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Jan 23, 2023
Trends in grains market during Russian-Ukrainian war
The Russia-Ukraine war has had a significant impact on European
countries. From the perspective of migration movements, Poland has
received about 1.5 million refugees from Ukraine. Heavily dependent
on Russian coal, gas, and oil, Europe is facing a major energy
crisis. Laboriously rebuilt supply chains after the COVID-19
pandemic have been broken again and must be reorganized. The
hostilities in Ukraine have also destabilized the global grain
market.
The agriculture market is a specific one as the supply in the
market for agricultural products is less flexible than in the case
of industrial goods. Manufacturers are unable to respond to large
changes in demand or prices, since the flexibility depends mainly
on natural factors such as climate, soil, and topography of the
region.
In connection with the above, there is monopolistic competition on
the grain market and the main producers can influence the price on
the world market through a properly conducted trade policy.
Currently, because of the Russian invasion of Ukraine, the supply
of grains in the world market has been limited, resulting in an
increase in the price, hence creating a new equilibrium. Shortage
of supply in this market results in food problems in Middle Eastern
and North and Sub-Saharan African countries. These problems may
lead to further migration movements.
It can be said that Eastern Europe was one of the leaders in grain
exports. As a result of the war, Ukraine is unable to start full
production because ports and warehouses were destroyed. Supply
chains by sea across the Black Sea have also been disrupted. In
addition, Russia has reduced grain exports to foreign markets.
Russia and Ukraine, apart from a significant share in the global
wheat market, are also known for the export of sunflower oil, corn,
and barley. These articles require properly prepared storage
conditions (which is associated with high costs) and the
organization of appropriate distribution. The impact of the war on
the grain market is presented below, especially considering the
role of Ukraine as the main producer.
The grain market is one of the sectors hit the hardest by the
Russian invasion of Ukraine — the two countries together
accounted for 23.1% of global wheat exports in 2021. At the same
time, Australia and the United States account for 25.3% of global
wheat exports. Together these four countries account for half of
the world's exports. Our latest forecasts show that by 2025,
Russia's exports will decrease and reach 7.9% and this country will
lose its first ranking in the list of world exporters of wheat,
whereas Ukraine's share in global wheat exports will increase and
reach around 10.1%, placing it at the second place. This is of
course subject to change, depending on the time and course of the
ongoing conflict.
So far, part of the EU wheat production, mainly from France,
Germany, Romania, as well as Bulgaria and Poland, has been exported
to foreign markets, mainly to countries in Africa and the Middle
East. The exports of the above-mentioned countries accounted for
18.9% of world wheat exports in 2021. However, the domestic
shortage of other grains makes these countries less likely to
export as they need to satisfy the domestic market, and wheat can
be a very expensive supplement on the feed market. The main
recipients of Ukrainian wheat were Egypt, Indonesia, Turkey,
Morocco, and Pakistan, while Russia exported mainly to Turkey,
Egypt, Azerbaijan, Kazakhstan, and Nigeria.
Ukraine is the largest European corn exporter and the third in the
world after the United States and Argentina. In 2021, corn exports
from Ukraine accounted for 11.8% of world exports. It needs to be
highlighted here that unlike wheat, the European Union is a net
importer of maize, which is essential for feed production. Because
of supply chain disruptions, the European Union will have to import
maize from the United States, Argentina, and Brazil, which together
accounted for 66.4% of world exports in 2021. In general, until
2025 there will be not significant changes on that market.
According to the GTAS Forecasting current
assumptions, Ukraine should regain its position by that time, but
of course there is still a lot of uncertainty about the continuing
war and thus the forecast may be subject to change. The main
recipients of Ukrainian corn were mainland China, Spain, the
Netherlands, Egypt, and Iran in 2021.
Apart from corn and wheat that we already mentioned, we would also
like to focus on sunflower with its two main directions of
production: cultivation for seeds for direct consumption and oil
processing. The sunflower is the fourth-largest crop among
oilseeds. The seeds are used to produce food and fodder, while the
dried stems and oil can be used to produce biofuels.
Ukraine plays an important role when it comes to sunflower seeds,
rapeseed, and colza seeds. It is the main exporter in Europe and
the third in the world after Canada and Australia. Ukraine's share
in world exports was 11.4% in 2021. Currently, GTAS Forecasting estimation is
that the share of Ukraine exports of sunflower seeds, rapeseed, and
colza seeds would increase to 5.8% in 2024 from 4.9% in 2023. It
should also be noted that owing to Ukraine's geographical location,
it was an important exporter of this product to the Middle East and
European markets. In addition, numerous mills located in Ukraine
produced significant amounts of sunflower oil. The main buyers of
Ukrainian sunflower were Germany, Holland, Belgium, Pakistan, and
France.
In 2022, the European Union launched the "Solidarity Lanes"
initiative for Ukraine, which has allowed for exports of over 15
MMt of grains, oilseeds, and related products (60% of Ukrainian's
grain since the start of war). "Solidarity Lanes" is aimed at
promoting the export of agricultural products to enable connection
between European shippers and producers in Ukraine. The essence of
this plan is to support the transport capacity of rail/road/barge
vehicles.
According to the Ministry of Agrarian Policy and Food of Ukraine
statistics, the following grains were transported in 2022: corn,
sunflower seeds, soybean oil, sunflower oil, wheat, turnip, soy,
and barley by road (10.9% of total volume), by rail (21.0%), by
ferry/barge (0.6%), and by sea (67.5%).
In July 2022, Russia, Ukraine, and Turkey signed the Black Sea
Grain Initiative to establish a humanitarian maritime corridor to
allow export of grains and fertilizers through the Black Sea from
three key Ukrainian ports — Chornomorsk, Odesa, and
Yuzhny/Pivdennyi. According to S&P Global Market Intelligence
Commodities at Sea, total agricultural bulk export shipments from
Ukraine (on vessels above 10,000 DWT) the Black Sea safe passage
deal has allowed stood at around 10 MMt of grains and other
food.
According to the GTAS data, Ukrainian exports of grains (including
wheat and meslin; corn (maize); sunflower seeds, whether or not
broken; sunflower seed, safflower, or cottonseed oil, and their
fractions, whether or not refined but not chemically modified; and
barley) reached 22.5 MMt from March until October 2022. The main
recipients of the abovementioned grains were Romania, Turkey,
Poland, Spain, Hungary, Italy, Bulgaria, mainland China, and
Egypt.
There is hope that land and river transport will develop more
because the European Union significantly stimulates the development
of the "Solidarity Lanes" so that grain from Ukraine reaches its
final recipients, mainly Africa, to avoid further migration waves
from this continent and to prevent social unrest.
Learn more about our Global Trade Analytics Suite (GTAS).
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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