War in Ukraine

OILS & FATS INTERNATIONAL VOL 38 NO 3 MARCH/ APRIL 2022

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It has been four weeks since Russia’s shocking invasion of Ukraine on 24 February. The invasion has forced 3M people to fl ee the country, internally displaced millions and killed thousands, and has not only impacted the vegetable oil market but wider global food, ferti liser and energy supplies as well.

Russia and Ukraine account for more than 80% of world sunfl ower oil exports and the closure of Ukraine’s Black Sea ports has left buyers scrambling for alternati ve palm and soyabean oils. The result has been record-high edible oil prices, with palm oil futures hitti ng US$1,736.26/tonne on 16 March, having surged by more than 50% this year.

As well as the edible oil market, Russia and Ukraine play a key role in global food producti on and supply. Russia is the world’s largest exporter of wheat and the FAO says restricti ons on its exports will have signifi cant food security repercussions, parti cularly for around 50 countries – many of them low-income nati ons in northern Africa and Asia – that rely on Russia and Ukraine for some 30% of their wheat supply.

Russia is also the world’s top ferti liser exporter, with the war driving up prices for natural gas, a key ingredient for ferti liser manufacturing. Futures prices for urea ferti liser have jumped 32% since the invasion began. Yara – one of the world’s largest ferti liser producers which makes much of its product in Ukraine – is only running at around half its normal capacity. The Russians have also suspended ferti liser exports to the west. Higher ferti liser prices will force farmers to increase their crop prices at harvest or use less of the input.

On the ground in Ukraine, massive populati on displacement has reduced the number of agricultural labourers and workers. The closure of Ukraine’s Black Sea ports and limited railway routes will hamper grain and oilseed shipments. Rising insurance premiums for the Black Sea region will exacerbate already high shipping costs, while it is unclear what the eff ects of damage to port, storage and processing faciliti es will be over the longer term.

Ukraine’s spring planti ngs face a parti cular challenge. Trade sources say that most of the country’s big producers had already booked ferti lisers and seed supply. But how will farmers reach areas for planti ng amid acti ve confl ict zones or in Russian-occupied land? How will they tend, apply inputs, harvest and prepare the soil for the next harvest? Corn, sunfl ower, soyabean and spring rapeseed planti ng usually starts at the end of April and runs through to June, so there is sti ll some ti me. It all depend on when the war ends.

On 16 March, Ukrainian President Volodymyr Zelensky said peace talks with Russia were beginning to “sound more realisti c” and he has admitt ed that Ukrainians now understand that the Western defensive alliance of Nato will not admit them as a member.

Preventi ng Ukraine from joining Nato has been a major goal of Russian president Vladimir Puti n, who was initi ally aiming to overrun Ukraine and depose its government. Latest reports from peace talks suggest Russia is no longer seeking to overthrow the government and is instead aiming for a neutral Ukraine. Ukraine is demanding a ceasefi re and the withdrawal of Russian troops, but also legally binding security guarantees that would give the country future protecti on. However, there is sti ll the future status of Crimea, which Russia seized in 2014, and the Russian-backed eastern statelets in Luhansk and Donetsk to be resolved.

For those of us on the sidelines of this war, we can only pray that the bombardment of dozens of Ukrainian towns and citi es will end soon. Having witnessed Puti n’s shatt ering of European peace, it is clear that Western leaders will never view Russia in the same way again and that will aff ect future geo-politi cal relati ons going forward.