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Lost at Sea: Ukraine Struggles to Revive Ag Sector

Food Production, Food Security, Food Trade

Lost at Sea: Ukraine Struggles to Revive Ag Sector

The Dirt

Uncertainties over Ukraine’s ability to export grains, oilseeds, fertilizers, and other products have resurfaced following news of Russian President Vladimir Putin’s decision to withdraw from an international agreement allowing Black Sea shipments from Ukraine to resume. Trade manages to continue, despite Putin’s pronouncement. But once again the stability of the global food system – notably across the Middle East and Africa – has been called into serious question.

Sea-borne exports had ended following Russia’s February invasion of Ukraine, disrupting international agricultural markets, which depend upon Ukraine for a significant portion of the corn, wheat, and sunflower oil moving in international markets. Prior to the Russian invasion, Ukraine’s agricultural exports reached almost $28 billion in value.

After the cessation of exports due to the invasion, an international agreement allowing the resumption of shipments through the Black Sea helped restore trade. But the Ukraine Ministry of Trade nonetheless has reported a decline of 30.7 percent in grain exports. Global commodity prices have receded from the peaks reached immediately after the invasion, but price volatility (coupled with comparable uncertainty in global energy markets) continues to worry inflation-conscious leaders far beyond the Black Sea theater.

A Refresher Course in Ukraine Agriculture

Dirt to Dinner first reported on the situation in Ukraine in January, including a recap of the significant role played by that country in global agricultural markets.

But as a reminder of why this subject remains so important to our global food system, here are some important facts:

  • Agricultural products are Ukraine’s most important exports. In 2021 they totaled $27.8 billion, accounting for 41 percent of the country’s $68 billion in overall exports.
  • In 2021, Ukraine was the largest global exporter of sunflower oil and meal; #3 in barley and rapeseed exports; #4 in corn exports; #5 in global wheat trade, #7 in soybean markets; #9 in sunflower trade. Ukraine exports at least 75% of total production of these top crops.

, Lost at Sea: Ukraine Struggles to Revive Ag Sector

  • Largest fertilizer producer in the European Union, with exports of mineral fertilizer and ammonia to nearly 70 countries worth more than $2 billion; exports account for roughly 10 percent of the global mineral fertilizer market
  • 33% of the total population is engaged in agriculture
  • Has 80 million acres of arable land (#10 globally)
  • Prior to the invasion, it had 45,000 ag enterprises (55% gross output), and 4 million farming households. Agriculture also represented 11% of Ukraine’s GDP and 38% of total foreign exchange earnings
  • Major export partners: #1 Russia, #2 China, #3 Poland
  • Major import partners: #1 China, #2 Russia, #3 Germany, #4 Poland (energy)
  • Most Ukrainian exports pass-through ports on the Black and Azov Seas: Odessa, Pivdeny, Chornomorsk, Kherson, Mariupol, and Berdyansk
Sources for bulleted data: National Investment Council of Ukraine; International Trade Administration; www.trade.gov, US AID, Successful Farming, USDA WASDE & PSD Database, USDA FAS.
, Lost at Sea: Ukraine Struggles to Revive Ag Sector

What’s the current situation?

As has been widely reported, the invasion promoted an immediate shutdown of exports from Ukraine. Government officials, humanitarian groups, and others almost immediately began expressing grave concerns about the effect of the shutdown on the markets traditionally served through the Black Sea corridor.

Many of these customers included some of the most food-insecure populations in the entire world – markets across the Middle East and Africa, in particular. Ukraine alone provides more than 40 percent of grain distributed in the developing world by the United Nations World Food Program.

, Lost at Sea: Ukraine Struggles to Revive Ag SectorIn response to the dire situation, national leaders responded by negotiating the Black Sea Grain Initiative, which allowed a resumption of shipments under controlled conditions.

Ukraine officials reported in early November that grain exports from the country had reached 15.1 million tons since the start of the 2022-2023 agricultural year that began in July. That includes roughly 8 million tons of corn, 1.2 million tons of barley, 5.7 million tons of wheat and smaller volumes of rye, flour and other agricultural commodities.

Exports levels for wheat still are down more than half from their peak, barley shipments down almost 75 percent, and rye down by more than 80 percent. But corn shipments have shown a strong recovery, and while the export volumes remain largely well below pre-invasion levels, the success of the Sea Grain Initiative has been a major step forward for Ukraine, Ukraine farmers, local consumers and foreign customers.

, Lost at Sea: Ukraine Struggles to Revive Ag SectorPrior to the recent Ukraine announcement, data from the United Nations already had shown the progress being made. UN estimated that more than 10.4 million tons of grains and other foods have shipped from Ukraine ports since the Initiative was signed in July.

The United Nations Joint Coordination Committee (JCC) notes that 19 loaded vessels await inspection in Turkey. Ukraine officials, however, place the total number of vessels having loaded under the agreement much higher – closer to 150 in all.

Meanwhile, as many as 110 vessels are poised to enter key Ukraine ports for loading, according to some media reports.

