Grain is the key export commodity of Ukraine today
Tens of millions of tons of Ukrainian grain are the most important condition for lowering world food prices – at least that is what US President Joe Biden assures. In addition, Biden blames Russia for the rise in prices. The global grain market is indeed in turmoil, but who is really to blame?
“Ukraine has 20 million tons of grain in its storage facilities. We are exploring ways to bring this grain back to the world market and thereby bring prices down,” is Joe Biden’s simple strategy to curb inflation. Especially since it relies on an even more trouble-free technique known as blame Russia (blame Russia): “We noticed that in March fuel prices rose, this is because of Putin. Because of him, food prices have also risen here.”
Not without Putin
However, firstly, not “here” (in the USA), but all over the world (except for those countries and regions that promptly imposed restrictions on grain exports) – we will correct Mr. Biden. Secondly, the USA and blame Russia also manage to trade in grain. In the 2021/22 marketing year, the US exported 18.9 million tons of grain (data as of the end of March). On the one hand, this is the lowest figure in the last 20 years. On the other hand, if they are still trading, it means that not everything is so bad.
Another thing is interesting. One of the peaks of world grain prices falls on the beginning of the 1970s. Then the USSR began to buy large quantities of grain in the United States and Canada, thereby raising world prices. Since then and until recently, the United States has remained the largest player in the global grain export market (95 million tons in 2021/22).
If we take wheat separately, back in 2014 the United States also ranked first (25.6 million tons). But in Russia, things were not so rosy with wheat exports: 1.6 million tons in 2001, a jump to 10 million in 2002, down again, up again. In general, we reached stable volumes only by the end of the 2010s, and comparable to the US – in the same 2014 (22.1 million tons, third place). If you know this, it’s hard to believe that for several years in a row, not the United States, but Russia has been ranked first in the world in wheat exports (39.5 million tons in 2020/2021).
So Biden is really right about something: it clearly could not have done without Putin. But how did it happen that the US moved from the world’s first wheat exporter to the fourth? And why are they now looking for opportunities to unlock exports from Ukraine to lower domestic food prices?
For the first, Biden should have blamed his predecessor, who launched a large-scale trade war with China in 2015. One of the causes of the war was the long-standing problem of the trade balance: the United States bought and continues to buy more from China than it sells to China. And not just more. In 2021, this “more” amounted to a gigantic amount – almost $400 billion. Whether the pandemic played a role or not, the fact remains that Trump’s tariff war has not corrected the situation with the trade balance.
But for American farmers, the consequences of this war were very sad. China showed that it also knows how to fight, and raised duties on imports of American wheat. As a result, already in 2018, the WSJ wrote with chagrin that Russia not only regained its leadership in the world grain market (for the first time in 100 years), but also successfully competes with American wheat in the traditionally American markets.
Global control
However, the US has long been a global player. Of course, the WSJ and farmers are offended, and prestige suffers. But why flood the world market and its own market with grain, if there are satellites? Control of the food market as a whole is much more important than the proceeds from grain exports.
Especially since everything is taken into account. The US Department of Agriculture publishes crop forecasts for countries at the beginning of the calendar year (by the way, they are quite accurate). And it publishes forecasts of world trade in the same wheat even for several years ahead.
Knowing the expected harvest and the forecast volume of trade (and hence the approximate prices), it is possible to manage the cost and inflation in the domestic market, and use our own sown areas more efficiently. Why grow millions of tons of corn or fodder wheat if Ukraine sows and grows it?
Differences in grain exports of Ukraine and Russia
The role of Ukraine here is really difficult to overestimate. Today, in publications about the global food crisis, Ukraine and Russia are constantly put side by side. Like, large producers, a large share of the export market of wheat, corn, vegetable oils, etc. Yes, both Ukraine and Russia sell a lot of food to the foreign market. Yet these are fundamentally different models of agriculture and agricultural exports.
If we take grain, then Russia trades mainly in wheat, sending about half of the crop for export. Ukraine in 2021 harvested almost 20 million tons of food wheat, of which only 4-5 million tons Ukraine needs for the needs of its own people. Of the 13.2 million tons of feed wheat, it was planned to send almost 10 million tons for export. As for corn, the main export grain crop, the situation in 2020 is indicative: with a harvest of 30 million tons, 28 million were exported.
In 2021, Ukraine harvested a good crop: 85-86 million tons of legumes, of which 30 million tons are food and feed wheat, 40 million tons are corn, and 10 million tons are barley. According to customs data, as of March 1, 2022, the volume of exports amounted to 43 million tons (counted from the beginning of the next marketing year – July 1). That is, by the time the military operation began, about 37 million tons of wheat, barley and corn should have remained in Ukraine. 5-6 million tons are needed for sowing, plus their own needs, plus, in the current conditions, the government will certainly form some kind of reserve. Thus, even more than 20 million tons, which Joe Biden said, hung in Ukraine.
By the way, despite the closure of ports through which Ukraine shipped 5-5.5 million tons of grain monthly, exports did not stop. Judging by the statistics, in March-April Ukraine was able to send (mainly through Moldova and Romania) to the foreign market 2.7 million tons of grain. But there was no one to compensate for more than 8 million tons of supplies that fell during this period.
Not only Ukraine
Now let’s add a few more factors. Export of grain from the Russian Federation in the current marketing year (July 1, 2021 – March 10, 2022) amounted to 28.1 million tons, which is 30% lower than last year. Since mid-March, the export of grain and sugar from the Russian Federation has been limited until June 30 (permitted only under licenses within the quota). In general, since the beginning of the special military operation, 20 countries have introduced certain restrictions on food exports. Another could be India, where a ban on wheat exports is being discussed. Despite the fact that back in mid-March, India intended to take advantage of the situation and intercept clients from Russia and Ukraine.
The Kommersant publication notes that individual importers are also intensifying the panic on the world grain market. Someone directly refuses to cooperate with Russian suppliers, someone is experiencing difficulties due to sanctions. As a result, everyone is looking for an alternative that does not exist in the current conditions – and thereby further accelerate prices.
Finally, let’s not forget about the increase in the cost of grain production at all stages. Rise in fuel prices – from tractor and combine harvester to grain bulk carrier. Jump in prices for fertilizers due to a multiple increase in the price of natural gas.
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Let’s summarize. Putin as the cause of food inflation in the United States and the world – this, of course, will do for the US democratic frenzy. But in fact, the United States itself became the root cause of this crisis: their sanctions, the desire to reduce Russia’s export earnings from energy trade. And all this – long before the start of hot events in Ukraine.
Take the same Nord Stream 2. If its launch had not been torpedoed with the active participation of the United States, gas prices in Europe and the world would be lower today, and fertilizers would be cheaper.
They would be even cheaper if Russian ships could carry these fertilizers without facing a ban on entering EU ports. Not to mention the fact that the special operation itself might not have existed if the Biden administration had not pumped weapons and political support into Ukraine.
According to Biden and his administration, the key to reducing food inflation lies in 20 million tons of Ukrainian grain. This is not true. The key is in the realization of a simple fact: the global economy does not fit well with sanctions and the “shutdown” of individual countries from this economy.
Nikolay Storozhenko, VIEW
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