By introducing sanctions on Russia the developed world’s logic seems to be: to increase the importance of the ‘refrigerator’ factors in defining the Russian public opinion over the ‘TV-set’ factors. This means that the West builds its logic on its own political culture, assuming that decreased purchasing power and quality of life of the population (‘empty refrigerator’) would force the Russian government to stop military operations in order to avoid public discontent, and would allow to decrease the efficiency of the domestic propaganda in creating domestic support of military actions (TV-set logic). At the same time, sanctions are sending shockwaves around the globe resulting in speculations on food security:, fertile ground for populistic and nationalistic movements inside the developed world due to inflation (considering risks in Hungary, or in the current election campaign in France).
Are Ukraine and Russia really “Europe’s breadbasket”?
Ukraine and Russia are often considered as the European breadbasket and the military operations in Ukraine caused food price increases due to worsened expectations, supply chain disruptions and to rising cost of energy. The FAO Food Price Index in March 2022 was 33.6% higher than in March 2021, FAO Cereal Price Index was 17.1% higher in March 2022 than in February 2022 and the International Grains Council Grains and Oilseed Index wheat sub-Index rose by 21%. These are the historical highs since 2000 at least. Food inflation in the Euro area was already 3.6% in January 2022 and after the start of the operation in Ukraine it reached 5.0% in March 2022.
The revived suggestion of President Macron in March 2022 to introduce food cheques for small-income families that caused a powerful and memorable effect among European consumers (just as the deployment of military personnel to lockdown Paris in March 2020), is largely based on the assumption that Europe depends on both countries. However, this is not completely true. For instance, the EU is self-sufficient in its wheat production. Moreover, the EU itself is the world’s leading wheat producer (138.9 mln metric tons in 2021), followed by China (producing 138.9 mln metric tons in 2021), India (109.5 mln metric tons in 2021), Russia (75.5 mln metric tons in 2021), the US, Australia, and Ukraine (33 mln metric tons in 2021). France in particular (like the rest of the European Union) depends from Ukraine and Russia mainly for sunflower oil-cake, which is used as a cattle feed (to increase the milk yield among dairy cows, but also to feed pigs, chicken, etc.).
So how do Russia and Ukraine actually contribute to the global food sector? What are the disruptions in the supply chain? How could food security be influenced? And may the Russian government weaponize its agricultural exports putting at risk European food security or would such claims be economically unjustified like threats to cut energy supplies?
The most relevant goods to look at are wheat, safflower oil seeds and fertilizers.
The Russian Federation is the main exporter of wheat as it contributes to 18% of the world supply; together with Ukraine - almost 30%, which means almost one third of world wheat exports depends on these countries. Russia exported 32.9 million tons of wheat in 2021. To put this figure into context in 2021: China consumed about 148.5 million metric tons of wheat, the EU consumed 107.6 million metric tons of wheat, Russia – 41.7 mln metric tons, Ukraine – 8.8 mln metric tons. In other words, the EU for instance has the same amount of wheat it produces but does not consume as Russia exports being the world’s leading wheat exporter.
As for sunflower oil, both Ukraine and Russia contribute to approximatively 72% of global sunflower oil exports (Ukraine 52% and Russia 20%). However, depending on the eventual goals safflower oil may be replaced by vegetable oil, canola oil, soybean, palm oil, coconut oil, safflower oil and ultimately olive oil. Canada is by far the global leader in canola oil production and has sustainable supplies, whereas for most of the other oils Russia either does not produce them or lags behind (only 8th place in terms of global production for vegetable oil, with Indonesia, China, the US, and Malaysia largely outpacing Russia). It is possible to replace the imports of Russian sunflower oil and safflower oil by increasing the production of saffloweroil in Kazakhstan (which is the undisputable global leader of sufflower production) and by increasing the market share of canola and other oils.
Other crucial products to be taken into account are fertilizers: Russia is one of the main exporters of all three key groups of fertilizers (nitrogenous, phosphatic and potassic) together with China and the US: in 2020 it was the third exporter of potassic fertilizers while Belarus was the second and together they made 30% of global exports of this fertilizer. Russia also has a leading role in the nitrogenous fertilizer market, often becoming the first exporter of this commodity. Nitrogenous fertilizer is mainly used in crops to enhance leaf growth, whereas the urea, one of the two main nitrogen fertilizers, is essential for post-sowing since it makes harvests rich in proteins and enhances their quality.