The growing signs of the success of the initiative allowing the resumption of sea-borne shipments have raised hopes of a return to more-normal commerce, despite the continuing conflict – with commensurate hope for greater food security for the needy nations dependent upon grain and oilseeds from both Ukraine and Russia.

Recent developments are less cause for a victory parade than a reminder of the importance of a return to normal commerce for not just Ukraine but the entire global food system.

International observers express cautious optimism that the agreement allowing resumed exports will survive, despite the political bluster from Moscow and the continuing hostilities. European politicians have speculated Putin’s saber-rattling might be simply a negotiation ploy to strengthen his hand in future international discussions and negotiations.

Political figures around the world decried Putin’s statement, accusing the Russian leader of attempting to “weaponize food.” President Joe Biden called his threat of withdrawing from the agreement “purely outrageous.”

When the initial outrage over Putin’s threat subsided a bit, officials also pointed to other more-encouraging signs. For example, the United Nations Food and Agriculture Organization recently announced the creation of a special project office in Ukraine dedicated to the success of the shipping agreement.

Rippling Effects

What may be overlooked in the discussion may well be the economic interests of Ukraine and its agricultural community.

Ukraine producers are wrapping up a harvest marked by the predictable effects of prolonged conflict. Ukraine agricultural officials report a total grain harvest of 50-52 million tons this year, down from the record 86 million tons recorded in 2021. The World Economic Forum estimates for the July 2022 to June 2023 season showed the predictable drops: 5.4 million tons of wheat, 7.7 million tons of corn, and 1.2 million tons of barley. (Last year’s export figures were 23 million tons of corn, 19 million tons of wheat, and 5.8 million tons of barley.)

, Lost at Sea: Ukraine Struggles to Revive Ag Sector      , Lost at Sea: Ukraine Struggles to Revive Ag Sector

The outlook for Ukraine’s oilseeds sector is equally dark. The numbers are more than a little mind-numbing to the average person. But the bottom line is clear: the conflict has seen one of the world’s largest players in global agricultural markets suffer some serious downturns in its economic interests.

International information group, Interfax, cited Ukrainian officials predicting the 2023 sunflower crop could be down as much as 43 percent, dropping to 9.4 million tons from 16.4 million tons last year. That would be the lowest production level in more than a decade.

Ukraine should harvest 14.86 million tons of oilseed crops this year, including 9.4 million tons of sunflower seeds, 2.87 million tons of rapeseed, and 2.59 million tons of soybeans, officials added.

, Lost at Sea: Ukraine Struggles to Revive Ag Sector

About 96 percent of the harvested sunflower seed, or roughly 9 million tons, are expected to be processed, compared with 38 percent of the soybean crop (1 million tons) and 7 percent of rapeseed.

Ukraine will produce 4 million tons of sunflower oil this year, but strong global demand will prompt a draw-down of reserve stocks, resulting in total exports of 4.2 million tons.

Even so, that’s down almost a million tons from last year.

But what about the Ukrainian farmer – and consumer?

Despite the success of Ukraine’s efforts to drive out Russian invaders, farmers across the country face a difficult situation. In many regions, such as the Kyiv, Chernihiv, and Sumy regions, the devastation of battle has destroyed infrastructure, equipment, and even homes, leaving the entire population without the necessities of work and life.

Farms and granaries have been completely destroyed, lives lost and futures decimated. Ukrainian officials say as much as 30 percent of Ukraine’s infrastructure has been damaged or destroyed in the conflict, at a cost of $100 billion.

To make matters even more dire, land mines are strewn throughout farm fields worrying farmers each time they go out on foot or their tractor.

For the survivors and those operating outside the areas of major conflict, the outlook is only marginally better. Economists and agronomists worry that the higher input prices that followed the invasion, coupled with the “minor” matter of continuing armed conflict and political turmoil, might reduce plantings for next season.

Planning and planting for the future have become a critical issue for the entire country. A hungry and desperate population must be fed. A significant sector of the national economy needs to revive. International agencies and universal goodwill won’t be enough.

Ukrainian producers face an enormously difficult future, and functioning if not thriving export markets offer the best hope not just for financial success but perhaps more so for simple survival.

Is it all doom and gloom?

Backed by help from the international community, Ukraine has made great strides toward resuming its leading role in global agricultural markets. That’s good news for consumers everywhere. The subtraction of this important contributor to global food security has been a major worry for the entire civilized world. The resumption of grain, oilseed, and other commodity exports from this critical part of the world should be reason for celebration.

But we’re not completely out of the woods, as recent bluster from Russia has made clear. The agreement critical to renewed Black Sea shipments remains fragile, and the world must remain diligent in supporting efforts to sustain it – and assure its success. Without it, we risk more than continued turbulence in the food and energy markets that dictate much of the cost of our food.

The Bottom Line

Ukraine has gained some needed traction toward its ag trade normalcy, but a very turbulent road lies ahead. And more than the survival of Ukraine’s producers and national food supplies are in jeopardy. We also risk a calamitous rise in food insecurity for some of the neediest people on earth. There is far more at stake than simple economics in this case study of the importance of market access.

D2D-illustration Bottom Line