers are on Ukraine because they not only export from Ukraine, they export from other countries, as well,” Tetteh said.

In the corn market, China buys about 51% of the corn it imports from Ukraine and 44% from the United States.

The Netherlands purchases 45% of total corn imports from Ukraine, and 20% of France’s corn imports are from Ukraine. Egypt buys 27% of its total corn imports from Ukraine, and 30% of Spain’s corn imports are from Ukraine.

“These countries are reliant on Ukraine and the question is where are the potential sources they turn to redirect their purchases,” Tetteh said.

For sunflower seed and oil, 76% of India’s total imports are from Ukraine, along with 88% in Iraq, 81% in the Netherlands, 71% in Spain and 61% in China.

In addition, China imports 35% from Russia and India imports 17% from Russia.

Sanctions

“If Russia, because of the sanctions and supply chain issues, would not be able to export sunflower seed to those countries, that would become an issue, as well. While sunflower oil may not be as big of an issue in the North America, but it’s the primary type of oil that individuals use for cooking and consumption the Middle East and Asia,” Tetteh said.

Lebanon sources 61% of its wheat purchases from Ukraine. Pakistan buys 49% of its wheat imports from Ukraine and 38% from Russia.

Egypt receives 24% of its wheat imports from Ukraine and 62% from Russia. Indonesia sources 26% of its wheat from Ukraine.

Bangladesh receives 31% of its wheat imports from Russia and 23% from Ukraine. Yemen purchases 26% of its wheat imports from Russia and 21% from Ukraine.

Food Insecurity

“Most countries that are dependent on supplies of wheat from Ukraine are in the Middle East, South Asia and North African countries. The problem with that is if you look at poverty rates in the world, a lot of extreme poverty rates are concentrated in South Asia without India being included,” Tetteh said.

“The poverty rate in South Asia is about 26% and 21% overall in the developing world. A lot of these countries would fall into that list. These are the countries that are already struggling with food security and that’s on top of the tight supplies and higher prices that they will have to deal with.”

Countries that receive most of their wheat from Ukraine and Russia are Somalia, Benin, Egypt, Sudan, Democratic Republic of the Congo, Senegal and Tanzania.

“These countries are heavily dependent on Ukraine and Russia for their wheat, but we don’t necessarily sell as much of our exports to them in terms of volume. We may sell 1% of our exports to Somalia, but to Somalia that’s about 80% of all the wheat that they purchase worldwide,” Tetteh said.

“Again, the common denominator is all of these North African, Sub-Saharan and Middle East countries are already struggling with their poverty rates and so this is going to be another difficulty they’ll have to overcome to either find other sources or markets of find an alternative.”

Supplies

Ukraine currently has plenty of grain stored. The concern is this year’s production and long-term impacts.

“We’ve calculated they have about two years worth of grain consumption, with 234 million bushels of wheat and 585 million bushels of corn available for export,” Tetteh said.

“Typically we would send about $1.5 billion worth of ag exports in one month during this period. That’s about 195 million bushels of grains per month. However, in March only 19.5 million bushels were exported. So, we’ve lost 90% of that $1.5 billion in March because of the war, because export routes have been choked.”

Export Gap

With less Ukrainian wheat available to food security-vulnerable markets, other countries have the potential to fill those gaps.

“India and Australia are the two countries we’re looking at right now to help out with wheat. India holds about three times the volume of wheat that they need annually. With the large stocks India has, the hope is that they will be able to export some of that,” Tetteh said.

“India’s wheat is typically not really competitive in the export market so they consume it domestically, but in this case that’s an opportunity for them to do that. Australia can pick up some acres.

“The U.S., Brazil and Argentina are the countries that could help out with the corn gap, but another issue is fertilizer. Russia and Belarus are the largest producers of fertilizer and the uncertainty remains how producers will respond to changes in the fertilizer availability and prices and how that affects their planting decisions between corn and soybeans.

“Argentina and Romania could help out with sunflower seed and oil.”

Final Thoughts

“We think the war in Ukraine will impact global grain markets at least for the next two years if not more. It really depends on a lot of things that are outside of our control. That’s why regardless of how good of a modeler or economist you are, predicting the outcome is very difficult in this case because you simply don’t know how long the war will last,” Tetteh said.

“We believe that the impact on global food security will depend on the ability and the willingness of other grain-producing countries and regions to close those gaps in the three commodities. Grain prices will remain elevated and volatile.”

Tom Doran

Tom Doran

Field Editor