What are the views of Yegg Inc – a food and dairy product distributor about the Ukraine-Russia war? Wars never make peace with countries/nations and their people. It always leaves massive destruction in its wake. When any nation invades another, its effects could be long-term as well as short-term. Wars often lead to the mass destruction of cities, killing numerous innocent people, posing a serious threat to the economy, widespread trauma for so many years, emotional and psychological stress, and many more.
In this 21st century, a destructive rift is seen between Russia and Ukraine. Due to whatever reasons these countries declared war, it has not at all been supported by other countries and the people of their own country. During the war, numerous images have been shared that relate to the destruction of several cities and helpless people cut in the crossfire. As of March 27, the Office of the United Nations High Commissioner for Human Rights (OHCHR) verified over 1,151 civilian deaths.Do you know?
This conflict between Russia and Ukraine has also created a tremendous impact on the global supply of dairy products.
- Sandy Chen, senior analyst, dairy, at Rabobank made a statement that exports in liquid milk equivalents are expected to decline through 2022.
- The Russia-Ukraine conflict resulted in the high price of global dairy commodities because of the overnight loss of Ukrainian and Belarus supply of dairy products to the global market. This reduction of supply will ultimately lead to a high price of dairy products in the coming future.
Ukraine is the second-largest country in Europe. It also has the record of 4th biggest external food supplier and exports 25% of its grains and vegetable oil and 50% of its maize to Europe. Ukraine and Belarus are major exporters of dairy while Russia is mainly an importer.
Another considerable point is that the net export of Ukraine and Belarus dairy supply worldwide is more than the net import of Russia. Surprisingly, the net loss of Ukraine, Belarus, and Russia dairy products trading comes out to be 1.2 billion kg per year in the global market.
Invasion of Ukraine and dairy supply
There is no doubt that Ukrainian-Russian military action posed a serious threat to the world’s dairy consumption. The prices of dairy products, particularly raw milk have been continuously rising for a few years, but this war has giving it a major booster and resulted in much higher prices of dairy as compared to previous years.
As per the World Food Programme (WFP), this war resulted in collapsing of supply chains, the destruction of bridges and trains, emptied grocery stores and warehouses in Ukraine. This situation has severely increased the poverty rate in Ukraine.
The real impact to the dairy industry has really not been factored in yet, therefore chances are high that dairy prices can rise at an alarming rate due to the invasion. Despite dairy trading, this war has also affected farm milk production. The war has a direct impact on energy prices. This means farm costs production will increase and this would only create an imbalance in the returns from milk production.
Therefore, it can be said that higher energy prices will definitely impact Ukrainian dairy production and its supply.
Retailers in Ukraine are very aware of the fact that the high energy and food prices are affecting consumer inflation everywhere. This is leading to the further decline of the buying power of customers. Thus, Ukraine retailers are having to increase the prices of their dairy products. To combat this problem, Ukraine retailers have the option to sell the dairy in foreign commodity markets at higher prices. This is so that they can maintain the Ukrainian milk supply irrespective of the higher cost of production.
This escalation of prices in the global milk supply may prove to be required for the continued existence of their native farms, as the farmers can cope with the on-farm cost of production. Although, this added benefit for Ukraine will affect the sales price of the global dairy supply.
One more fact that has been seen since the war began is the rise in the cost of fertilizers and animal feed made from wheat. Michael Oakes (Dairy Board chairman for the National Farmers’ union) accepted that this military conflict has really affected these costs. Before the war, they were paying under £300 for a tonne of fertilizer and now, they have seen a direct rise of 60% in feed costs post-war i.e. £1,000.
Affect over Wheat trading
The experts at Yegg Inc also looked over the chances of a food crisis due to disrupted wheat trading.
Julien Denormandie, the French farming minister said that “the war between Russia and Ukraine could lead to a food crisis globally”.
Along with dairy, the Russian-Ukrainian war has also affected the wheat trading partners of both countries. Their regular customers of wheat like Lebanon, Libya, Egypt, and Yemen have come under pressure due to the shortage of wheat supply.
Counting on the numbers, Ukraine and Russia contribute to these countries as per the percentage described below:
- Lebanon: It relies on Ukraine for 80% of its wheat.
- Libya: It depends on Ukraine for more than 40% of its wheat imports.
- Egypt: It relies on both Russia and Ukraine for 80% of its wheat imports.
- Yemen: It depends upon 27% of Ukrainian wheat and 8% of Russian wheat.
Looking at the statistics, it is crystal clear that food prices are going to rise higher. This would create a dilemma among countries as to what necessities do they invest in. This will directly affect the households in their countries..
So many assumptions and statistics have been created regarding this issue. The Human Rights Watch (HRW) organization also released a report to ensure that this war does not affect other countries and households with food or dairy crisis. At the present moment, there are several discussions going on over addressing the global food and dairy supply shortage.
