31 May
The war between Russia and Ukraine has triggered an international food crisis, with some Middle Eastern importers suffering the most. Lebanon, which is already economically down, is trying to avert a bread crisis. Yemen is already struggling with ‘alarming heights’ of food security. Egypt, which imported 80% of its wheat from Ukraine and Russia last year, is fixing bread prices to control hunger in homes. These are just a few of the many countries feeling the negative impacts of the Russia-Ukraine war.
Australia has minimal trade relationships with Russia, but the Russia-Ukraine war will ripple through the global economy, still causing an effect here. The war is already negatively impacting the petrol price across the world. The high oil price has made the prices of commodities rise, affecting every sector, including food. This means that food exporters may have to buy food for export at a higher price.
Russia’s Important Role In The Global Economy
Measured by GDP, Russia is the world’s 11th largest economy, just in front of Brazil and behind South Korea. Russia’s 2020 GDP of A$2,342 billion wasn’t very far from Australia’s A$2,292 billion in the 13th spot.
Russia is intrinsic to the global economy since it’s a significant exporter of natural resources like gas, oil, metal, coal and wheat. However, these commodities have been disrupted through Western sanctions on Russia.
Impacts of the Russia-Ukraine War on Food Exporters in Australia
1. Russia And Ukraine’s Loss, Australia’s Gain
Currently, the West has stepped up economic sanctions on Russia. In March 2022, Biden, the US president, banned the country’s imports of Russian oil, coal and gas. The UK will follow and plan to ban oil from Russia by this year. In April 2022, Reuters said that Russian oil might be part of the next EU sanctions package. Europe has committed to stop buying Russian energy by the end of this decade, with an agreed ban on Russian coal and a considered ban on Russian gas and oil.
Due to the war, some essential commodities may have supply problems and high prices. Some of them include;
- Russian exports (excluding gas) might also be sanctioned, leading to a rise in prices of essential commodities like gas, oil, coal and metals and agricultural products (grains like wheat, corn and sunflower oil).
- Ukraine is famous for its mining, agricultural and manufacturing industries. Some agricultural products are wheat, corn, sugar, meat, timber, honey, nuts and sunflower oil. Mining products are natural gas, coal, oil, iron ore, limestone, chalk and manganese.
Australia’s vast agricultural industry relies primarily on exporting foods, especially meat, wheat and horticulture, meaning that there will be opportunities for Australian exporters to capitalise on.
2. Increased Demand for Agriculture Produces
Regardless of sanctions, the war will significantly impact the grain harvest in Russia and Ukraine as most crops are usually harvested during the summer and exported in the autumn. By the end of February, barley, sunflower seed, and wheat exports are complete for these regions.
Most Ukrainian grains are exported from the port of Odesa, which is temporarily closed as a result of the war. This inaction at key ports across Ukraine and the Black Sea will have an unavoidable effect on the ability to move Ukraine’s crops within and outside Ukraine.
This is good news for Australian exporters, who compete with Ukraine and Russian suppliers, as they will benefit from current increased prices. The Australian Bureau Of Agricultural And Resources Economic And Science has predicted that wheat production in Australia and exports will remain high throughout 2022-23 because of this tight global supply.
3. High Fuel Prices
Australia is not an exception to the negative consequences of this war. The main areas affected most are agriculture, petrol and aluminium. Moreover, since the Russia-Ukraine war began, the price of crude oil has kept increasing, and as Australia produces only a small quantity, the oil price will continue to grow.
The high price of fuel has made agricultural production more expensive. It has led to an increase in the costs of mechanical cultivation, pesticides, herbicides, animal feed and more. This high cost of production will affect the profitability of farming. Whilst sanctions continue on Russian exports, Australian farmers and exporters are more likely to benefit from high food prices, but the increased production costs will dampen some of these benefits and affect profits.
Food exporters may have to purchase farm produce such as meat, grains and horticulture at a higher price than they are used to. In addition, transportation costs will increase alongside the increasing cost of oil. To reduce the impact on their profits, they will be forced to pass the increased costs onto consumers by increasing the prices of their products.
4. High Fertiliser Cost
Natural gas is essential for creating nitrogenous fertilisers like urea and ammonia. As Russia is a crucial supplier of nitrogenous fertilisers, we can expect the current high fertiliser prices to continue. Russia is responsible for 15% of the global trade in nitrogenous fertilisers and at least 17% of global fertiliser exports.
Due to the high prices of fertilisers in Australia, farmers will turn to alternative growing methods. Combined with the more challenging growing conditions experienced in Australia over the past year/s due to climate change-induced weather events, this will present a significant challenge in wheat production for Australia.
Bottom Line
In the current Russia-Ukraine war crisis, Australian food exporters have opportunities to gain. The situation has benefited Australian exporters by pushing up the sale prices of exported commodities, opening up new markets, and helping to provide opportunities for Australian food exporters to grow.
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