The world is watching with bated breath as tensions rise between Russia and Ukraine. Should cool heads not prevail, global agricultural commodity prices could rise sharply – and South Africa will not be shielded completely.
About 100 000 Russian troops – equipped with everything from tanks and artillery to ammunition and air power – have moved to the Ukrainian border in recent weeks.
This follows Russia’s resistance towards its neighbour affiliating with European institutions, and the North Atlantic Treaty Organisation (Nato) in particular. Russia has laid out a series of demands which include a guarantee by the West that Ukraine will not join Nato, an intergovernmental military alliance of 30 countries.
Why Russia and Ukraine are at odds
In 2014, Russia invaded and seized the Crimean Peninsula from Ukraine. The peninsula along the northern coast of the Black Sea in Eastern Europe has a population of close to 3 million people, made up mostly of Russians with significant Ukrainian minorities.
Political analyst Theo Venter tells Food For Mzansi that the invasion took place in the aftermath of the 2014 Ukrainian revolution and is part of the wider Russo-Ukrainian conflict. Ukraine was part of the Soviet Union before the fall of the Berlin Wall.
Venter explains, “Russians feel that Ukraine is a natural part of the Russian people and a large proportion of the people living on the eastern side of Ukraine is native Russians.
“The [seizure] was of huge strategic importance to Russia because that provided them [free] access to the Black Sea, despite very negative reactions and sanctions from the West.”
Theoretically, the Russians could have used the Sea of Azov to get to the Black Sea, but it’s the shallowest sea in the world and not of strategic value. Therefore the port city of Sevastopol in Crimea serves as the headquarters of the Russian Black Sea Fleet.
“Nations have gone to war about control of the Crimean (Krim) Peninsula for more than 1 000 years and what we are witnessing now is the modern, 21st Century version of it,” Venter explains.
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What this means for global food stability
Because both countries are key players in global agriculture, experts are growing concerned.
“We don’t know how the tensions between Russia and Ukraine will unfold in the coming days and possibly longer,” says Wandile Sihlobo, chief economist of the Agricultural Business Chamber of South Africa (Agbiz).
“[Russian troops along the Ukraine-Russia border] have also caused panic amongst some analysts that an intensifying conflict between these two countries and the potential trade disruption would have significant consequences for global food stability.”
Russia produces about 10% of the global wheat harvest, while Ukraine accounts for 4%. Combined, this is nearly the size of the European Union’s wheat production, according to data from the International Grains Council. This wheat is not just for domestic consumption but for export markets as well.
In 2020, Russia accounted for 18% of global wheat exports and Ukraine 8%. Together, this is just over a quarter of global wheat exports from just two countries.
“There is direct agricultural trade between the two countries, but we view it as minimal. South Africa typically imports wheat from Russia and Ukraine in terms of imports.”
Wandile Sihlobo, agricultural economist
The two countries are also significant players in maize production and in terms of exports, Sihlobo says. Ukraine and Russia’s contribution accounts for 14% of global maize exports in 2020, according to data from Trade Map.
In 2020, Ukraine’s sunflower oil exports accounted for 40% of global exports, with Russia accounting for 18% of global sunflower oil exports. Considering this, Agbiz agrees that the tension could spell trouble for trade and global food stability, especially concerning global grains and oilseeds prices.
“These agricultural commodities have also been amongst the key drivers of global food prices since 2020, primarily because of dryness in South America, poor harvest in Indonesia, and the rising demand in China and India,” Sihlobo says.
A disruption in trade, Sihlobo points out, would add to elevated global agricultural commodity prices and potentially be consequential to global food prices. “However, the scale of the potential upswing in the global grains and oilseeds prices would primarily depend on the disruption and the time trade would be affected. For now, this can be viewed as an upside risk to global agricultural commodity prices.”
And the impact on South Africa?
The view back home is that an impact would be felt in the near term, but marginally only. According to Sihlobo, the impact would be felt through the global agriculture commodity prices channel.
Russia is the 17th largest agricultural products supplier to South Africa, and Ukraine is the 44th. But in exports, Russia is a notable market – the 13th largest.
Countries in the northern part of Africa are more exposed, specifically Egypt, Morocco and Tunisia, Sihlobo says. Within the Sub-Saharan Africa region, Nigeria, Sudan and Tanzania would be the most exposed countries.
This, he explains, is because of “the large volumes of wheat they import from Russia and Ukraine”.
But because Russia is also a major producer of oil, the current instability has already impacted South Africa and its farming community, Venter explains. This is in terms of the huge increase in oil, diesel and petrol prices.
“European sanctions against Russia have also impacted the price of wheat of which the Ukraine and Russia are major producers,” Venter adds.
Some good news for South Africa is that, although it isn’t self-sufficient in wheat production, a much higher yield is expected in 2022 and attention could be turned to local production.
Venter further reckons cool heads will prevail on the Russian-Ukrainian border. “I do not see a military conflict in the near future, but political instability in Ukraine may continue and a change of government, pro-Russia in its policies, cannot be excluded.”
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