Farmers feeling effects of Russia-Ukraine conflict
Posted on Apr 05, 2022 at 20:00 PM
By Jay Stone, Georgia Farm Bureau
The results of the war in Ukraine, ongoing since Feb. 24, are bloody and devastating, with thousands of Ukrainians dead or injured and buildings reduced to ruin in cities across the country, which is about 1 1/2 times the size of California.
The human toll is resulting in immeasurable heartbreak, but the damage does not stop at Ukraine’s borders. Economically, the conflict is being felt worldwide because both Ukraine and the Russian Federation are major exporters of agricultural products, materials used to make agricultural inputs and energy sources.
Neither is among the United States’ largest trading partners, according to the United States Trade Representative. In 2019, Ukraine was the 59th-largest export market for U.S. goods and the 71st-largest supplier of goods to the U.S.
That same year, Russia was the U.S.’ 40th-largest export market and 20th-largest supplier of imported goods.
Fertilizers are the imports most concerning to U.S. farmers. In 2019 the U.S. imported $963 million worth of fertilizer from Russia.
“Agricultural producers have faced a 300% increase in fertilizer prices since last November, and it’s gone up another 100% in the past 3-4 weeks,” said UGA Professor of Agricultural & Applied Economics Gopi Munisamy. “Why? Because natural gas [for which Russia is the world’s top supplier] is a key ingredient in fertilizer production, and Russia is the No. 1 exporter of nitrogen-based fertilizer globally.”
Munisamy said Ukraine and Russia combined account for about 3% of Georgia’s international trade, and companies with trade links to those two countries have been hampered by the conflict.
“Fertilizer is kind of the poster child of the story, but other inputs are also getting beat up. It turns out machinery is also a problem. It requires iron, steel, and both Ukraine and Russia are huge exporters of iron ore and semifinished iron products,” Munisamy said.
While Ukraine and Russia are not the U.S.’ largest trading partners, ripple effects of the conflict could reach the U.S. indirectly. Because Ukraine has halted much of its international trade to focus on defending itself and nations around the world have imposed trade sanctions against Russia, countries that normally trade with them are left to fill in supply gaps on products they normally get from Ukraine and Russia.
According to Munisamy, this can result in higher commodity prices in the countries that usually import commodities from Ukraine and Russia. When those prices reach a certain point, U.S. suppliers might be inclined to sell more of their goods to countries where the prices are highest. This in turn increases demand in the United States, resulting in higher domestic commodity prices.
These commodity-price increases pose the most risk for U.S. producers already operating on thin financial margins.
“Fertilizer is an input cost for a lot of producers (i.e., organic), and reduced profitability among marginal producers – those who are at the margin who don’t make a whole lot between their revenues ,and costs could potentially lead to farms going out of business, or just using less fertilizer, which would reduce their yield,” said UGA Associate Professor of Agricultural & Applied Economics Michael Adjemian. “They may end up looking for substitutes, which are likely difficult to identify and find. I think that’s probably the widest impact from the conflict, but certainly there are product markets and commodities and sellers that will be more impacted than others.”
The ripple effect could reach the U.S. in other ways. Ukraine supplies between 40% and 50% of the world’s neon, which is a key component for lasers used in microchip production. Manufacturers in many sectors are already struggling for access to computer chips for their products and could find it more difficult in the coming months.
U.S. exporters have pulled back some shipping to countries in the Black Sea region, which both Ukraine and Russia border – over concerns their ships might be fired upon and because of sharply increasing insurance premiums for marine traffic in the area.
The American Farm Bureau has produced a comprehensive analysis of Ukraine and Russian agricultural factors and published it on the organization’s Market Intel page. The analysis can be read here.
FOOD PRICES AND AVAILABILITY
Adjemian said the U.S. is largely insulated from the possibility of famine, but says a simulation by the United Nations Food and Agriculture Organization (UN-FAO) indicates a prolonged reduction of food exports from Ukraine and Russia could result in an increase of 8 to 13 million undernourished people globally.
“Rising prices put pressure on the most vulnerable, even in the United States,” Adjemian said. “In fact, the lowest-income people devote relatively more of their total household income to food, so they’re going to feel the pain. It may increase food insecurity, but it’s unlikely to produce famine in the United States. However, the United Nations FAO simulation predicts this conflict could lead to famine-type conditions in parts of the rest of the world, particularly the Asia-Pacific, sub-Saharan Africa, and the Near East and North Africa.”
UKRAINIAN FARMERS: PLOWSHARES TO SWORDS
In the first several days after Russia invaded its neighbor to the west, Ukraine farmers grabbed the world’s attention by using their tractors to take possession of abandoned Russian tanks.
Since then, with all adult Ukraine males required to join the nation’s military as volunteer fighters, they’ve done their part in a number of ways. According to the Ukrainian Agribusiness Club (UCAB), a business advocacy association that works to facilitate the nation’s agricultural business development, Ukraine’s farmers are using their mechanical skills to repair and maintain military equipment, taking up arms and fighting, and donating food and fuel to the war effort.
In the Russian-occupied northern, eastern and southern portions of the country, much agricultural work from crop production to animal husbandry ground to a halt in early March. Large-scale poultry operations had to cull flocks.
The Ukrainian government has indicated there could be changes in what crops the country produces, favoring crops that contribute to feeding Ukrainian people over those that would be typically planted for export.
In unoccupied areas, much of the agricultural work was up to date as of March 12, but agricultural activity was paused through April 1. Moving forward, the biggest need according to UCAB is diesel fuel to complete spring planting.