Russia Ukraine war

Global agri supply chain on tenterhooks as Ukranian ports shut down

Post By : Karvi Rana
Post Date : February 28, 2022
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Reading Time: 3 minutes

As the crisis takes a turn for the worse, and the Russian military waiting at the borders threatening Ukraine finally invades, the agri supply chains get disrupted, adversely affecting many countries. Traders from the vital Black Sea region particularly Russia and Ukraine, which are also known as the crop heavyweights have denied the supply of Wheat to several countries.

While Russia accounts for about 20 percent of the world’s wheat exports, Ukraine supplies 10 percent, data from the Food and Agriculture Organisation (FAO) of the United Nations showed.  

Egypt, which is one of the prime importers of Wheat among the many Middle East and North African nations, has canceled a previous tender on Thursday after only receiving one offer of French wheat and has now scheduled a new one.

“With ports of Ukraine closed, a handful of Russian exporters are currently fulfilling existing contracts, and ships are departing. Still, at least one shipping company had vessels loaded with grain that were unable to depart a Russian port as of Friday evening,” a person close to the matter said.

While old orders are being met, new deals are denied as traders are staying away from Russian grains and exporters are unable to agree to contracts at the moment as they fear they will not be able to fulfill them as the situation evolves.

In addition to this, Ukraine and Russia are also major producers of corn, sunflower seed oil, barley, and rye, and much of Europe depends on it. The two nations jointly account for about 80 percent of the world’s sunflower oil exports and 19 percent of world corn supplies, Reuters reported.

What’s Next?

Looking at the uncertainty caused by the Russian invasion, the importing nations are turning to their alternative suppliers, which are limited. This disruption is coming at a time when global crop prices are already soared to records, fueling inflation and hunger levels, while grain stockpiles have been declining.

The absence of crop heavyweight nations Russia and Ukraine from the grain market will dramatically affect the world food supplies and prices.

Apart from Egypt and Europe, China is also a big recipient of Ukrainian corn which alongside nations such as Egypt, Turkey and Kazakhstan will undergo social unrest if the situation pertains as the cost of supplying wheat from other countries also surge because of higher insurance and shipping costs.

Ukraine probably has about 6 million tons of wheat left to export in the current season, and as much as 14 million tons of corn, Andrey Sizov, head of consultant SovEcon, said in a note last week. On the other hand, Russia has already exported two-thirds of wheat and barley for the season, said analysts at Rabobank in a note on February 18. However, further sanctions could remove the remainder of the crop from foreign markets, sending global prices up by nearly a third, the analysts said.

Will Indian Market face the heat?

Although India is not a major trader of commodities from Ukraine and Russia, there are a few sectors that could bear some effect of the ongoing war, like the Indian edible oil industry.   

Worried about the geopolitical conflict the Indian edible oil industry could expect delays in imports and a hike in the price of sunflower oil, as Ukraine and Russia together account for 90 percent of India’s sunflower oil. Indian trade of oil from the two nations as per experts accounts for almost USD 3 billion. Out of India’s total 25-lakh tonne sunflower oil import, Ukraine supplies 17 lakh and Russia sends 2 lakh tonnes.

The bilateral trade with India of the two nations will also have some impact if not major. The two-way trade of India with Ukraine in 2021, stood at USD 3.1 billion, of which exports from India stood at USD 510 million. Speaking of bilateral trade with Russia, the two-way trade amounted to $11.9 billion last year.

Indian pharma products accounted for almost 32% of the total export to Ukraine while iron and steel, agro-chemicals, telecom instruments, and coffee combined accounted for the remaining 68% of the export.

Imports from Ukraine stood at USD 2.6 billion in 2021, of which USD 1.85 billion comprised vegetable oils, mainly sunflower oil, Business Standard reported.

India exported goods worth USD 3.3 billion to Russia, with pharmaceutical products being the largest export commodity at USD 542 million. Apart from this, India exported electronics, iron and steel, tea, and auto components.

Imports from Russia stood at USD 8.6 billion last year, with India sourcing crude oil, petroleum products, gold, precious stones, coal, fertilizers, and precious metals. Russia is also the biggest arms supplier to India, making up almost half of the total arms imports.

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