Impact of the Ukraine-Russia Crisis on Global Agricultural Markets- UPSC Current Affairs

Context

Russia’s invasion of Ukraine has not only created instability in the region but has also led to a global food shortage. 

Probable Question

War is not just the loss of two countries, in the globalized world war between two countries affects the whole world. Comment.

Background 

• FAO released a report that outlines the importance of Ukraine and Russia for agricultural markets and the risks associated with the war that broke out in Ukraine in February 2022 when Russia invaded the country.
• Both Russia and Ukraine are among the top producers of agricultural commodities in the world. 
• In 2021, both ranked among the top three exporters of wheat, barley, maize, and sunflower seed and oil, globally.
• People living in eastern Ukraine have already been displaced or impacted by war since 2014 when Russia annexed Crimea. 
• A countrywide war has pressured Ukraine’s agricultural production and limited its economic activity, thus further reducing the purchasing power of its people. 

Share in Global Production of Selected Crops 2016/17-2020/21

Image: The Hindu

Wheat

• Russia shipped 32.9 million tonnes of wheat and meslin (in product weight) in 2021, making it the second-largest wheat exporter. 
• Ukraine exported 20 million tonnes and ranked sixth. 
• The war has disproportionately affected least developed countries (LDCs) and low-income food-deficit countries (LIFDCs) since a large number of countries that import food and fertilizers from Russia and Ukraine fall into these categories.
• FAO’s forecasts that Ukraine’s wheat export could decline by 50 per cent in 2022-23, compared to the already reduced 2021-22 level. 
• Maize production by the country could see a 32 percent decline.

Wheat Exports by Country Share in 2021

Image: The Hindu

Sunflower Seed Oil

• Ukraine and Russia together cover around 72 percent of the sunflower seed oil’s world export share.
• Ukraine and Russia lead the global sunflower seed oil market, and disruptions to shipment.
• They are bound to have a significant impact on major importers of the product, including India, China, the European Union (EU), Iran, and Turkey. 
• The spillover effect of the war has been seen in the increase in global vegetable and other cooking oil costs.

Sunflower Seed Oil Exports by Country Share in 2021

Image: The Hindu

Fertilizers

• Ukraine is not a fertilizer exporter that countries heavily depend on, except for purchases by India. 
• In 2021, Russia was ranked the top exporter of nitrogen fertilizers, the second-largest supplier of potassium fertilizers, and the third-largest exporter of phosphorus fertilizers. 
• In May 2022, prices of urea were recorded to be two and a half times over the December 2020 level. 
• Despite easing in June 2022, nitrogen fertilizer costs are still around three times their longer-term average. 
• Potassium fertilizer costs have also recorded multi-year highs in recent months. 

Energy

• Energy sources are absolutely crucial for agriculture too, especially in developed areas. 
• The war will also affect agricultural produce in developed areas that depend on Russia for energy.
• Russia is one of the world’s leading producers of energy. 
• Higher energy prices will eventually increase the prices of food grains, thus threatening global food security.
• Russia accounts for 18 percent of coal, 11 percent of oil, and 20 percent of global gas exports. 
• Energy imports from Russia are crucial for the European Union (EU).

Harvest Cycle and Shipping

• There are concerns if the usual harvest cycles will be completed in Ukraine this year amid the war. 
• Export of crops has already been affected due to the closure of ports and oilseed crushing factories in Ukraine. 
• In Russia, financial sanctions have made exports uncertain.
• In Ukraine, active fighting has damaged transportation and shipping operations. 
• Ukraine’s national maritime shipping capacity has been extensively damaged due to the war. It handles around 90 per cent of the country’s commodity exports.
• Fighting has affected all stages of agricultural production. In Ukraine, activities right from sowing crops to harvesting and shipping them have been reduced.

New Source: The Hindu  

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