Dependence on Russian fertilizers is much more important for the developed world than on wheat or sunflower oil. For example, ammonia is used to produce nitrogenous fertilizers and since the military operations started the world’s largest ammonia pipeline running from Togliatti Azot plant in Russia (one of the world’s largest ammonia producers) to the Southern Ukrainian port-city of Odessa (that has so far avoided Russian take-over) stopped its supplies. The pipeline is mainly export-oriented. Moreover, the current European sanctions on technology exports, including those that could be used for military purposes would also hard hit the import-dependent ammonia producers in Russia. The effect of mutual sanctions on fertilizer production and exports will decrease productivity and exert upward pressure on prices, especially in the EU and India.
Production and supply chains and where Russia stands
Added value from agriculture makes for 3.4% average in the Russian GDP and at the end of the first quarter 2022 Russian agriculture is expected to contribute 534 billion rubles to the GDP, which is above average if compared with the same period in the previous years, where it has been below 500 billion rubles since 2013. However, this increase is largely linked to the depreciation of the ruble as a consequence of economic sanctions imposed on Russia.
If on the short term the aforementioned depreciation of the ruble could make Russian prices of agricultural commodities more competitive, it might actually have serious consequences on the long term, as Russia itself depends on foreign technology and investments in the agricultural sphere, but also imports of pesticides and seeds.
First of all, Russia is dependent on the import of pesticides: in 2020 it imported $818 million worth of pesticides, with more than 50% of them coming from the European Union, especially from France and Germany which made respectively 28.8% and 14.2% of total pesticides imports.
Figure 1 - Proportions of Pesticides imports in the Russian Federation (2020)
Source: Observatory of Economic Complexity
The Russian Federation is also a net importer of seeds: in 2020 its import of sowing seeds were $229 million compared to $14 million of exports with vegetable seeds making 44% of these imports and sugar beets 37%. The Russian dependence is particularly important in sugar beet seeds, since locally produced sugar beet seeds satisfy only 5% of the total need. Imports of sowing seeds mainly originate from the European Union (33% from France, 9.78% from Germany, 7.71% from Italy) and the US (9.07%). Moreover, the situation with seed imports was degrading in Russia previously. In 2022 Russia can domestically ensure 5% of its sugar beets seeds needs, 12% - for potatoes (33% of non-varietal potatoes), and 46% - for maize. Transnational companies like Bayer supplying sun-flower and maize hybrids seeds into Russia become more powerful than certain governments when it comes to Russian food security.
This is only one illustration of agricultural mutual dependence, as Russia is buying abroad not only a huge spectrum of seed stock, but it is also importing chickens for the mother herd and semen of bulls for cows.
Russia has seeds self-sufficiency for only seven major agricultural crops: winter wheat (94%), spring wheat (91%), leguminous and fodder crops (86%), rice (84%), oats (81%) and barley (78%).
According to the FAO, in 2021 the Russian Federation imported $872 million worth of pesticides and $409 million worth of “high value”, hybrid seeds and GMO seeds. 58% of Russian imports of pesticides come from the EU, 68% of Russian imports of seeds come from the EU.
This means if the European Union (by disrupting the chains) limits seeds and pesticide supplies for agricultural use in Russia, it would be hard for Russia to replace them. This would definitely amplify the destructive effects of sanctions on the Russian population as compared to the Russian government. However, it is worth noting that Russians born in the early 1980s and before who remember the Soviet times are accustomed to shortages. Also most of the impoverished population put at food shortage risk will be in small cities and rural areas, which traditionally vote the current government, but also rely on state media for getting information. On the other hand, the government would manage to deal with any popular unrest caused by inflation and decreased purchasing power of the remainder of the population by using the extensive police and armed forces, which will not see their supplies being cut.
Finally, Russia is dependent on the European Union for at least 50% of its harvesting machinery supply, with Germany as the main trade partner (28,3% on total harvesting machinery imports); followed by imports from Belarus (18,8%) and China (8,77%).
On the production side, Ukraine and Russia will export less this year. Winter cereal crops in the Russian Federation and Ukraine will be ready for harvest from June onwards. Military actions cause disruptions in logistics in Ukraine, but also disturb the seasonal works in the South and East of Ukraine.
Thus, safflower and spring cereals, including maize, scheduled to be planted from April onwards may be affected, while the 2022/23 rapeseed sowing season will not open until September 2022.
As far as spring crops are concerned (barley, corn, sugar beet, safflower and beans), the spring crop sowing area in Ukraine may be much lower compared to the period before the military operations, which was 15 million hectares. Even though the Ukrainian government has prepared deferment from military service to a number of farmers, in order to guarantee agricultural production, the disruption of agricultural trade and logistics still continues due to self-evident reasons.
