The Boomerang Effect of the Russia - Ukraine Conflict on the Wheat Supply Chain
One of the most significant shockwaves to be felt outside of Ukraine since the Russian invasion is not in Europe, but in Africa.
With an export of $14.75 billion, Russia stood in 8th position of total exports to Africa in 2021. Even though the import statistics of Africa decreased by 35.4% YoY, the import from Russia saw an increase of 19% YoY.
With 60% of the world's uncultivated arable land, Africa should have no business in the importation of food items. But, unfortunately, the continent remains a net importer of food. As its population has doubled overall and tripled in urban areas in the past 30 years, agricultural production and food security have struggled to keep pace.
As shown in the below figure using Trade Map data derived from UN COMTRADE statistics, the continent's biggest sources of wheat are Russia, France, and Canada, while Ukraine stood in 12th position. According to the available data, Russia (28.9%) and Ukraine (11.8%) accounted for 40.7% of wheat and meslin (wheat and rye mix in 2:1 proportions) consumed on the African continent in 2020, but the wheat and meslin import from Ukraine significantly decreased to reach 0.7% in 2021, while that of Russia increased to 31.5%.
Take Egypt, which is the largest importer of wheat in the world with 6.1 million tonnes in 2021. Its total wheat import from Russia was 4.2 million tonnes, which amounted to $1.2 billion, representing 69.4% of total Egyptian wheat imports. And imports from Ukraine amounted to 651,400 tonnes, worth $649.4 million, accounting for 10.7% of total imports. Nader Saad, an Egyptian government spokesperson, claimed that the country has a stockpile approaching 5 million tons in silos or mills, and local wheat will join them to suffice for a period of nine months, hence there is no need for more wheat imports in the short or medium term.
Following Russia’s military invasion of Ukraine, commodity markets hit near-record highs and commercial shipping was suspended from Ukrainian ports while privately-owned grain storage and processing facilities chose to suspend operations for the safety of their employees. As Africa and the world prepares to deal with a significant fall in wheat supplies, prices are already rising significantly, further adding to the looming African crisis. The rise in wheat prices in global markets due to Ukraine’s lack of capacity and the economic restrictions on Russia would lead to an increase in the cost of Egypt’s imports of this commodity.
Chicago wheat futures traded at $11.2 per bushel before steadying at $11 in the fourth week of March, as global buyers struggled to find alternative suppliers after exports from the Black Sea continued to be interrupted due to the war in Ukraine. Investors continued to assess developments around ceasefire talks between Russia and Ukraine while digesting the latest USDA reports. The wheat price had increased by 78.32% YoY and 32% MoM. At the same time, sanctions on Russia led fertilizer prices worldwide to surge, leaving North American grain producers to scramble for alternatives. According to the USDA, fertilizer bills are expected to jump 12% this year. Overall consequences on global grain supplies from the war were somewhat minimal in the US Department of Agriculture report, thanks to a more significant Australian crop. See below wheat price (USD/Bu).
Source: (Trading Economics, 2022)
The European Union wheat needs will keep the market bullish, and the ongoing conflict would lead to supply chain disruption because of the significant distance between alternative sources and destination countries. For example, even though Egypt claims to have 14 countries approved to supply wheat, some of which are outside Europe, in reality, to import wheat somewhere from Argentina will take about 22 days, or up to one month to arrive in Egypt, while the journey from Ukraine or Russia is just five to six days.
Nigeria is the second-largest wheat importer in Africa after Egypt, and the 5th in the world immediately after China. But its imports from Russia only accounted for 19% in 2020. The United States accounted for 25%, Canada 17.7%, Lithuania 15.4%, and Latvia 13.4%. Wheat is such an important product for Nigeria's staple food that it accounted for 6.7% in 2020 and 6.21% of the total import statistics in 2021. Making it the second largest imported product after gasoline (or motor spirit as it is known locally) which accounted for 19.03% of the total import.
In the past, similar surges in food prices have led to unrest, mostly in developing countries, and even coincided with the Arab Spring in 2011. The current level of food prices is even surpassing the peaks observed in 2008 and 2011, when food and other prices rose dramatically, causing unrest in several African countries and the Middle East.
If there is anything we need to learn from this crisis, it is to take Winston Churchill’s advice of “Never let a good crisis go to waste”. This is an opportunity for Africa to speed up the Continental Free Trade Agreement process and to start looking inward. Take Nigeria for example: according to NBS data, the 2021 import from other African countries accounted for just 2.6% of its total import statistic while Asia and Europe accounted for 46.5% and 40.1% respectively.
Now that sanctions continue to dominate geopolitics and global business dynamics, the Western countries have slapped an ever-expanding and hard-hitting raft of sanctions against Russia over the invasion of Ukraine, intending to cripple the costly war apparatus and force a ceasefire. However, the Kremlin appears unbothered by the dire warnings coming from Western capitals, who promise harsher punishments if the situation deteriorates. So, it is expected that the economic war against Russia will continue and that will only lead to an increase in Russia’s independence, self-sufficiency, and sovereignty. The Kremlin will be forced to quickly intensify efforts of "russification" and "reallocation" of strategic industries.
But, as most industry analysts expect, supply chain disruptions will continue to roil the global economy in 2022, and food price inflation will continue to their toll on the African economy in 2022.
Arab News. 2022. Egypt: No need for more wheat imports in short or medium term. arabnews.com. [Online] March 09, 2022. [Cited: March 18, 2022.] https://www.arabnews.com/node/2039221/middle-east.
NBS. 2022. Foreign Trade in Goods Statistics (Q4 2021). National Bureau of Statistics. [Online] March 22, 2022. [Cited: March 24, 2022.] https://nigerianstat.gov.ng/elibrary/read/1241147.
Trade Map. 2022. List of importers for the selected product in 2020. Product : 1001 Wheat and meslin. International Trade Centre. [Online] March 21, 2022. https://www.trademap.org/Index.aspx.
Trading Economics. 2022. Wheat. tradingeconomics.com. [Online] March 21, 2022. https://tradingeconomics.com/commodity/wheat.
World-Grain. 2022. Egypt seeking alternatives to wheat from Russia, Ukraine. World-Grain.com. [Online] Feb 28, 2022. [Cited: March 18, 2022.] https://www.world-grain.com/articles/16546-egypt-seeking-alternatives-to-wheat-from-russia-ukraine.