Background Ukraine
What if Putin steals Europe's breadbasket?
A war between Russia and Ukraine seems to be getting closer. The Russians have mobilized their troops on the Ukrainian border. It remains to be seen until President Vladimir Putin orders an invasion of the country, leaving the breadbasket of Europe in Russian hands. Sorting grain prices ahead of a raid. Dutch arable farmer Kees Huizinga, who farms in Ukraine, is concerned about the situation and outlines the possible consequences for the grain market.
Under the guise of a military exercise, Putin sent a large army towards the border of Ukraine at the end of 2021. Meanwhile, an estimated 120.000 Russian soldiers are stationed there, including impressive war vehicles. Although Putin has so far vehemently denies an invasion, the Western world assumes that the Russians will invade Ukraine soon. US President Joe Biden spoke out loud this week, adding in the same breath that Russia can expect tough sanctions then, in the hopes that Putin will back off.
Other world leaders also suspect that Russia has other intentions with the military display of power. It remains to be seen whether and when Russia will invade. In addition, Russia has multiple flavors. Do they want to take all of Ukraine, or 'just' parts of the country? A war - in whatever form - is in any case a very realistic scenario.
The breadbasket of Europe
From a strategic point of view, Ukraine is very interesting, especially from an agricultural point of view. The country has 40 million hectares of arable land, about 30% of the European area. The crop yields per hectare are relatively low, but at the same time the potential is high. The country is a major grain producer, producing over 30 million tons of wheat and nearly 40 million tons of maize annually. Ukraine is also known as the breadbasket of Europe. In recent years, mutual understanding has grown. Last July, the European Commission and Ukraine announced a strategic partnership on raw materials. Putin is known to be very fond of food production and the (negotiating) power that this entails worldwide. For example, Russia is also investing heavily in its own dairy and pig farming. When Russia can appropriate Ukrainian agricultural production, their power in the agricultural markets will increase.
23%
Although Europe and the US are threatening with sanctions, European dependence on both Russia and Ukraine is high. Of course in the field of gas (about two-thirds of the gas used in the European Union comes from Russia), but also in grains. The combined wheat exports of Russia and Ukraine are nearly a quarter of the global total of 206,9 million tons, according to the United States Department of Agriculture (USDA). How wheat prices will react remains to be seen. During the annexation of De Krim, in the spring of 2014, the wheat price on the Matif rose by about 15% to above €200 per tonne. Those were high prices at the time. At the time, the markets anticipated a stagnation in the flow of goods from the ports of the Black Sea, but in the end it all went off without a hitch.
'Threats are mentally chopping'
This week we see grain prices rising again after a decline, fueled by President Biden's statement. The Matif rose €10 to over €270 per tonne this week. The US grain market is also up. In the event of a war, it is very likely that prices will rise further. It is difficult to estimate the concrete consequences for the agricultural markets. When asked, the Dutch agricultural council in Ukraine does not want to say anything about the situation, partly because of the safety risks that exist. The Dutch arable farmer Kees Huizinga, who has had his company in Ukraine for almost twenty years, is willing to respond and is concerned. "Personally, I'm not very afraid, given that we are about 600 kilometers from the border. However, you can notice that the threat among the local population is cutting in mentally. It is also bad for this country, because a war repels investors and makes banks reluctant."
Kees Huizinga
Huizinga thinks that grain exports will only come to a halt if the Russians actually advance towards the southern ports near the Black Sea. Whether that will actually happen, according to Huizinga, is only speculation. "Last year's grain harvest was good, especially maize. If I'm not mistaken, we even had a record harvest. There are therefore large stocks, but large volumes have already been sold." When the Ukrainian currency devalues the Hryvnia due to the unrest, farmers will sit on their grain, Huizinga expects. This is because the grain is traded in dollars. "Hopefully it's not too bad for us."
Both gas and wheat prices have already risen sharply in the past year and are therefore responsible for the rapidly rising inflation in many countries. The European population is not waiting for a war, where gas and grain may be the result of the bill and inflation will rise even further. Just like the Ukrainian population, of course, with all the consequences that entails. Many Russians don't feel like it either, according to international media. Putin, however, does seem enthusiastic and he is in control.
Wouter Job
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