Modern trends in the production of grain
and oilseeds depend on many factors and dynamically change depending on local
and global causes. For a long time, the state of Ukraine was considered one of
the most productive and stable producers of the grain group in the world,
providing 10% of world production with a population of about 41 million people.
The territory of the republic within the recognized borders is 603,549 km²,
which corresponds to 0.44% of the planet's territory, while the territory of
the Russian Federation is 17,125,191 km², that is, almost 31 times more.
However, in the export of vegetable oil from sunflower seeds, Ukraine in 2021
ranked first in the world, pushing the Russian Federation to second place.
Ukraine has 32 million hectares of black
earth, which is one third of the arable land in all of Europe. The rent per
hectare of land is one of the lowest in the world, which attracts many foreign
agricultural investors. The largest foreign tenants or owners of Ukrainian
black soil are New Century Holdings (450,000 hectares, USA), Kernel Holding
S.A. (405,000 hectares, Luxembourg), Mriya Agro Holding Public limited (298,000
hectares, Cyprus), and Sintal Agriculture Plc (147,000 hectares, Cyprus).
The agro-industrial business with Ukraine
is dominated by futures contracts with major global grain traders. The presence
of large ports (Odessa, Chernomorsk, Nikolaev) with access to the Black and
Azov Seas and the huge transshipment capacities of grain terminals ensured
large volumes of exports and an influx of convertible currency. The main volume
of grain was transported from the northern regions of Ukraine to the southern
ports and was transported by Panamax-type vessels. However, there is a risk
that the huge losses suffered by Ukrainian agricultural firms as a result of
the war will make it difficult to meet debt obligations under futures contracts
to traders. On their own, agricultural firms will not be able to sell their
crops on the world market.
The unique agricultural opportunities of
Ukraine have historically always attracted foreign conquerors. In the
thousand-year history of this country, there were no generations of people who
would not have survived war, famine or other repressions. The situation
repeated itself on February 24, 2022, when Russian troops attacked Ukraine. This
led to catastrophic losses in agriculture and other sectors of the national
economy, destroyed by shelling and bombing by cruise and ballistic missiles.
The total GDP of the country fell by 40%. Nevertheless, the Ukrainian army,
having better discipline and training, as well as more modern weapons, did not
allow the Russians to capture the capital of the state. The war turned into a
positional state, in which the aggressor sought to inflict maximum damage on
Ukraine by shelling cities, farms and households, plants and factories. About
30% of the country's territory was mined, and regardless of the outcome of the
war, it will take at least 10 years to clear these territories. It should be
noted that despite the shelling and mine danger, Ukrainian farmers carried out
sowing work and managed to sow almost 10 million hectares with grains and
oilseeds, which is 64% of the area sown in 2021. Of particular concern is the
state of large facilities, in particular granaries. Grain terminals in the
south of Ukraine were especially affected. For example, in the city of
Mariupol, a terminal with a capacity of more than 30,000 tons was completely
disabled, in which the wheat and corn crops are burning. Many granaries
captured by the army of the Russian Federation were looted, while the grain
(mainly wheat) was taken to the Mediterranean Sea, where they are trying to
sell it to various semi-legal firms.
At the same time, hostilities have
resulted in the loss of 13 million tons of silo capacity needed to save the
grain of the next crop. Of the pre-war capacity of 57 million tons of
simultaneous storage of grain, 44 million tons remained in Ukraine. It is
impossible to free the containers by increasing grain exports, since the
aggressor blocked all the southern ports of Ukraine and mined the northern part
of the Black Sea. Other export routes are not yet well developed and have
significantly more expensive logistical costs, although a number of countries
are taking urgent action to intensify exports: agreements have been concluded
with Poland and Canada on the export of corn and wheat through the ports of the
EU countries. Lithuania also offers similar assistance.
The full-scale war that is taking place
in Ukraine (in Russia it is called a “special operation”) will have a serious
impact on the global market. Reduced grain supply and increased logistics costs
will drive up grain prices around the world. Reduced grain supply and increased
logistics costs will drive up grain prices around the world. The most
threatening will be the rise in prices in the region of South-East Asia and in
African countries, which traditionally bought large quantities of grain from
Ukraine. It remains to be hoped that the war between Russia and Ukraine will
not last for many years. Otherwise, the famine caused by the shortage of grain
can change the lives of many people around the world. The head of the Bank of
England, Sir Andrew Bailey, at a meeting of the British House of Commons,
warned that the problem of exporting grain from the Ukrainian territory
threatens a world apocalypse, and the word "food" will soon be the
main word on our planet.
- Author: Dr. Fedir Marchenkov, R&D
Director of Kronos Agro Co.,
Ph.D., Kyiv, Ukraine, phone +38050 312 71 72, email: marchenkov150@gmail.com
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