Aerial photo of farmers using a combine harvester to harvest a wheat field near the city of Bila Tserkva in Kiev Oblast, Ukraine, on August 4, 2023.
Ed Lamb | Getty Images News | Getty Images
Russia and Ukraine continue to attack each other’s port infrastructure, blocking shipments from Europe’s breadbasket and sending wheat prices soaring, a confluence of harsh factors that threatens global food supplies.
These two vast countries are estimated to produce about a quarter of the world’s grain exports. The warring countries exported nearly 100 million tonnes of grain between the two countries in the year to June, according to customs figures, and shipments have largely continued since Russia’s full-scale invasion in 2022, thanks to diplomatic agreements protecting global food supplies.
Recent military attacks on grain export facilities, oil tankers and ships in the Black Sea region have made it extremely difficult for shipping companies to obtain insurance, meaning many shipping companies are avoiding Black Sea ports. Alternative overland routes for transporting Ukrainian grain are also hampered by the declining water levels of the Danube River and the construction of railways in Eastern Europe.
Transport of agricultural products has been disrupted not only by the conflict in the Black Sea, but also by the closure of the Strait of Hormuz and the drying up of waterways such as Germany’s Rhine.
The continued blockage of these waterways is contributing to soaring prices for agricultural products such as fertilizer, and in the process, exacerbating agricultural woes.
Analysts warn that food security will be further put at risk if costs for farmers around the world, from fertilizers and diesel fuel to labor costs, soar and many find themselves unable to earn the money they need.
profit issue
Jackie Fatka, Corbank’s chief economist, said in a note last week that the rise in fertilizer prices is “structural” and will continue to do so, as conflicts in the Middle East have tightened supplies of key chemicals.
Fatka said U.S. farmers recognize that underfertilization can be more costly than higher input prices at the expense of crop productivity, but that balance is becoming increasingly unstable as they exhaust other options to optimize yields.
“Farm funds are tight and some producers will not be able to secure produce for the next crop year until additional financing or working capital is available,” she wrote.
In Europe, too, there are concerns that farmers in countries such as Russia and Ukraine may not plant much this winter due to concerns about profitability and a lack of access to credit, trade and agriculture analyst Noel Fryer told CNBC.
“There are a lot of things coming together that are going to have a serious impact on crops next year,” Fryer said Thursday.
“Weather has decimated crops in Europe and the United States. Europe’s scorching summers have reduced grazing possibilities, leaving no hay or grass for cattle. The likely result is significant herd consolidation,” he said.
“There is no end in sight for the Black Sea issue. Fertilizer issues that have existed since the outbreak of the Iran conflict remain, and are even getting worse. After a wet spring that reduced fertilizer use, U.S. corn yields are a concern and prices could rise.”
“There is uncertainty because a major El Niño event is coming soon,” he said, referring to weather events expected to increase volatility in the Southern Hemisphere.
“It’s a complex web of issues, and we don’t know how it’s going to end. It’s a perfect storm.”
