Editors’ note: This column is part of the Vox debate on the economic consequences of war.
Ukraine has established itself as a world leader in a number of agricultural products (Chapeliv et al. 2022). In 2021, it accounted for 10% of global grain trade, ranking as the fourth largest exporter after the United States, Argentina and Russia. The EU – all 27 members – was in fifth place. In particular, Ukraine ranks third in the world in corn exports and sixth in wheat exports. More than three-quarters of its corn is used in animal feed production, which has a significant impact on milk and meat production in three dozen countries (McGuirk and Burke 2022).
Ukraine is also a major player in the world market for oil and oilseeds. Prior to the Russian invasion, it exported more than half of the global supply of sunflower oil, 12% of rapeseed and 1% of the global soybean trade (McGuirk and Burke 2022).
Deficiencies and rising prices of these products due to the war have had a negative impact on food security in many countries in Africa and the Middle East, as well as parts of Central America (Arezki 2022).
Ukraine’s agricultural sector is playing a leading role in increasing productivity among the sectors of the economy through the implementation of more efficient field management, improved seeds, use of agrochemicals and modern machinery. Since 2005, the average yield of Ukraine’s major agricultural crops has doubled. In addition, the leading private agricultural holding crop yields, which are two to three times higher than the national average, indicate the potential for increased production through low-efficiency single use.
In 2021, Ukraine boasted a record-high crop of 84.5 million tons and a record-high crop of 22.6 million tons of oilseeds. Overall, Ukraine’s food and agricultural exports accounted for 40% of Ukraine’s total commodity exports in 2021, or about 15% of GDP.
The loss of war
Before the war, 89% of Ukraine’s grain exports were transported through the Black Sea port. The Ukrainian ports of Odessa, Chernomsk, Pivodny and Mykolaiv were handling 6 million tons of grain per month in 2021 (Figure 1) and in 2022 were preparing to set new records for increased port infrastructure and investment in abundant crops.
President Putin and his military command recall a tactic employed by the Union military against the agrarian South in the US Civil War. The blockade, known as the Anaconda Plan, deprived the Confederacy of hard currency by blocking the export of cotton, the largest commodity export to the southern states (Simson 2001).
Even before the start of the Russian aggression, the sea lanes were partially blocked by Russian military naval training. When the war broke out, a complete naval blockade was imposed on Ukrainian ports, and two of them – Bardiansk and Mariupol – were occupied by Russian troops. Only two small ports in the Danube delta – Ezmel and Renee – remain operational. These two ports, however, were not used for grain exports before the war. Ukrainian exporters have had to improve grain handling there, a move mediated by the Romanian port Constance. Overall, Izmail and Renee managed about 45% of total grain exports in May. As a result, the financial loss to agricultural exporters from March to May 2022 (Interfax-Ukraine 2022) is estimated at $ 200 million per day.
Railways and trucks have begun to be used to bring grain to EU countries, transit costs have risen dramatically, and the blockade has not yet filled the void. In May 2022, for example, only 40,000 tons of grain (4% of total) were exported by truck. The remaining exports (about half of the total) were transported by train through Poland, Slovakia and Hungary. Through all these efforts, Ukraine was able to export about 1 million tons per month in April and May (see Figure 1).
Figure 1 Monthly grain exports from Ukraine, 2021-2022 (million tons)
Formula: State Customs Service of Ukraine, accessed June 7, 2022.
Oilseed exports did not go well. Ukraine was able to export 200,000 tons of sunflower oil in May 2022, less than a third of what it could supply. Ukrainian farmers have begun sending unprocessed sunflower seeds abroad, mostly for processing in Turkey. For more than 20 years since the rise of the Ukrainian oil crushing sector from the communist transition, there has been no such decline in the price chain. And over-land transport due to bureaucratic delays at the border and surrounded, price increases by at least 30% (Jankov et al. 2010).
New crops may be less
With the arrival of the new wheat harvest (July), 15 million tons of grain are still waiting to be transported, and the incentive of growers to sow new crops is being drastically reduced as storage silos are full. Several wheat-producing regions in southern and eastern Ukraine – affected by the ongoing war – have missed their harvest season.
Ukraine’s grain crop is expected to fall 34% this year from the 2021 historical high (Interfax-Ukraine 2022). Although this fall marks the lowest crop harvest since 2011, it still allows about 35 million tonnes to be exported. And with the remaining 2021 crops, Ukraine could export about 50 million tons of grain in the next marketing year 2022/23 (starting July 1). Logistical constraints mean that even with improved use of railways and the Danube Delta ports, Ukraine can only export 15-25 million tons of grain, forcing farmers to give up more than half of their summer crop.
Limit the impact of the naval blockade
A recent Vox column (McGuirk and Burke 2022) describes how Russia’s invasion of Ukraine has already affected agricultural commodity prices, pushed up global inflation, and fueled famine-related conflicts on the African continent. Since Russia is one of the top three global grain exporters – particularly wheat, where it has surpassed Ukraine’s exports due to its vast cultivable area – it has resorted to persuasive warfare for its own benefit. It not only finances war efforts by imposing taxes on growing grain exports, but also blackmails the international community by threatening to disrupt food shipments, as Russia has used its energy exports to threaten European countries (Djankov 2015).
The first response to the Russian naval blockade was a grain convoy in the Black Sea. Such a mission could be led by other Black Sea countries (Bulgaria, Romania and Turkey). Second, EUcan temporarily (for example, by the end of 2022) lifted all border controls for Ukraine’s train and truck agricultural exports so that they could transit through Europe quickly and cheaply and reach European ports. Finally, much can be done to address Ukraine’s landline infrastructural barriers. The third step is to use EU funds to increase logistical capacity in the western and southwestern parts of the country along the EU border.
References
Arezki, R. (2022), “War in Ukraine, Impact in Africa. Impact of Rising Energy and Food Prices”, Video Vox. 17 March.
Chepeliev, M, M Maliszewska and MF Seara e Pereira (2022), “Agriculture and energy importers in the developing world have been hit hardest by the economic collapse of the Ukraine war”, VoxEU.org, 6 May.
Djankov, S (2015), “Russia’s Economy Under Putin: From Crony Capitalism to State Capitalism”, Policy Brief 15-18, Peterson Institute for International Economics, September.
Djankov, S and C Freund (2002) “Trade flows in the former Soviet Union, 1987 to 1996”, Journal of Comparative Economics 30 (1): 76-90.
Djankov, S, C Freund and C Pham (2010), “Trading on Time”, Economics and Statistics Review 92 (1): 166–173.
Interfax-Ukraine (2022), “Ukraine’s grain crop will sink 34% by 2022” (in Ukrainian), 4 May.
McGuirk, E. and M. Burke (2022), “The war in Ukraine, world food prices and the conflict in Africa”, VoxEU.org, 26 May.
Simson, J. (2001), Naval Strategy of Civil War: Confederate Innovation and Federal OpportunismCumberland House.