For the past week, we have watched as Russia moves in on Ukraine, causing disarray between the two countries and the global market. Russia and Ukraine are powerful countries in a global and fragile food system. The long-term consequences of the war on global food supply will impact both the rich and the poor parts of the world, according to Norwegian fertilizer maker Yara International.
Yara recommends the international community needs to reduce the dependency on Russia.
Ukraine is one of the world’s leading agricultural nations and the world’s second biggest within grains. The farmers are now entering a crucial stage in the agricultural season in which input factors such as fertilizer, seeds, and water will determine the yield of the coming harvest. The most extreme calculations indicate that if fertilizer is not added to the soil, the crops can be reduced by 50 percent by the next harvest.
In addition to being one of the largest producers of wheat, Russia has enormous resources in terms of nutrients. Plants need nitrogen, phosphate, and potash to grow. Nitrogen is supplied from ammonia, which is produced from nitrogen from air and natural gas. The importance of gas has been on the agenda in the debate around the high European gas prices in 2021 and beginning of 2022. Forty percent of the European gas supply is currently coming from Russia. With regards to potash (a salt extracted from clay deposits), the market is highly concentrated and fragile towards change. Today, 70 percent of extracted potash and 80 percent of all exported comes from Canada (40 percent), Belarus (20 percent) and Russia (19 percent). In total, 25 percent of European supply of these three nutrients come from Russia.
Now, with the geopolitical conditions out of balance, the biggest sources of raw material to Europe’s food production are being subject to limitations, and there are no short-term alternatives. One potential consequence is that only the most privileged part of the world population gets access to enough food. A world with unstable food supply is a world with famine in parts of the world, increased mortality, armed conflict, migration, riots, and destabilized societies which can further accelerate geopolitical tensions.
The war between Russia and Ukraine has also caused grain markets to drastically rise. As of Tuesday morning, corn was up 36, soybeans up 50, and finally wheat rose 49 cents. The future is unclear for commodity markets and farmers are watching the situation very closely.
According to Yara, it is crucial that the international community come together and work to secure world food production and reduce dependency on Russia, even though the number of alternatives today is limited.