As both Ukraine and Russia are important exporters of agricultural products, the war in Ukraine could have major negative consequences for global food security. Due to diverse causes, the global market prices of important agricultural products have already risen considerably. In addition, the war has seriously disrupted the supply of grain and oilseed from Ukraine and Russia. The study projects a 50% drop in grain and oilseeds in Ukraine and a 25% decrease in the export of both crops from Russia because of trade restrictions and higher trade costs.
In addition, energy prices will rise by 20%. According to WUR’s scenario study, all of these factors will lead to a 10% increase in grain prices and a 6% increase in oil seeds. This study was commissioned by the Ministry of Agriculture, Fisheries and Food Quality.
Low-income countries in Africa, the Middle East and Southeast Asia, which strongly depend on imports from Ukraine and Russia, will be faced with higher import costs. The lowest income groups in those countries will be the most threatened in their food security.
The study estimated the consequences of the war on agricultural production, trade flows, global market prices and food security for the next two years. The study did not include the horticultural and fisheries sectors because these two sectors are less well represented in the models used.
Sufficient food, but high prices are a problem
There is enough food at the global level, but higher food prices will lead to the problem of being able to afford food. Egypt, Turkey and the Middle East are especially dependent on Russian and Ukrainian grain: more expensive imports restrict the access to grain for the lower income groups in particular. Countries such as Egypt, Turkey and other grain-importing countries in Africa and the Middle East have only a limited possibility of expanding their domestic production. They are vulnerable to price fluctuations on the world market.
The consequences for the EU are small. There is a sufficient supply of food in the EU and, with the exception of the lowest income groups, people spend only a small share of their income on grain-based food.
Consequences for the Dutch agricultural and food sector
A second study focused on the possible consequences of the war in Ukraine on the Dutch agricultural and food sector for the years 2022- 2025. Once again, this study did not include the horticultural and fisheries sectors because these two sectors are less well represented in the models used.
This scenario analysis showed that the war in Ukraine will lead to a decline in global agricultural production. This in turn will lead to extra scarcity in a situation in which prices had already risen substantially before the war in Ukraine. In the middle-long run this price increase will generally be cancelled out because Ukrainian production will recover and more will also be produced in other parts of the world in response to the higher prices.
The predicted percentual price increases for animal products are lower than for crops because animal feed is only one of the inputs and costs components that determine the price of animal products.
Limited change in production
The temporary price increases in the agricultural markets will lead to (very) limited changes in production in the Netherlands. This is partly because not only the costs but also the (expected) revenue prices will rise. As a result, farmers feel little incentive to adjust their production with regard to what they normally do. In addition, dairy farming tends to keep livestock at the level permitted by the phosphate quota.
As a result of the limited changes in primary production, the consequences for the chains (agro complexes) are also limited. The total expected loss of added value for dairy, beef, pork, poultry and arable farming (consequences for the primary production and the supply chains) for 2022-2025 is estimated to be a maximum of about 700 million euros. This is approximately 3% of the total added value realised in 2020.
Consequences of energy price rise
If we assume a structural energy price rise of 20%, the five analysed agro sectors (dairy, beef, pork, poultry and arable farming) will pay about 112 million euros more per year for their energy. However, due to the pass-on effect of such an energy price increase in global agricultural markets (increasing global market prices for agricultural products), the additional costs will be largely compensated by additional revenues. This in turn helps to mitigate the negative effect of the war in Ukraine on the added value for Dutch agriculture.
Little change in demand for products and incomes
This is because of the limited extent to which the price increases of agricultural raw materials are reflected in retail prices. And the reason for this is because the costs of raw materials constitute only a limited share of the total cost price of food products. In addition, the war has a very limited impact on the incomes of Dutch citizens; only a few percent at most. Food security in the Netherlands is not threatened, although the war in Ukraine and tensions with Russia may contribute to a general rise in food prices that could specifically impact relatively poor households.