As for Russia, the disruption of agricultural exports is due to trade limitations brought about by Western sanctions (mainly payment systems-related sanctions and companies leaving the Russian market, which has an impact on productivity), due to banks being more reluctant to finance imports from Russia and due to measures approved by the Russian government itself in order to “protect the domestic food market and stabilize prices for significant agricultural products.”
For the same reasons Russia had introduced the now lifted shipment ban on wheat, rye, barley and maize to neighboring Eurasian Economic Union states (Armenia, Belarus, Kazakhstan, Kyrgizstan). It was first introduced in mid-March and was supposed to take place until the end of June. Exports can now take place only under permission issued by the Russian Ministry of Agriculture. This kind of planning, familiar since the Soviet time, increases food security risks for the importers, including inside the EEU, which Russia considers as potential allies.
Even though the European Union, while trying to avoid the presumed risk of food insecurity, has made an exception for truck freight from Russia importing essential agricultural and food products, the waiting time at Belorussia-Polish and Russian-Latvian boarders has increased substantially. Also, the launch in April 2022 of the new freight train route from Xi’an (in China) to Mannheim (in Germany) by-passing the Russian Federation (cutting through Kazakhstan, Azerbaijan, Romania, and Hungary) creates good premises for socially responsible entreprises to move away from their dependence on Russia in agricultural imports.
Food security: a political weapon?
Prices of selected agricultural commodities that are mainly exported by Russia and Ukraine (such as wheat, maize, oilseeds) are very volatile and influenced by speculation on their availability; this is why general wheat prices increase even for countries which do not import Russian wheat: production input is not the only component of the price, factors like “futures” are always to be taken into consideration.
Also, if the Russian government manages to retain control of southern regions of Ukraine during its current offensive in the South and the East, where Ukraine has one of the world’s most fertile black earth (i.e. an extremely fertile type of soil), this will increase Russia’s global agricultural influence.
Figure 2 - Black Earth map of Ukraine
Already restrictive manoeuvres by Russia include: a temporary ban on the export of sunflower seeds and rapeseed from April 1 until August 31, 2022, a quota on the whole export abroad of sunflower oil (1,5 million tons) and press cake used as animal feed (700, 000 tons) valid from April 15 until August 31, imposition of duties on the export of sunflower meal (floating rate) and oilseed flax (fixed 20%) from Russia outside the Eurasian Economic Union from May 1 to August 31, 2022 and an export quota now raised to 5.7 million tons for nitrogen fertilizers and about 5.6 million tons for compound fertilizers.
Disruptions in the global supply chain are likely to happen, considering the impact that high costs of energy have on the production of biofuel and nitrogen fertilizers. Fertilizer bills are set to further increase. However, dependence on Russian fertilizers is mutual: Russia needs to support its exporters, and the EU needs to stem food inflation. The US and the EU acknowledge this dependence so far avoiding direct sanctions on fertilizer exports.
Threats to food security are being largely felt by countries depending on the most from Russian imports: these are mainly located in the Middle-East, North Africa and Central Asia, as seen below. Most of these countries are outside the EU, and more importantly are the countries that the current Russian government could consider as potential allies, as they refused to condemn its actions in Ukraine.
Figure 3 - Where does Russia export wheat to? (2020)
Source: Observatory of Economc Complexity
Egypt is often both the world’s top wheat buyer and the top importer of Russian wheat (32.1% in 2020) and on average Russian wheat makes up 50% of its domestic imports of this product. Egypt struggles with moderate levels of hunger, ranking 61 of 117 countries according to the Global Hunger Index 2019. Moreover, its cereal production is not sufficient to satisfy even half of its domestic demand and thus the country is reliant on supply of external markets.
However, Egypt did not stop importing from Russia despite payments disruptions and higher prices: it was reported that in March 2022 its Russian wheat imports rose by 24% from the same month last year; this is probably explained by shortage of imports of Ukrainian wheat, which in 2020 made 23,5% of the country’s supply. Egypt is actively purchasing from and making agreements with alternative suppliers.
Mongolia represents an even more severe case, since it has to depend on foreign agricultural supply due to unique climate conditions that threaten livestock and harvesting and a lack of infrastructure suitable to sustain its economic sector.
Although Mongolia is not one of the main export destinations of Russian wheat (it barely makes 0,45% of Moscow’s wheat exports), Mongolia itself relies almost completely on Russia for its supply of this commodity. Therefore, since bigger buyers (for example Egypt) have already secured bigger amounts of Russian wheat, the country has now to look for other suppliers.
