Editors' note: This column is part of the Vox debate on the economic consequences of war.
Ukraine has established itself as a global leader in several agricultural commodities (Chepeliev et al. 2022). In 2021, it accounted for 10% of global grain trade, ranking as the fourth-largest exporter after the US, Argentina, and Russia. The EU – all 27 members combined – was ranked fifth. Specifically, Ukraine ranked third in the world in the export of corn and sixth in the export of wheat. Over three-quarters of its corn is used in producing animal feed, which has a significant effect on milk and meat production in three dozen countries (McGuirk and Burke 2022).
Ukraine is a major player on the world market of oils and oilseeds too. Before the Russian invasion, it exported over half of global supply of sunflower oil, 12% of global supplies of rapeseed, and 1% of global soybean trade (McGuirk and Burke 2022).
The resulting shortages and price increases of these commodities due to the war have had negative impacts 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 has been leading in productivity growth among the economy’s sectors due to the implementation of more efficient field management, use of better seeds, agricultural chemicals, and modern equipment. Since 2005, average yields for Ukraine’s main agricultural crops have doubled. Moreover, leading private agricultural holdings harvest yields that are two-to-three times above the national average, which points to the potential for increasing output through the use of lower-performing acreage.
In 2021, Ukraine boasted a record-high grain harvest of 84.5 million tonnes and a record-high harvest of oilseeds at 22.6 million tonnes. Overall, Ukraine’s food and agriculture exports comprised over 40% of total Ukraine’s merchandise exports in 2021, or nearly 15% of GDP.
The damage of war
Prior to the war, 89% of Ukraine’s grain exports were transported via Black Sea ports. The Ukrainian ports of Odesa, Chernomorsk, Pivdennyi, and Mykolayiv were handling up to 6 million tonnes of grain per month in 2021 (Figure 1) and were preparing to set new records in 2022 thanks to investment in expanded port infrastructure and bountiful crops.
President Putin and his military command are using a strategy reminiscent of the one employed by the Union military against the agrarian South in the US Civil War. Called the Anaconda Plan, a naval blockade deprived the Confederacy of hard currency by preventing the export of cotton, the largest commodity export of Southern states (Simson 2001).
Even before the start of the Russian invasion, the sea routes had been partially blocked by Russian military naval training. When the war started, full naval blockade was instituted upon Ukrainian ports and two of them – Berdyansk and Mariupol – were occupied by Russian troops. Only two small ports in the Danube delta – Izmail and Reni – remain functional. These two ports were, however, not used for grain exports prior to the war. Ukrainian exporters have had to improvise with grain handling there, an intermediary step to the Romanian port of Constanța. Overall, Izmail and Reni handled around 45% of total grain exports in May. As a result, the financial losses to agricultural exporters are estimated at $200 million a day in March through May 2022 (Interfax-Ukraine 2022).
Railways and trucks have started being used to haul grain into EU countries, increasing transit costs dramatically and still not being to fill the gap of blockaded ports. In May 2022, for example, only 40,000 tonnes of grains (4% of the total) were exported by trucks. The remaining exports (around half of the total quantity) were transported by train through Poland, Slovakia, and Hungary. With all this effort, Ukraine managed to export only around 1 million tonnes per month in April and May (see Figure 1).
Figure 1 Monthly grain exports from Ukraine, 2021–2022 (million tonnes)
Source: State Customs Service of Ukraine, accessed June 7, 2022.
Exports of oilseeds fared no better. Ukraine managed to export less than 200,000 tonnes of sunflower oil in May 2022, less than a third of what it could provide. Ukrainian farmers have started to send unprocessed sunflower seed abroad, mostly to be processed in Turkey. Such a downgrade in the value chain has not been seen for over 20 years, since the Ukrainian oil crushing sector emerged from the post-communist transition. And over-land transport is slower and beset by bureaucratic delays at borders, increasing prices by at least 30% (Djankov et al 2010).
New harvest may be low
As the time for the new wheat harvest approaches (July), 15 million tonnes of grains are still awaiting transport, severely reducing the incentives of producers to sow new crops as storage silos are full. Several wheat-producing regions in the south and eastern parts of Ukraine – affected by the ongoing war – have missed their crop-seeding time.
Ukraine’s grain harvest is expected to fall 34% this year from its historical peak of 2021 (Interfax-Ukraine 2022). While this fall implies the lowest grain harvest since 2011, it still allows some 35 million tonnes to be sent overseas. And along with the remaining 2021 harvest, Ukraine can export around 50 million tonnes of grain in the next marketing year 2022/23 (starts on 1 July). Logistical bottlenecks imply that even with improved use of railways and Danube delta ports Ukraine may manage to export only 15–25 million tonnes of grain, inducing farmers to leave over half of the summer harvest in the fields.
Limiting the effect of the naval blockade
A recent Vox column (McGuirk and Burke 2022) details how Russia’s invasion in Ukraine has already impacted agricultural commodity prices, escalating inflation worldwide and spurring famine-related conflicts on the African continent. As Russia is a top-three global grain exporter – especially in, wheat where it surpasses Ukraine’s exports due to its vast arable area – it has used the war it instigated to its own benefit. This implies not only financing the war effort by taxing soaring grain exports, but also blackmailing the international community with threats of food shipment disruption, much like Russia has used its energy exports to threaten European countries (Djankov 2015).
The needed first response to the Russian naval blockade is grain convoys in the Black Sea. Such a mission could be led by the other Black Sea nations (Bulgaria, Romania, and Turkey). Second, the EUcan temporarily (for example, to the end of 2022) lift all border controls for Ukraine train and truck agricultural exports so that they can transit faster and cheaper through Europe and reach European ports. Finally, much can also be done to address Ukraine’s landline infrastructural bottlenecks. The third step is for EU funds to be used for increasing the logistical capacity in the western and south-western parts of the country, along the border with the EU.
References
Arezki, R (2022), “War in Ukraine, impact in Africa. The effect of soaring energy and food prices”, Video Vox. 17 March.
Chepeliev, M, M Maliszewska and M F Seara e Pereira (2022), “Agricultural and energy importers in the developing world are hit hardest by the Ukraine war’s economic fallout”, 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”, The Review of Economics and Statistics 92(1): 166–173.
Interfax-Ukraine (2022), “Ukraine’s Grain Harvest to Plunge 34% in 2022” (in Ukrainian), 4 May.
McGuirk, E and M Burke (2022), “War in Ukraine, world food prices, and conflict in Africa”, VoxEU.org, 26 May.
Simson, J (2001), Naval strategies of the Civil War: Confederate innovations and Federal opportunism, Cumberland House.
