Regional war, global consequences: Mounting damages to Ukraine’s agriculture and growing challenges for global food security
Russia’s all-out war on Ukraine has inflicted devastating impacts that continue to mount more than a year after the invasion. As of September 2022, even before Russia’s winter bombing campaign, the total damage to Ukraine’s infrastructure was an estimated $127 billion, equal to 64% of the country’s 2021 GDP. More than 14 million Ukrainians have left their homes, including more than 8 million refugees.
These impacts have global economic effects as well—particularly on agricultural markets and food security. Damage to Ukrainian agriculture and production losses also continue to mount. This has created severe economic uncertainty, driving many Ukrainian farmers to the brink of bankruptcy and substantially depressing agricultural output—contributing to high prices and price volatility around the world. In this post, we outline the war’s impacts on Ukrainian production and exports of key crops and their continuing global reverberations.
Despite high world prices, farmers in Ukraine suffer huge losses
Over the two decades leading up to the war, Ukraine emerged as an important global supplier of grains and vegetable oil. Grain exports more than quintupled, and the country’s share of globally traded grain rose from about 5% to 12%-14%. The lion’s share of agricultural exports (about 93%) went to destinations in the Middle East and North Africa region and to Europe by sea (via the ports of Kherson, Skadovsk, Berdyansk, Mariupol, Odesa, Bilgorod-Dnistrovskyi, Mykolaiv, Chornomorsk, Olviia, and Pivdennyi).
In the first days of the Russian invasion, Ukraine’s Black Sea ports were either occupied or blocked by the Russian naval fleet, contributing to spiking international prices through mid-2022. Large amounts of exportable grains and oilseeds ended up stuck in Ukraine’s ports and in inland elevators. Agricultural traders and producers sought alternative routes, including overland by trucks and rail across Ukraine’s western borders, and through Danube River ports.
These alternative export routes, however, are more expensive and pose various logistical problems, making it difficult to dramatically expand such shipments. For rail, the major bottleneck has been limited loading capacity at railway stations. For trucks, one problem is backups at border crossings. Lines at the border sometimes stretch to more than 50 km and trucks often wait a week or more before crossing, thus driving up export costs.
During the summer of 2022, Ukraine was able to increase its agricultural export shipments by rail only modestly, to about 1 million metric tons per month (Figure 1). Exports by truck have also been limited to about 600,000 tons per month. Thus the total shipment capacity of these alternative routes fell substantially short of demand and could not bring exports even close to the level of pre-war monthly shipments. This in turn led to oversupplies exhausting existing domestic storage capacities as the 2022 harvest approached.
Due to these problems, export costs surged from the pre-war $30-$40 per ton to $150-$200 per ton, and thus severely depressed domestic grain prices (Figure 2). This predicament led to a sharp decline in revenue of Ukrainian grains and oilseeds farmers—a loss of about $18.5 billion for 2021 and 2022 crops—and drove many to the edge of bankruptcy (Figure 2). The total agricultural losses associated with the war (i.e. forgone revenues and increased production costs) have amounted to $34.25 billion, or close to 75% of Ukraine’s agricultural output the previous agricultural year.
So far, limited impact of the Black Sea Grain Initiative
Some relief came with the Black Sea Grain Initiative between Ukraine and Russia, and brokered by the United Nations and Türkiye in August 2022, which established a so-called grain corridor from three Black Sea deep water ports (Odesa, Chornomorsk, and Pivdennyi). This resulted in a significant increase in Ukraine’s agricultural exports. However, it had only a marginal effect on domestic prices—and farmers’ incomes.
When the grain deal took effect, the 2022 harvest had already started. Thus, even as monthly grain exports returned to pre-war levels (Figure 3), supply pressures on the domestic market continued, export costs remained almost at high pre-deal levels, and domestic prices stayed low, without any noticeable movement toward closing the gap with world market prices (Figure 2).
Moreover, the volume of the shipments via the corridor leveled off in October and decreased in November (Figure 3), normally Ukraine’s high export season. Contributing to this trend was Russia’s repeated questioning of the grain deal, including President Vladimir Putin’s accusations, without evidence, of possible arms being masked as grain shipments—frictions that undermined the security of the grain corridor. The dispute flared further when Russia briefly suspended its participation in the grain deal, though it quickly reversed course and the agreement was extended for another 120 days. (On March 18, the agreement was extended, but for how long is disputed. Ukraine contends that the agreement is for an additional 120 days while Russia says that it only approved a 60-day extension.)
Surprises in the structure of exports
Despite these hardships for Ukraine’s producers, corn remains the dominant export crop due to large stocks and proximity to main export destinations (primarily the European Union). The share of wheat among overall exports has been increasing gradually since the start of new season in July (Figure 3). Meanwhile, exports of sunflower seeds have been relatively high (not typical for Ukraine) thanks to high export prices. Usually, more than 95% of the seeds are crushed and exported as oil and meal, but selling to local crushers was less profitable than exporting seeds, even with high transportation costs and rail congestion along the western border.
Future perspectives and continued threats to global food security
As Figure 4 shows, the U.S. Department of Agriculture expects Ukraine to produce about 75 million tons of wheat, barley, corn, sunflower seeds, rapeseeds, and soya in the 2022/23 season—31% below the previous year’s level. The Ukrainian Grain Association (UGA) and the Ukraine Ministry of Agrarian Policy and Food are even less optimistic, forecasting exports of only 63 million tons. Moreover, due to the rainy fall and huge liquidity problems, the 2022 harvest has been delayed. As of December 1, Ukrainian farmers had harvested only slightly more than 50% of 2022 grains and planted only about 40% of the prior year’s winter crop areas, where typically most grain would be harvested and winter crops sown by that time.
Unfortunately, these figures suggest that the low projections for the current and next season may even be optimistic. This is bad news for a tenuous global food insecurity situation. Given current global supply and demand conditions, it is likely that global markets will remain tight and 2022/23 global stocks will drop. Meanwhile, the capacity to replace the expected missing exports from Ukraine in the world are limited, at least in the short run. In other words, it is not an exaggeration to say that every ton of grain from Ukraine will count!
Pavlo Martyshev is a Researcher at the Center for Food and Land Use Research at the Kyiv School of Economics (KSE Agrocenter); Oleg Nivievskyi is a KSE Assistant Professor and Vice President for Economics Education; Mariia Bogonos is the Head of the KSE Agrocenter. Opinions are the authors'.