As for the EU, which does not face such risks as Egypt or Mongolia, an interesting political scenario is apparently taking form: where Western countries and Russia are “competing” in helping countries struggling with food security.
While Russia is trying to take advantage of the situation by blaming Western sanctions for this new food crisis and therefore by trying to put the most vulnerable countries against the West, the European Union is blaming Russia’s action in Ukraine as the main trigger to the current condition in the agricultural sector and is offering its support to countries more in distress.
Both the EU and Russia are interested in maintaining an important influence on the main importers of Russian and Ukrainian wheat: Russia does not intend to give up on its market share of agricultural products in these countries and at the same time is determined to show the West that many countries still did not take the sanction road and to undermine the West’s confidence in a mostly global position against Russia, albeit the least developed countries are considered; the European Union, on the other hand, is putting the basis for bigger agricultural exports in these countries at the expenses of its main competitor through what has been defined by many as “food diplomacy”. This means giving these countries concrete support also with global food distribution mechanisms for nations suffering from food insecurity (“FARM” projects pushed by France), support package of €225 million to help and support the people in the Middle East and North Africa region and at the same tame is actively fighting Russian narrative back.
Moreover, Russia’s deputy chairman of the Security Council a Medvedev has even announced food supplies would be guaranteed to “friendly nations” only.
Although Egypt and Turkey voted in favor of the UN Resolution of March 2 that condemned Russian government’s aggression in Ukraine and asked for the withdrawal of its armed forces from the country, that did not prevent Russia from enhancing grain supplies to these countries in the last month. This demonstrates how the current Russian government depends on keeping its international allies, and may not afford to weaponize its agricultural exports at least at the political level. If Russia faces shortages due to sanctions, and fails to supply its global political partners, this will deteriorate Russia’s image as a reliable supplier within its partners in Africa, Middle East and Central Asia.
To further illustrate this phenomenon, the aforementioned Russian March-April ban reportedly generated protests and general discontent among citizens of countries part of the Eurasian Economic Union, who even questioned the actual effectiveness of such organization; moreover it is also highly suggested that the export ban was lifted due to this public outcry.
The EU has more economic leverage to succeed this economic competition for international support and food diplomacy. The economic blow on the European market, as it was demonstrated, would be less considerable. Also, there is momentum for enhanced sanctions, including on Russian oil&gas due to public discontent in Europe and the readiness to tolerate higher inflation to preserve lives in the middle of Europe. If Europe loses this momentum, this could work to the benefit of populistic movements inside Europe in a matter of months due to an unprecedented refugee inflow, that may cause a substantial crisis. This will also lead to the decrease of the public readiness to tolerate inflation despite military operations, if the conflict continues.
To summarize, despite any political narrative, the Russian government cannot afford to weaponize its agricultural exports given the expected domestic cumulative effects of sanctions, mutual dependence, and rather, any restriction in exports is linked to economic and international political necessity. Instead, the Russian government could use its agricultural exports to try to improve its international image, through the narrative where it talks about the unwillingness to cause famine around the globe.
The Role of China, India and Hungary
China and India are sometimes considered as Russian potential allies in the current economic war. Hungary due to ambiguous statements of the elected prime minister is also an interesting jurisdiction to study agricultural ties with Russia.
China is the world’s wheat biggest producer and the second largest importer of wheat. This is mainly due to the size of its population. China imports less than 0.4% of its wheat from Russia and Ukraine. Also the most populous country in the world can count on a long tradition of seed independence, as it invested in breeding innovative seeds more resistant to climate challenges and diseases.
For these reasons, important disruptions in the Chinese domestic wheat market ought to be unlikely, if only due to domestic lockdowns; however, threats on Chinese wheat security are triggered by what the country’s Minister of Agriculture has described as “The worst winter wheat harvest of history” due to floods.
As a result, Beijing in its risk-averse decision has lifted restrictions on Russian wheat imports imposed in the previous years due to concerns on phyto-safety. In fact, despite friendship ‘without limits’, China has been reluctant for decades to import Russian agricultural produce, cutting at different periods of time its imports of pork or wheat due to claims of potential diseases or other unspecified reasons. However, given that Russia may not satisfy Chinese wheat needs in its current condition, this decision is more of a symbolic signal honouring the previously announced cooperation ‘with no limits’ with Russia, even though it produces most controversial effects to the global image of China as the Russian government failed to quickly achieve its military objectives and faces unprecedented unity against it among the Chinese key trading partners.
