War in Ukraine to boost grain and food prices in 2022

  • By Zilla Efrat

Cost increases will bite across Australia’s farm sector in 2022 on the back of expected hikes in energy and fertiliser prices as a result of the Russia-Ukraine war, according to a new report from Rabobank.

Rabobank’s report says disruptions to trade flows from the two major agricultural powerhouses of Russia and Ukraine have had a major direct impact on the global grains markets and will continue to keep global grain and food prices elevated throughout 2022 “and likely beyond”.

However, it notes that it is the war’s impact on the key agricultural inputs of fuel and fertiliser – sending prices of both skyrocketing – which will cut into farmer margins in a range of sectors. These could include grain, livestock, dairy, fresh produce, tree nuts and sugar.

The report says the bank’s analysis shows while the European Union’s latest sanction plans – which entail a move to ban Russian oil imports by late 2022 – will have a relatively small impact on grain and fertiliser prices, there will large increases in energy prices, which are already very high.

Energy prices – both oil and gas – will rise further, and farmers and the food supply chain will have to prepare for continued high and volatile prices, says report author, RaboResearch general manager for Australia and New Zealand Stefan Vogel.

“For the Australian food and agri sector, the implications of the planned next round of EU sanctions on Russia are therefore more negative than positive as prices of farming outputs like grains are expected to move substantially less upward than those of input costs like energy and, to some degree, fertiliser,” he said.

“Farmers and the food supply chain will have to plan for elevated input costs, not only for fertilisers, but also because of strong energy prices.”

Vogel notes that over the past two decades, Russia and Ukraine had “risen into the ranks of major powerhouses in the food and agri space” to now account for a combined share of 20 to 30 per cent of world exports of several key commodities.

While this year will not see a full loss of grains, oilseeds and fertiliser exports out of the Black Sea, Vogel notes that with volumes still flowing from Russia and Belarus – albeit with sanctions making trade more difficult – Ukraine’s production and exports in 2022/23 are set to be heavily reduced.

“Ukraine in the 2021/22 season without the war would have shipped about as much wheat, barley and canola to the world market as Australia in the current record season. In addition, Ukraine’s corn export volumes are again about the size of the whole Australian grain and oilseed export volume.

“As the war started in February 2022, Ukraine had already shipped at least half of the season’s volumes. Consequently, the world has not yet felt the full impact of the heavy absence of Ukraine’s supplies. However, this is about to change from July onward when Ukraine harvests its next crop.”

Locally, the report says, Australian grain farmers are benefiting from increased prices, but not as much as in many other parts of the world, as the recent record Australian crop is stretching export logistics to their limits.

“Australia is, therefore, unable to ship much more this season, and rather is seeing local stocks rising,” says Vogel.

“Still, for the upcoming season, and potentially seasons beyond, Australian grain and canola farmers will be benefiting from strong prices.”