Wheat and maize exports from Ukraine will decline

The ongoing Russian invasion of Ukraine is changing the way grains are traded globally, which feeds billions of people every day. As a result, this year’s harvest in Ukraine may be as much as 50% lower than it was before the war.

Before the conflict started in February 2022, Ukraine and Russia were both among the top producers of goods like wheat and barley in the world. However, the conflict caused global wheat prices to fluctuate throughout the year and caused the price of U.S. wheat and corn futures to reach decade-high levels (with one benchmark wheat contract reaching an all-time high). After stabilizing in 2023, prices decreased by roughly 13% so far this year.

“Trade flows change and fluctuate, they always have,” said Andrew Whitelaw, co-founder and director of Episode 3, an agricultural analysis company. “Remembering that Russia wasn’t a major exporter of grains 20 or so years ago… In the last 20 years, it has expanded, and the top exporters are now Ukraine and Russia.

While the yield and export of grains like wheat from Ukraine last year were still significant despite the conflict and the closure of Black Sea ports, this year’s yield and shipments will likely be lower.

A deal negotiated by the U.N. in Turkey to direct ships safely out of Ukrainian ports, known as the Black Sea Grain Initiative, was only extended by 60 days in March, down from the previous 120-day period.

The wheat crop last year was “pretty good” in Ukraine and “absolutely fantastic” in Russia, according to Whitelaw, but the harvest in Ukraine is likely to decline by about 20% in 2023 because farmers have planted fewer crops.

“This year, there are things like — in Ukraine — lack of access to finance, lack of access to fertilizers, fuel, and labor, but also really low grain prices. Therefore, there is less incentive for farmers to plant it, he said.

“We’re seeing lower acreages or area devoted to these crops in Ukraine, which means that probably the larger impact [of it] may be felt this year, from a supply and demand fundamentals [perspective] than last year.”

According to data from the United Nations Food and Agriculture Organisation, 20 to 30 percent of the winter wheat crops sown in Ukraine last year may not be harvested this summer due to a lack of fuel.

According to Citi Research’s Aakash Doshi, head of commodities for North America, Ukrainian grain exports and harvests could be down by as much as 50% from pre-war levels this year.

According to Citi Research data, Ukraine had a record-breaking maize crop in 2021 with 42 million metric tonnes (MMT), which the bank predicts will drop to between 21 and 22 MMT in 2023/24.

According to Citi Research, the 2021 wheat harvest was 33mt, and this year’s crop is expected to be “might be 16-17mmt,” according to Doshi. 

He also predicted that exports would decline along with crop yields. “Since domestic consumption is low, volumes of grain trade flows from Ukraine should decline, but not as significantly as outright production declines. The exports of grains from Ukraine (wheat and maize) in 2023–24 maybe 27–30 MMT, a decrease of 15–18 MMT from 2021/22.

Ukrainian grain is currently in excess in Central European nations, causing a rift with nations like Poland, Hungary, Bulgaria, and Slovakia.

Polish farmers protested the declining prices, and this month Henryk Kowalczyk, the country’s minister of agriculture, resigned. Grain exports from Ukraine to Poland will be restricted and stopped “for now,” according to Robert Telus, his successor, who announced on April 7.

In the long run, Doshi sees potential for grain exports from North and South America to the Middle East, North Africa, and Asia. If crops are successful, he also sees potential for exports from Australia to East Asia.

“In other words, the Ukraine losses will need to be made up elsewhere over time, including from Russia itself, but with a stronger focus on U.S., Canada, Brazil, and Argentina exportable surplus,” Doshi said.

The market is probably going to change, according to agricultural analyst Whitelaw, including from Russia. There are not many places where you can get large quantities of grain to replace the quantities that Russia has been [providing], so the trade flows will need to change. The United States, South American nations, regions of Europe, and Australia are the only real options, he continued.

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World trade in food

According to World Bank data, the war in Ukraine has contributed to rising food prices, with inflation exceeding 5% in more than 80% of low-income countries.

The research by a team at Edinburgh University led by Peter Alexander, published in February, indicates that while restrictions on exports from Ukraine have had an impact on food prices, rising energy and fertilizer costs are likely to have an even greater effect.

According to the study, if high fertilizer prices persist this year, there could be up to 1 million more deaths in the Middle East, sub-Saharan Africa, and North Africa.

The scenario, in the long run, is complicated. Alexander, a senior lecturer at Edinburgh University’s Global Academy of Agriculture and Food Systems, claims that the effects of climate change on extreme weather are already harming the food system. But he told CNBC that it’s unclear how this might progress: “Future extreme weather, such as drought, heat, and flooding, will have an impact that is not well understood.”

According to Alexander, a major risk is if grain production stops simultaneously in several locations, a situation known as “multiple breadbasket failures.”

“That type of event could occur in the future, and it could have really bad effects on a lot of people,” he continued.

Many different factors can affect the cost and availability of goods and food in general. For example, in February, a shortage of fruit and vegetables was blamed on bad weather in Morocco and Spain, as well as on extra paperwork brought on by Brexit and high energy costs.

Furthermore, Alexander claims that there are numerous “competing narratives” regarding how to stop global food shortages, so the solutions are not simple. Localizing food chains, for instance, might not be helpful.

“Competitive advantage [means] we produce food where it’s the easiest to produce it, where it has the lowest inputs, which is why we have a globalized food system and why food has become cheaper and cheaper over the last decades… ” It becomes less efficient as a food system if we start bringing everything back closer to home, he claimed.

“For instance, even though we are self-sufficient in wheat in the United Kingdom, wheat prices on the global market still affect us,” he continued.

Alexander also believes that higher food prices aren’t always a bad thing. “Maybe we can make the healthier, more sustainable foods, we can subsidize them for everyone,” he proposed, rather than trying to maintain artificially low food prices or food prices that don’t reflect all the costs.

In developed nations, cutting back on meat consumption might also be an option. “We need a more equitable and efficient food system, which does very likely involve a dietary change from a Western perspective,” Alexander continued.

How much grain should be used for food supplies versus biofuels is a topic of discussion as well. To reduce emissions, ethanol made from grain is blended with petrol in biofuel.

According to a blog post by the research firm World Resources Institute that was published on April 1, 2022, roughly five weeks after Russia invaded Ukraine, reducing the grain used to produce ethanol in the U.S. and Europe by 50% “would compensate for all the lost exports of Ukrainian wheat, corn, barley, and rye.”

“We still use a lot of grain in our industrial processes to make ethanol, biodiesel, and other products that aren’t used for human consumption. In an ensuing couple of years, I anticipate seeing more of that debate, Whitelaw said.