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Cereal is Putin's surprise weapon

Before the conflict broke out, few knew that Russia and Ukraine were two of the world’s largest breadbaskets.

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Cereal is Putin's surprise weapon

Before the conflict broke out, few knew that Russia and Ukraine were two of the world’s largest breadbaskets. More than 400 million people are fed by its fertile lands in Europe, North Africa, and the Middle East. The stoppage in its exports could lead to a global food shortage with unforeseeable consequences. Many importers are already experiencing supply problems and prices have risen rapidly.

Principal producers

wheat

In tons

CHINA

131,447,224

INDIA

99.700.000

RUSSIA

72,136,149

EE UU

51,286,540

FRANCE

35,798,234

CANADA

31,769,200

PAKISTAN

25.076.149

UKRAINE

24,652,840

AUSTRALIA

20,941,134

Major wheat producers

In tons

131,447,224

CHINA

99.700.000

INDIA

72,136,149

RUSSIA

51,286,540

EE UU

35,798,234

FRANCE

CANADA

31,769,200

PAKISTAN

25.076.149

24,652,840

UKRAINE

20,941,134

AUSTRALIA

Major wheat producers

In tons

131,447,224

99.700.000

72,136,149

31,769,200

24,652,840

51,286,540

35,798,234

25.076.149

20,941,134

PAKISTAN

CHINA

RUSSIA

FRANCE

AUSTRALIA

CANADA

INDIA

EE UU

UKRAINE

131,447,224

Major wheat producers

In tons

99.700.000

72,136,149

25.076.149

51,286,540

35,798,234

24,652,840

31,769,200

20,941,134

CANADA

PAKISTAN

CHINA

INDIA

RUSSIA

EE UU

FRANCE

UKRAINE

AUSTRALIA

Vladimir Putin has made the deliberate attack against the global supply chain his main weapon to fight the Western sanctions that were imposed following the invasion. Already with gas, which accounts for around 20% of global trade and 40% of EU purchases, Putin has done this. This particular attack had a significant impact on the German industrial sector, the continent's economic engine.

The blockade of huge grain reserves in silos at the port Odessa (the main port on Black Sea), has caused a chain reaction where protectionism has been made an option for many countries to ensure their internal consumption.

India, another major producer, was one of the first to limit its cereal exports after suffering from a bad harvest that was caused by early heat waves. This even resulted in power cuts across the region. According to the FAO data, 21 countries had done so by April 2022. Some organizations like Save the Children have raised 53.

Experts agree that many African and Middle Eastern countries, which receive more than half of their grain requirements from Russia and Ukraine, are already facing a difficult situation. These countries have also been affected by climate change for many years. In recent years, they were forced to reduce their domestic production and import to meet their needs.

The country's most dependent countries are Lebanon, which imports almost 75% of its wheat from Ukraine. Libya is next (40%) and Tunisia (25%).

The ports are closed tighter and tighter, and Ukraine is still estimated to have 25 million tons of cereal left over from the previous harvest. This amount is stored in storage silos and at the port of Odessa. The new harvest is coming soon, but according to FAO calculations almost 30% of the area's arable land will be inaccessible due to the war.

Turkey, which was responsible for 90% of all exports last year, has been the unanticipated protagonist in the conflict. In order to resolve the blockade of sea-exports, Turkey reached a pre-agreement to work with Russia. His intention was to transport the grain-carrying ships. However, Ukraine rejected the contents of the Putin-approved agreement and demanded that Moscow be allowed to inspect any ships passing through the area.

Jam in the

odessa port

80

International ships

The cargo that was left behind in the

Ukrainian ports.

25

Millions of tonnes

of cereals in silos and ports.

10%

6 Mill.

The trains can carry tons of cereals.

Exports of tons of cereals every month total over a million tonnes

Sea from Ukraine

x 1

=

x 50/70

To load the same amount of cargo as a single ship, it takes between 50-70 trains

Jam in the

odessa port

80

International ships

The cargo that was left behind in the

Ukrainian ports.

25

Millions of tonnes

Portions and silos of cereal.

10%

6 Mill.

The trains can carry tons of cereals.

Exports of tons of cereals every month total over a million tonnes

Sea from Ukraine

x 1

=

x 50/70

To load the same amount of cargo as a single ship, it takes between 50-70 trains

Traffic jam at Odessa port

25

6 Million

Millions of tonnes

cereals in silos or ports.

