Publish Date: 19MAR2024
Security & Geopolitical Analyst: Treston Wheat, PhD, Marko Filijovic, PhD
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Introduction
Russia’s invasion of Ukraine radically altered the geopolitical landscape in a number of ways, such as leading to the expansion of NATO, higher defense budgets in Europe, and disruptions to the energy sector. However, one of the often overlooked areas the war changed is the global food market because of the destruction of arable land and production in Ukraine along with the naval assaults on maritime trade in the Black Sea. The global food market is likely to be disrupted for the medium-to-long term, and international companies, humanitarian organizations, and Western governments are highly likely to face negative impacts during that time. Ukraine is extremely unlikely to regain its pre-war agricultural production in the medium term, and there are three main impacts. Export problems to Europe will cause further political divisions and increase the likelihood of right-wing populists taking power. Humanitarian organizations will have to spend more on aid and assistance because local prices are still higher due to Ukraine’s problem. Finally, Russia will use its increased grain exports to gain influence in places like sub-Saharan Africa, making it harder for Western companies and governments to have influence there as well. Ukraine’s agricultural sector is a critical component to global food security, and these issues will impact a number of regions and security problems.
Background
In February 2022, Russia invaded Ukraine and created one of the most significant expansions of global food insecurity in modern history. The UN Food and Agriculture Organization (FAO) forecasts that millions of people across the world will be chronically undernourished in 2030 due to the conflict. According to the FAO research, there will be approximately 23 million more undernourished people because of the war. Russia has deliberately targeted Ukraine’s agriculture sector to harm the latter’s economy, and these attacks are harming farms, fields, and production. Ukrainian wheat exports for the 2023-24 harvest will be 11% lower than in the 2020-2021 season (before the war), and corn exports will be 15% lower. World Bank research (done in concert with Ukraine, EU, and UN) has shown that the war caused damage to Ukraine’s agriculture sector equaling more than $40 billion. After only a year of the war, the damage to the agriculture sector included “partial or full destruction of machinery and equipment, storage facilities, livestock, fisheries and aquaculture, and perennial crops, as well as stolen inputs and outputs. The damage to machinery and equipment was the largest source of total damage (53 percent), followed by stolen inputs and outputs (23 percent) and damaged storage facilities (15 percent).”
Damage by Russia was also extensive in 2023. In June of that year, the breach of the Kakhovka dam destroyed irrigation infrastructure and arable land. The following month, Russia ended the Black Sea Grain Initiative (discussed below), and then starting at the same time Russia began targeting grain-transporting sips. Most insidiously, Russia turned Ukraine into the most mined country in the world by using the method “Zemledelie” (remote mining system) that allowed them to mine large sections of farmland, preventing agricultural production. All of this has been combined with the disruptions to the fertilizer and energy markets that negatively impact Ukrainian farmers’ ability to do their jobs.
Russia has used its food exports to gain influence in countries that could no longer be supplied by Ukraine, especially in places like Africa. In addition, Russia stole approximately 6.6 million tons of Ukrainian wheat. All of this benefited Russia strategically as it harmed Ukraine’s critical economic sector, which makes it harder for the country to feed itself and have sufficient economic resources to continue the war. Not only that, but this helps produce tensions between Ukraine and neighboring EU countries.
Source: IFPRI
The Black Sea Grain Initiative
The Black Sea Grain Initiative (BSGI), hailed as "a beacon of hope," was signed on July 27, 2022, by the UN and Turkey, with Ukraine and the Russian Federation as signatories, aiming to facilitate the export of Ukrainian agricultural products from three key Ukrainian ports in the Black Sea: Odesa, Chornomorsk, and Yuzhny/Pivdennyi. A Joint Coordination Centre (JCC) has been established to monitor the deal. The agreement granted Ukraine safe passage for export ships, avoiding mined areas, while also providing Russia with assurances that its own food and fertilizer exports would not be blocked from global markets. Throughout the course of the Initiative, 730 vessels made 1, 004 trips transporting 32.9 million metric tons of food commodities. 65 percent of the exported wheat reached developing countries. Partly as a result of the initiative, the price of grain stabilized at $800 per ton, down from a high of $1, 360. Russia temporarily suspended the agreement in November 2022, repeatedly threatened to withdraw in 2023, and finally ended the agreement on July 17, 2023. Many world leaders have subsequently called on Russia to rejoin the BSGI, but their efforts have been unsuccessful. The termination of the BSGI resulted in a sharp decrease in exports in late summer and early fall of 2023 as exporters sought alternative routes, while subsequent attacks on Ukraine's Odesa and Danube port infrastructure were clearly aimed at further hindering Ukraine's export capacity and global market access. It is important to note that this deprives Kyiv of a significant source of foreign currency revenues, as Ukraine received around $13 billion for its grain and oilseeds in 2022. Moreover, it increases the dependence of developing countries on Russian food supplies.