Russia and dairy supply
You might not know Russia is the second-largest global importer of butter and cheese. It imports more butter than the US and UK combined.
Russia broke all commercial ties back in August 2014 with most countries in Europe. When Russia broke ties, the situation started becoming worse. These broken ties slowed down the pace of European exports to China, thereby affecting the dairy sector as well up until 2016.
It is known and widely accepted that Russia is not capable of meeting the dairy demands of its customers on its own. For dairy products, Russia was also dependent on Ukraine earlier, but the cold war between both countries ended the relationship and consumers had no choice but to feel helpless with the situation. Russia reached out to Belarus as Ukraine no longer supported Russia’s dairy imports needs. Thanks to Belarus support Russia was able to increase its dairy production over the last five years.
Where the world was facing a crisis over food and dairy supplies during the Ukraine-Russia conflict, Belarus has emerged and become the primary beneficiary of the war.
You might be wondering How!
Surprisingly, Belarus has the record for the world’s highest milk production per capita in 2021, and dairy exports are worth USD 2.5 billion.
Well, considering the supply disruptions due to the Russia and Ukraine war, Belarus was well aware of the Russian dairy needs. Considering the high demand for dairy products from Russia, Belarus decided to raise its dairy export sales to USD 4 billion by 2030 for which it decided to increase its export share by one-third of its total exports to Europe. But, this plan has backfired due to the Russian sanctions that were extended to Belarus.
Without any doubt, Europe is trying to cope with the immediate storm. Though the farmers are experiencing high costs of basic inputs like fertilizers and animal feed, they continuously strive to provide almost every food or dairy commodity on supermarket shelves.
Let's have a quick recap of the Ukraine-Russia war on the global food and dairy supply:
1. Soaring prices
As described earlier, Ukraine is a gigantic exporter of wheat, corn, and sunflower oil. However, the Russian invasion has stopped all the trading with Russia.
Talking about wheat and corn, if there is no exporting of wheat/corn that means no feed for animals. No feed for animals means a reduction in milk production. This reduction in milk production is the reason for the high prices of dairy products.
As prices are increasing, it is becoming difficult for food processors to buy and store raw ingredients and farmers are even forced to pay higher for fertilizers in order to maintain the quality of their yields.
However, political leaders are reluctant to give statements related to food shortages as otherwise, it may give rise to an unpredicted crisis.
2. Fears of famine
The military conflict between Ukraine and Russia has created fears of famine and potentially starvation. The destruction of Ukraine’s infrastructure, food supply chains, agricultural lands, bridges, and ports have left many Ukrainians wondering if and when they would be able to recover from this invasion by Russia.
In addition to this, many countries (i.e., Egypt, Tunisia, Algeria, Morocco, Lebanon, and Turkey) that were depending on Ukraine and Russia for their dairy and agricultural needs are now in crisis mode and have to find alternative sources for their dairy and food products.
Ukraine was responsible for exporting a huge amount of wheat to several countries; however, this war has blocked the paths of trading and left the nations to find other exporters to meet their basic food and dairy needs. All this is resulting in is higher prices of food items.
Now that prices are rising, and we don’t know for how long this trend will continue. But what we do know is that it will have a global impact on dairy and other food products. The poorer and least food-secure countries are going to face a lot due to this dire situation.
3.Farmers under pressure
As explained in the first point above, no wheat/corn production in Ukraine will result in considerably less feed for Europe’s animals. Now, this less quantity will ultimately lead to higher animal feed prices for Europe’s farmers. This increased pricing will be putting an extra burden on farmers as they are already struggling with their daily needs.
Such situations might leave many farmers to rethink their professions in the agriculture sector.
4. Urge to remove trade barriers
Ukraine and the Russian war are posing great pressure on politicians. They have the fear of not being able to feed their people with borders shut down and trading blocked. Political leaders are trying to convey the message of removing trade barriers so that their people do not have to face any food crises. However, no one is considering this plea and the Western countries remain committed to continuing to impose trade barriers.
Finally, with such destructive results of Ukraine and Russia, global dairy and food supply are affected, and this might be continued till a time that no one knows. Russia’s invasion of Ukraine has led to huge devastation, blocked bridges, and ports, increases in the cost of dairy supply, feed for animals, fertilizers, and electricity.
This is adding pressure on both the countries and their farmers who are struggling in every manner. Dairy is directly related to farmers. No farmlands will drive no wheat/corn and this will further drive no feed for animals. If animals will not be fed properly, how can they produce milk. So, everything is interconnected.
It is also quite possible that the number of cows would decrease. This will eventually reduce the quantity and quality of milk produced. Thus, causing a global increase in dairy and milk prices.