Exports of tons of cereals every month total over a million tonnes

Sea from Ukraine

10%

Tons

cereal

The train's load capacity.

x 1

=

x 50/70

80

Ukrainian ports strand international cargo ships

To load the same amount of cargo as a single ship, it takes between 50-70 trains

Traffic jam at Odessa port

6 Million

Tons of grain

Each month, exports are made by

Sea from Ukraine

10%

Tons of grain

The train's load capacity.

25

x 1

=

x 50/70

Millions of tonnes

Remainder of cereal in silos and ports

80

To load the same amount of cargo as a single ship, it takes between 50-70 trains

Ukrainian ports strand international cargo ships

Other options that could be used to convey the message are not feasible. Ukraine exports approximately six million tons of goods per month via sea. The only option to do it by land is not the best as trains can transport 10% of the cargo by ship. You could also transport it down the Danube. It is the same problem, however: smaller ships won't be able release all the accumulated material at the same time.

The Chicago Stock Exchange is fuming in this complicated environment. Since before the war, cereal prices have seen significant increases. The price of wheat rose from an average of $496 to $640 in 2019, due to poor weather and poor harvests, to close 2020 at $640. The price of cereal rose steadily, reaching 800 dollars by 2021.

Wheat hit an all-time high of $1,425. This was just three months after the outbreak. This is three times the amount of wheat that was available before the pandemic. Although prices are now at 970 dollars this week, the increase in cereal prices for 2019 is more than 25%. Comparing it to the closing data for 2019, the rise in cereal prices is almost 75%.

Juan Carlos Higueras, an expert professor on the agrifood sector at EAE Business School, says that the reduction in cereal supplies will affect the whole world. He also acknowledges that it is "a more powerful weapon of war" than missiles and tanks.

These data are compelling. The World Bank already predicted that Covid-19, and the worsening income inequalities caused by the crisis, could lead to 198 million more people being forced into extreme poverty this year. Unicef, Oxfam and other organizations have calculated that due to an increase in food prices worldwide, 65 million more people would be added to this group. This would make 263 million more people in extreme poverty this year.

Action Against Hunger and Unicef prepared a report that found 38 million people in a state of food insecurity in the western Sahel. This is "the worst crisis in ten years." These organizations warn that 23 million Somalians, Ethiopians, and Kenyans are also facing extreme hunger in the Horn of Africa after the longest drought in 40-years.

Russia and Ukraine

The barn of the universe

Market share in global trade (%)

RUSSIA

UKRAINE

OIL

SUNFLOWER

23.1

49.6

WHEAT

BARLEY

14.2

12.6

24.1

10

CORN

SUNFLOWER

2.1

15.3

19.6

4.3

Russia and Ukraine

The barn of the universe

Market share in global trade (%)

OIL

SUNFLOWER

RUSSIA

23.1

49.6

UKRAINE

BARLEY

WHEAT

14.2

12.6

24.1

10

CORN

SUNFLOWER

2.1

15.3

19.6

4.3

Russia and Ukraine

The barn of the universe

Market share in global trade (%)

CORN

BARLEY

RUSSIA

14.2

12.6

2.1

15.3

UKRAINE

SUNFLOWER

OIL

SUNFLOWER

WHEAT

19.6

4.3

23.1

49.6

24.1

10

Russia and Ukraine are the breadbaskets of the world

Market share in global trade (%)

RUSSIA UKRAINE

CORN

BARLEY

SUNFLOWER

OIL

SUNFLOWER

WHEAT

14.2

12.6

2.1

15.3

19.6

4.3

23.1

49.6

24.1

10

They have also been expressing themselves at the World Bank recently in the same way. Juegen Voegele was the agency's vice-president for sustainable development. He warned that if food systems become unsound as seen in many countries, it will lead to mass migration and new conflicts. The FAO's latest edition of its 'Food Outlook' report, published in June, warns that "it is worrying" that vulnerable countries are paying more for less food. Globally, the prestigious publication "The Economist" warns of a "great food crisis."

This week, Brussels issued a report warning about the potential impact of this new wave in hunger in areas such as the Maghreb and the Middle East. The main concern now is a crisis that could unleash social unrest, and a new migration avalanche towards Europe, with Greece, Italy, and even Spain being the main beneficiaries.