China has also secured a substantial amount of wheat imports from usual and alternative suppliers even at the expenses of other large importers, leaving them with an even more tightened wheat supply.
Safeguard of food security had preemptively been taken seriously into account by China not only in the so-called “Six guarantees”, an economic action plan presented by China’s Politburo in April 2020 in response of COVID-19, and in the “No1 Policy Document” released at the beginning of 2022, but probably even in the light of a foreseeable Russian-Ukrainian conflict, as suggested by The Diplomat on February 12.
Other than that, in 2020 China depended on Ukraine for 61.5% and on Russia for 35,2% of its sunflower oil imports and the likelihood that it will partially replace Ukrainian imports of sunflower oil with Russian imports is high, as a result of Chornomorsk’s port (Ukraine’s most important sunflower oil shipping port) being shut down.
Moreover, despite the exclusion of several Russian banks from SWIFT payment systems, transactions between the two countries can still take place through alternative systems such as the Chinese National Payment system.
Despite its usually consistent production, China will not turn out to be an alternative wheat exporter replacing Russia and Ukraine given the uneasy situation it currently finds itself in and its own partial dependence on wheat imports. However, this role could be taken by India. Indiais the second world’s biggest wheat producer and has been having wheat bumper crops for the past 5 years.
India is delivering considerable quantities of milling wheat to ASEAN and United Arab Emirates and is discussing the possibility of wheat exports to countries largely dependent on Russian imports such as Egypt, Turkey, Nigeria and Iran.
Moreover, the problems faced by India in light of the agricultural supply involve mainly fertilizers imports, since it depends for one third of its supply from Russia and Belarus. Besides, India was actually supposed to sign a three-year fertilizer import deal with Russia at the end of February 2022, which was postponed after Moscow’s actions; however, it may be signed “once the situation improves”, meaning that India is still willing to cooperate with Russia in this sphere.
To make up for any shortage given Western sanctions and potential Russian exports bans, Indian fertilizer companies are enhancing imports from Canada and Jordan among others.
Furthermore, India is planning to boost its exports to Russia in order to replace Western countries which cut economic ties with Russia and by doing so the two governments are making agreements over alternative payment systems in the respective currencies.
The actions of another country with a wavering attitude towards Russia is Hungary.
Hungary suspended grain exports amid rising prices for agricultural commodities.
This decision especially affects some EU countries reliant on Hungarian grain imports, such as Italy (depending on Hungary for 14% of its grain supply), Romania and Austria. These decisions led to criticism from other EU countries, which are actually going into the direction of keeping their markets open and to help countries that depend the most on Ukrainian and Russian imports in the so-called “food diplomacy” move. Hungary is a good illustration of the jurisdiction that could try to use populism, if the EU loses momentum of improving its sanctions.
Many countries depending on Russian and Ukrainian imports are struggling to stay afloat in this food security crisis moment. The economic and political aspects are largely connected, however, where food security is at stake, political preferences may fade. The European Union has the potential to earn extra points in its competition with Russia for influence in strategic geographical areas of the world like North Africa and the Middle East through agricultural supplies, given lower production in China.
Depreciation of the ruble combined with limited access to international transactions already puts under considerable pressure the Russian productivity chain, partially destabilizing its agricultural production, since it is largely dependent on imports from the European Union and the West in general in seeds (primarily, sugar beet, potatoes, maize), pesticides and agricultural technology. Russia needs to re-build its whole system of ‘breeder - seed grower - agricultural producer’ and it will not be able to do so quickly.
Seed or pesticide sanctions on Russia will primarily affect the Russian population, and not the decision-making process.
The eventual decline in the level of food security will also depend on how the sowing works in Ukraine will take place and whether what was sown will be or not destroyed later by military operations. Importantly, these operations take place on one of the most fertile pieces of European land.
The main inflationary risks come from speculation and fertilizer imports from Russia, though this could be managed as Russia increased its export quotas to support its exporters amid sanctions, but also the Europeans are united in disapproving Russian government’s military operations in Ukraine and are more prepared to tolerate inflation at least until refugee crisis repercussions become apparent in the EU.
Any potential Russian government decision to suspend fertilizers or other agricultural exports to the EU, given their ongoing exports, for example, to Brazil, may be used as an economic and psychological weapon to undermine the European public sentiment of disagreement with the military operations by creating additional inflationary pressures in the agricultural production and decreasing the purchasing power of Europeans. The question is which government and political parties would be more efficient in informing the public opinion of the actual culprits of the food crisis and in galvanizing the public reaction to create a new social contract and stop military operations in a peaceful manner.