ANALYSIS. If the conflict between Russia and Ukraine gets bogged down, the situation could become untenable for North African and sub-Saharan countries.
No man can be called a statesman if he is totally ignorant of the problems of wheat. So said the ancient Greek philosopher Socrates. Wheat and other grains are once again at the heart of geopolitics after the invasion of Ukraine by Russia. With both countries playing a major role in the global agricultural market, African leaders need to pay attention.
Agricultural trade between the continent's countries and Russia and Ukraine is significant. African countries imported USD 4 billion worth of agricultural products in 2020 from Russia. About 90% of these products were wheat, and 6% were sunflower oil. The main importing countries were Egypt, which accounted for almost half of the imports, followed by Sudan, Nigeria, Tanzania, Algeria, Kenya, and South Africa.
Similarly, Ukraine exported $2.9 billion worth of agricultural products to the African continent in 2020. About 48% of these products were wheat, 31% corn, and the rest sunflower oil, barley and soybeans.
Russia and Ukraine are major players in the global commodity market. Russia supplies about 10% of the world's wheat, while Ukraine produces 4%. Collectively, this represents almost all of the European Union's wheat production. This grain is destined for domestic consumption and export markets. Together, these two countries account for a quarter of global wheat exports; in 2020, they amounted to 18% for Russia and 8% for Ukraine.
These two countries are also key players in the corn sector, with a combined production of 4%. However, when it comes to exports, Ukraine and Russia's contribution is much larger, with 14% of global corn exports in 2020. They are also among the top producers and exporters of sunflower oil. In 2020, Ukraine's sunflower oil exports accounted for 40 percent of global exports, compared to 18 percent for Russia.
Russia's military action has caused panic among some analysts, who fear that the intensification of the conflict could disrupt trade, with serious implications for global food stability.
I share these concerns, particularly with regard to the consequences of a spike in global grain and oilseed prices. These are among the driving forces behind the rise in global food prices since 2020. This is mainly due to droughts in South America and Indonesia, which have led to crop failures, and increased demand in China and India.
The disruption of trade, due to the invasion, in this important Black Sea grain-producing region would contribute to higher international agricultural commodity prices, with potential negative impacts on global food prices. An increase in commodity prices was visible only days after the conflict began.
This is a concern for the African continent, which is a net importer of wheat and sunflower oil. In addition, there are concerns about drought in some parts of the continent. The disruption of shipments of essential commodities would only add to the general concern about food price inflation in a region that imports wheat.
What to expect
The size of the potential increase in world grain and oilseed prices will depend on the extent of the trade disruption and its duration.
For now, the trend can be considered upward for world agricultural commodity prices, which are already high. In January 2022, the FAO Food Price Index averaged a 136-point increase, up 1 percent from December 2021, its highest figure since April 2011.
Vegetable oils and dairy products were the main contributors to these increases.
In the days leading up to Russia's decision, prices for a number of commodities surged internationally, compared to the corresponding period a year earlier; for example: corn (21%), wheat (35%), soybeans (20%), and sunflower oil (11%). It should be noted that prices in 2021 were already high.
As far as African agriculture is concerned, the impact of the war will be felt in the short term on the global agricultural commodity price chain.
Higher prices will benefit farmers. For grain and oilseed producers, higher prices represent a chance to make a profit, which will be very welcome given the rising costs of fertilizer that have weighed heavily on farmers' finances.
The Russian-Ukrainian conflict also comes at a time when drought in South America and growing demand for grains and oilseeds in India and China are putting pressure on prices.
Commodity price inflation, on the other hand, is bad news for consumers who have already experienced food price increases over the past two years.
This conflict means that price pressures will continue. Both countries are major contributors to global grain supplies. The impact on prices due to events affecting their production cannot be underestimated.
Some countries on the continent, such as South Africa, benefit from fruit exports to Russia. In 2020, South Africa's citrus exports to Russia amounted to 7% in terms of value. And in the same year, the Russian market accounted for 12% of South Africa's apple and pear exports, the country's second largest market.
But for Africa, Russia and Ukraine's agricultural imports from the continent are marginal - only US$1.6 billion on average over the past three years. The dominant products are fruit, tobacco, coffee and beverages in both countries.
All players in the agricultural sector are closely following the developments in the Black Sea region. The effects will be felt in other regions, such as the Middle East and Asia, which also import a significant volume of grain and oilseeds from Ukraine and Russia. They, too, will be directly affected by the trade disruption.
There is still much that is unknown about the geopolitical challenges ahead. However, African countries have reason to be concerned, given their dependence on grain imports. In the short term, countries are likely to see the consequences of this situation through price spikes, rather than actual shortages of basic commodities. Other wheat-exporting countries, such as Canada, Australia and the United States, should benefit from a possible increase in demand in the short term.
Ultimately, the goal should be to make moves toward de-escalation of the conflict. Russia and Ukraine are deeply entrenched in global food and agricultural markets, not only through supplies, but also through agricultural inputs, such as oil and fertilizer.