European Farmers
In response to Russia's full-scale invasion of Ukraine, the EU has taken significant steps to assist Kyiv in addressing the crisis, with the Autonomous Trade Measures (ATMs) being one of them. Initially activated for one year on June 4, 2022, they included, among other things, the complete removal of all tariff rate quotas on agricultural and food products. Renewed in May 2023 for another year, these measures significantly helped increase Ukrainian agri-food exports to neighboring EU countries and offset some of the losses caused by the Russian invasion.
However, logistical issues linked to the Solidarity Lanes, including inadequate storage and transport infrastructure and high logistics costs, disrupted significant transit flows of grain and oilseeds to EU ports and third markets. Consequently, a large portion of Ukraine's produce was sold in local markets, resulting in heightened logistics expenses for local farmers and downward pressure on the purchase prices of local agri-food products. By mid-spring 2023, farmers in Poland, followed by Hungary, Slovakia, Bulgaria, and Romania, initiated protests seeking protection from duty-free imports from Ukraine. Despite the European Commission allocating EUR 56 million to affected farmers and imposing temporary restrictions on the import of four agricultural products (wheat, corn, rapeseed, and sunflower seeds) from Ukraine, it failed to satisfy them and their national governments. The lack of adequate coordination and cooperation among Eastern European countries, the European Commission (EC), and Ukraine regarding the operation of the Solidarity Lanes, along with the lifting of restrictions on September 15, 2023, led Poland, Hungary, and Slovakia to reintroduce unilateral restrictions initially imposed in April of the same year. These restrictions included banning the import of grains, as well as products such as rapeseed and sunflower seeds, certain meat products, honey, and eggs, among others. Romania agreed with Ukraine to temporarily suspend imports, while Bulgaria banned imports of sunflower seeds. Since then, the relations between these countries and Kyiv have continued to deteriorate.
Protests escalated further in early 2024 when Polish farmers and transport companies joined forces to block Medyka-Shehyni border crossing, expressing concerns about the repercussions of keeping markets open to Ukraine. By the first half of February 2024, the blockade had expanded to include all major crossings, including railways. Furthermore, the protest gained momentum during the same month as it spread across Europe, involving farmers from France, Greece, Germany, Portugal, Spain, Italy, Belgium, Czechia, Lithuania, and Latvia, blocking multiple border checkpoints. This expansion has led to an increase in the list of demands, which now includes not only banning Ukrainian products but also addressing the environmental policies of the European Union and other issues. Amidst growing protests by farmers, the EC officially proposed on January 31 to introduce safeguard measures to limit Ukrainian food imports, in an attempt to address some of the demands made by European farmers. However, according to protest representatives, these measures did “not provide sufficient relief”. The European Commission's appeal to Poland, Slovakia, and Hungary in February to lift restrictions on Ukrainian agri-food imports also did not succeed, similar to Polish Prime Minister Donald Tusk's attempt to reach an agreement with Polish farmers to end protests in early March.
However, while the EC proposed extending the temporary suspension of import duties and quotas on Ukrainian agricultural exports to the EU for an additional year, from June 6, 2024, to June 5, 2025, the European Parliament adopted changes to the regulation to prolong trade liberalization measures with Kyiv. This decision aligned with the demands of EU farmers and reversed the previous vote in the trade committee that had rejected the amendments. More precisely, in response to farmers' demands, Members of the European Parliament (MEPs) introduced amendments in the agriculture and trade committees. These amendments proposed extending the sectors covered by safeguard measures and implementing an emergency threshold that takes into account pre-war import volumes. The process is currently underway. According to the latest information, on March 15, the European Commission proposed easing a series of rules regarding farmers' requests and offering concessions. The Commission sent proposals to the 27 EU member governments and the European Parliament to consider ways to improve the position of farmers in the food supply chain. Possible actions will be discussed by national agriculture ministers in Brussels on March 26.
