In crisis mode: food suppliers refuse to panic

Glimmer of hope

Sad news is that the war in Ukraine continues to turn from bad to worse as new atrocities are being reported every day. On Thursday, Russia hit Kyiv with cruise missile strikes injuring at least ten people immediately after Ukrainian president Volodymyr Zelenskiy held talks with UN chief António Guterres. Thousands of civilians and soldiers continue to hold out in unsanitary conditions and without adequate food or drink supplies in Mariupol’s Azovstal Steel and Iron Works as Russian forces are holding the city under siege and refuse to permit a human corridor for people to be evacuated. On Friday, Nato warned that the war may drag on ‘for months and years’.

The war has impacted food and feed supplies in Ukraine. UKrAgroConsult, for instance, estimates that 5% of granaries have been totally damaged and that a further 15% are inaccessible. Producers in Ukraine are, nevertheless, retaining supply chains with some success. Ukraine has, for instance, reached transportation agreements with Romania and Bulgaria to help to ship corn and other grains by rail and to gain access to important ports at the Danube river and in Varna. Sunflower seed sowing is underway and the Ministry of Agriculture is confident that the area sown will reach 75% of what would normally be possible. Shipments to the EU have also picked up as weekly sunflower exports currently exceed 10,000 mt as recently issued EU Commission import data for sunflower seeds shows. Sunflower oil, nevertheless, remains in short supply.

Palm oil ban not as bad as it seems

As this has prompted many buyers to switch to other vegetable oils Indonesia’s sudden announcement to ban all palm oil exports on Wednesday to stabilise the domestic market initially caused a high degree of panic and sent prices surging. Indonesia, in fact, accounts for as much as 59% of global palm oil production and 56% of global exports. Analysts, however, agree that the country will eventually exhaust its storage facilities and will have to resume exports, another bearish factor to consider is China.

China’s bizarre zero-Covid strategy has, in fact, capped demand for palm oil and a whole range of other products. Hazelnut suppliers in Turkey, for instance, complain that all cargo, even documents, is delayed at customs to prevent contamination with the virus. Traders in China are, however, confident that the situation will improve in May. They state that further full-scale lockdowns as is currently the case in Shanghai are not to be expected in other major cities such as Beijing and that normal life has resumed in most parts of the country. This may certainly boost demand in the next few weeks but traders in other countries prefer to be cautious and wait for events to unfold in China.

Suppliers refuse to panic over halt to gas

Sunflower seed suppliers are also responding with remarkable calmness to Russia’s decision to halt all gas deliveries to Bulgaria and Poland on Wednesday. Issue is that both countries refuse to pay in Russian roubles as demanded by President Vladimir Putin in March. While Poland has taken step to prepare for such a step and has diversified supplies, Bulgaria heavily relies on Russian gas. Russian energy supplier Gazprom has already cut off Poland, whereas Bulgaria has paid for April. The impact on Bulgaria may indeed be devastating as the economy is already struggling with high energy and fuel costs. Sunflower kernel and oil suppliers, nevertheless, refuse to panic at present as it is to early to assess the impact on the market and it should be noted that sowing went rather well.

European Commission President Ursula von der Leyen immediately criticised Russia for using gas “as an instrument of blackmail” and the stakes are indeed high for Europe and the global economy. Russia’s move prompted gas prices to soar by 24% on Wednesday alone as fears are mounting over an escalating conflict. Reports state that Russia accounted for 45% of the EU’s natural gas imports in 2021 but dependency varies throughout the different member states and replacing Russian gas is quite a challenge, which explains the current loopholes in EU policy.

These loopholes may, in fact, undermine EU sanctions against Russia. Putin demanded payments for Russian gas in roubles in response to the European sanctions over the Ukraine war, which the bloc, however, firmly refuses as this would undercut the sanctions imposed and help Putin to continue to finance the war in Ukraine. Several energy firms in Germany, Hungary and Austria and Italy have, however, confirmed that they are actively seeking means to pay the Kremlin without breaching sanctions as The Guardian reports. This is indeed possible if payment is made in euros or dollars to the Gazprom bank and the energy giant agrees to confirm that payment has been made before the money is transferred to a second account, in which Gazprom changes the money into roubles with the help of Russia’s central bank. European hypocrisy may, in other words, save the day for the economy.

Fact is that the food and feed market will remain on edge for years to come as geopolitical tensions will continue to disrupt supply and demand. Only creative means, such as the agreements in place between Ukraine, Romania and Bulgaria, will help to mitigate supply issues. These agreements also show how necessary it is for countries to cooperate as more challenges are emerging every day with several agressors acting as bad boys.

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