Climate change is a crisis that will add to the conflict. Not only are heat waves, floods, and droughts affecting Africa, India, and Pakistan, but also Spain. Asaja estimates that the heat wave in Ukraine will reduce the harvest by 50% this year, which will cause prices to rise even further due to a lack of supply to meet growing demand. Antonio Bonet, president of Exporters Club, says that Ukraine has been, along with France, the main supplier for wheat to Spain since the dawn of the 21st Century. He alternates between the first and the second position.

Small farmers and ranchers won't be able to benefit, but the reverse will happen, with them becoming the weakest link of the chain. Prices for fertilizers and energy have increased, but so has the cost of fuels. Remember that Russia and Belarus are both sanctioned as major producers of potash, which is one of the most important components of fertilizer.

Problems with

Supply

Global pressure indicator

Value chains

Ukraine invaded

5

4

3

2

One

0

-one

-2

1998

2010

2022

Price of fertilizer

Food products

(2016=100)

fertilizers

Food products

300

200

one hundred

0

2003

2012

2022

Supply problems

Global pressure indicator

Value chains

Ukraine invaded

5

4

3

2

One

0

-one

-2

1998

2010

2022

Prices for fertilizers and other products

Food (2016=100).

Fertilizers Foodstuffs

300

200

one hundred

0

2003

2012

2022

Supply problems

Ukraine invaded

Global pressure indicator

Value chains

5

4

3

2

One

0

-one

-2

1998

2010

2022

Prices of fertilizers and food product

(2016=100)

Fertilizers Foodstuffs

350

300

250

200

150

one hundred

50

0

2003

2012

2022

Supply problems

Global pressure indicator

Value chains

Prices of fertilizers and food product

(2016=100)

Ukraine invaded

Fertilizers Foodstuffs

5

4

3

2

One

0

-one

-2

350

300

250

200

150

one hundred

50

0

1998

2010

2022

2003

2012

2022

In turn, farmers are paying more for animal feed which drives up meat prices. Professor Higueras predicts there will be less chicken meat in supermarkets after summer because these animals eat a lot more grain than farmers, which "will reduce production" and increase prices.

"The problems in value chains are not going away. There is a particular concern about the recent highs in fertilizer prices, which have forced some countries to discontinue using them. This poses a serious threat to food safety," Cristina Herrero (president of Airef) stated this week.

Herrero reminded the audience of the IMF's economic outlooks and said that in the next months, access to fertilizers would be a major challenge on a global level. Their prices have risen 20% this year. They are now triple the price of the last one. In a second analysis of the situation, the agency warns that crop yields will drop if less fertilizer has been used and that what is grown will be more costly to produce.

The PAC also allowed temporary relaxation of phytosanitary requirements (insecticides), for imports of cereal from countries that were previously more closely monitored. This included Argentina and Brazil which have since lost their large production. This will help to "cushion" the effects of the shortage of Ukrainian grain but it will not cover the whole fall. To that must be added the import costs from other parts of the world via cargo ships crossing the Atlantic.

All major global organizations agree that it is time to take stronger measures to address the problem. The time is short and Brussels is already launching the idea to establish a new migratory agreement in response to the social chaos in many parts of the world. However, the major NGOs warn that aid must be extended.

UNICEF indicates that funding for severe wasting treatment in many low- and medium-income countries is dependent on the availability of official development assistance (ODA) donors. However, recent investment in nutrition has been "minimal" and will likely remain so because of the cost of addressing the economic and public health consequences of the pandemic. According to the most pessimistic hypotheses, investment will not return to pre-pandemic levels before at least 2028.

UNICEF estimates that $725 million is needed annually to provide the core interventions required to treat severe wasting disease in 22 countries of the Global Plan of Action. The current number of resources available annually is often greater than half, so that almost all children in dire need could be helped with $300 million less funding. They claim that "the risk of not being in a position to provide adequate resources for humanitarian response is a reality" in Africa. However, it is likely that some announcements of additional humanitarian funds will be used to address the crisis in Europe. .

They have actually already noticed the shift in the allocation of funds that were previously scheduled to respond to grave crises like the Sahel or Syria, Yemen, Venezuela, or Yemen, to cover the new commitments in relation to the Ukraine crisis.

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