Source: IFPRI
Global Food Prices
After the invasion, global food prices would rise and reach their peak in March 2022, but over the next few years they would fall significantly. Wheat would reach 45% below the peak, corn at 42% below, and soybeans 24% below (as of February 2024). There are several reasons that food prices would decline despite the ongoing war. First, Russia had record crops in 2022-24, and the reopening of the Odessa ports during the BSGI helped with Ukrainian exports. This was combined with more wheat exports from the EU, Australia, and Canada combined with more corn exports from North and South America. However, food prices remain approximately 25-30% higher than from before the war. Importantly, global food prices that are measured in US dollars are falling, but food prices in local currencies are increasing. In the fall of 2023, more than one third of low-/lower-middle-income countries had food price inflation of 15-30%. The major consideration for food prices in 2024 will also be fuel prices that directly impact food prices, primarily in monocultural, oil-dependent countries. For example, when Nigeria removed its fuel subsidy in 2023, food prices increased by 400%. Sanctions on Russia and the war in Gaza raised prices in 2022-23, but it appears that fuel prices have relatively stabilized.
Impacts – International Security and NGOs
Agricultural production in Ukraine and its decline will further disrupt regional politics, humanitarian aid, and international security in a number of ways. These impacts will be generally negative and harmful in the short-to-medium term as Western governments and NGOs struggle to respond to problems.
Ukrainian Agriculture Production
Ukraine is extremely unlikely to regain its pre-war agricultural production in the medium term because the war will continue for some time, and once the war is over, Ukraine will create tens of billions of dollars in foreign aid. The country has also gone through three seasons without being able to fully plant in their farmlands. Furthermore, the mining of the country by Russia will prevent the use of arable land over the long term. As CSIS wrote in a report on demining, “Both the extent of Russia’s mine placements and the use of mining technology innovations within Ukraine have resulted in mine contamination of enormous complexity, scale, and lethality.” The agricultural sector will require years to recover, which means that the global food market should assume lower levels of output for the next 5-10 years.
European Politics
Europe's farmer protests have not only contributed to the decline in Ukraine's exports of goods but have also provided fertile ground for Russian propaganda. Moscow has keenly exploited these protests to sow division and undermine support for Ukraine's defense efforts. There is already significant division in Europe over support for Ukraine, though slight majorities still believe in helping Ukraine. Right-wing populists are rising in Europe, for example in the recent Portuguese and Netherlands elections, and they are more likely to side with Russia. Farmers opposed to extreme regulations by the EU have already turned against liberal and left-wing governments, and further issues in the agriculture sector are likely to increase the likelihood of political divisions, votes for right-wing populists, and opposition to Ukrainian support.
Food Prices and Insecurity
Because Ukraine is extremely unlikely to regain its agricultural production, other countries will have to fill the gap to keep prices lower. However, there are a number of threats to the global agriculture markets, including export restrictions by major exporters, uncertainty of other countries to produce a sufficient amount, and disruptions to maritime trade. In the short term, importers are unlikely to face shortages even with prices still higher than two years ago. In the medium term, it is unclear if other countries will be able to fill the gap, and inflation could lead to protests and food insecurity in places like sub-Saharan Africa. Higher food prices are creating problems with humanitarian aid that will continue for the medium-to-long term. The World Food Programme’s monthly operating costs are $28 million higher than before the war, which means there will be a significant rise in needs-based assistance and a need for higher donations and/or funding.
Russian Foreign Policy
Russia will continue to use food exports to expand its influence and soft power in Africa. According to the US Department of Agriculture, Russia will increase its wheat exports by 30% to 51 mmt in the 2023-24 growing season. Putin will use low-cost or free grain to gain support from several countries, and Russia has already delivered grains to those involved in the 2023 Russia-Africa Summit, including Burkina Faso, Eritrea, Mali, Somalia, Central African Republic, and Zimbabwe. Without Ukrainian grains, Western governments are likely to lose ground in competition in Africa, and this will likely harm both their economic and national interests.
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