24.03.2022 / The implications of the war in Ukraine for the agricultural sector – information note by the Food and Agricultural Organisation of the UN

The Food and Agriculture Organisation (FAO), part of the system of the United Nations, recently published an information note on the importance of Ukraine and Russia for global agricultural markets and the implications of the war between the two states. The APACCCEEC will present to you the main findings of the FAO’s paper.

Firstly, Ukraine and Russia are net exporters of agricultural and food products with one of them or both ranked in the top three exporters of wheat, maize, rapeseed, sunflower seeds, and sunflower oil. Russia is also the biggest exporter of nitrogen fertilizers and the second-largest producer of both potassic and phosphorous fertilisers. Many countries, including some of the least developed ones, have struggled with the high prices of food and fertilizer prior to the war between Ukraine and Russia. Consequently, the problems for these countries will further deepen.

Secondly, the war between the two states will significantly reduce the global supply of some products, while alternative producers may be able to only partially fill the created gap. Thus, the FAO expects the international prices of food and agri-products to increase by 8 to 22 percent on top of the already high prices. Furthermore, it is possible that the gap may persist after 2022/2023 if the war prolongs.

Thirdly, the FAO reminds us that the war between the two states may damage the existing logistical infrastructure, including transport routes and storage facilities. This will make it harder and more expensive to export food and agri-products. The prices will further be boosted by the increased costs of insurance.

Fourthly, FAO’s preliminary assessment indicates that between 20% and 30% of winter cereals, maize, and sunflower seed in Ukraine will either remain unharvested or stay unplanted during the 2022/2023 season. Russia’s crops’ status is seen as better, however, their international isolation may negatively affect their production and export. As a consequence of the war, the FAO analysis suggests that the global number of undernourished people could increase by 8 to 13 million people.

Lastly, a few other factors may affect the agricultural sector and the global food and agri-products supply. The energy prices started to increase last year, however, the war has further boosted this trend. Taking into account the dependency on the energy of the agricultural producers, the prices for input resources and, hence, the agricultural output is expected to rise. This may lead to a scale down of the production which will further reinforce the negative effects.  Finally, the depreciation of the Ukrainian Hryvnia and Russian Ruble vis-à-vis the US dollar may damage the export potential of these countries. It is possible that a lasting appreciation of the US currency will diminish the export potential of developing countries that depend on the Agri-sector. 

You can find the full report on the implications of the war on the website of the FAO.