Page 40 - bne magazine February 2022_20220208

40 I Cover story bne February 2022
After Ukraine turned away from Russia since the annexation of Crimea in 2014, trade with Europe has soared. Ukraine already ranks fourth in the supply of agricultural products to the EU and 14th in terms of agricultural imports from EU countries.
But the unintended benefit of breaking off trade relations with Russia has been the rapid diversification of Ukraine’s
Blood on the black earth
Ukraine was famous as a Soviet breadbasket. Its “black earth” regions have some of the most fertile earth in the world, but most of these regions lie in the east of the country – Kharkiv, Dnipropetrovsk, Zaporizhia – that would all be the first to be overrun by an invading Russian army should war break out. The most exposed is the Kherson oblast, which lies just west of Donetsk and Luhansk,
which would not require Russians soldiers to cross the border but could see fighting extend beyond the current line of contact and so affect farming in the neighbouring regions – something that the Kremlin has suggested in
the last week it is contemplating.
An escalation could seriously disrupt Ukraine’s agricultural production
and that would only exacerbate the global inflation in food prices, which is already a major economic headache for central bankers everywhere.
It would cause price hikes in the
cost of bread and other staples in a number of countries like Libya, Yemen and Lebanon that are all already heavily dependent on Ukraine wheat imports but not stable economies.
The nightmare scenario is that this could recreate the conditions that sparked the Arab Spring at the start of the last decade that were caused by a sharp jump in food prices. Currently food price inflation is already on a par with that of the Arab Spring era in Tunisia and Egypt.
“Last time global food price inflation was running as hot as in 2021 was 2011, setting the scene for the Arab spring,” tweeted Adam Tooze, an academic with Columbia University.
“Last time global food price inflation was running as hot as in 2021 was 2011, setting the scene for the Arab spring”
exports worldwide. In particular, it has developed new trade deals with North Africa and the Middle East.
Amongst the main customers are China, the EU and Lebanon, but the largest consumer of Ukraine’s wheat is Egypt, which imported more than 3mn tonnes in 2020 – about 14% of its total supply.
Ukraine wheat imports also account for between a fifth and a quarter
of the wheat imports of Malaysian, Indonesia, Bangladeshi and the Middle East, according to FAO
data as cited by Foreign Policy.
This year the harvest should be even better and could break the record yields for the fifth year in a row, according to agricultural experts. The cold winter has covered the fields with snow, which is good for crops, protecting them from the frost.
With 42mn hectares of farmland covering 70% of the country and about 25% of the world’s reserves of black soil, Ukraine’s agribusiness sector remains the most promising sector of the economy.
But Ukraine’s very success in building up global wheat exports could turn out to be a major headache for the rest of the world if the current showdown with Russia comes to blows.
where an undeclared war with Russia has already been raging for seven years.
Russia’s troops are massed in bases close to Ukraine's eastern border, so the grain producing regions are the first ones
that an invading force would reach.
While bne IntelliNews has reported that a full-scale invasion is highly unlikely, smaller-scale military operations remain more than possible. One scenario that would affect agricultural production that is possible is for the Kremlin to flood the Donbas with more weapons and scale up the conflict in Donbas,
UN World Food Price YoY
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