The Shock Waves of War – Food Insecurity and the Impact of Russia’s Invasion of Ukraine

The global COVID-19 pandemic has raised fears around food security, and the war in Ukraine has exacerbated the situation.

Within Ukraine, the refugee count grows daily, with millions displaced. The evolution of the war remains extremely difficult to predict. Still, the effect on lives, livelihoods, food security and nutrition are apparent.

As one consequence of the war, deteriorating food security is challenging already significantly disrupted livelihoods during the agricultural growing season. The physical access constraints and damage to homes, productive assets, agricultural land, roads, and other civilian infrastructure are taking their toll.

It is uncertain whether Ukraine will be able to harvest existing crops, plant new ones or sustain livestock production as the conflict evolves. The war has led to port closures, the suspension of oilseed crushing operations and the introduction of export licensing restrictions and bans for some crops and food products.

As insecurity persists, the disruption increases in local, national, and international supply chains. With extensive damage to crops due to military activity, especially during vegetative stages in spring and the destruction of food system assets and infrastructure, the food basket of Europe is under serious threat.

Primary concerns include disruption to winter harvesting and spring planting; agricultural workforce numbers impacted by displacement. Access to and availability of agricultural inputs such as fuel, disruption of logistics and food supply chains, and the abandonment of and reduced access to agricultural land. Smallholders and agribusinesses are critical to Ukraine's food security which has a domino effect on the food security in other countries worldwide.

The situation is rapidly evolving here in New Zealand, as is the government's response. The Ministry of Foreign Affairs and Trade is publishing regular updates about the Russian invasion of Ukraine, including New Zealand's government response, its public statements, and humanitarian support.

The Impact on New Zealand Exports to Russia

Many New Zealand companies have proactively stopped exporting to Russia; others have been forced to stop due to logistical problems or problems getting paid or insured. Fonterra, which accounts for nearly half of New Zealand's exports into Russia, has ceased trading in the region.

Shipping goods to Russia is challenging. Major shipping companies are halting bookings to Russia, the Black Sea region and European ports no longer deal with containers destined to be trans-shipped.

Many major shipping lines have suspended deliveries to Russia of non-essential goods. They define 'essential' as humanitarian goods, including food, encompassing most of New Zealand's exports to Russia. But, while those freight connections may still be functioning, sanctions, financial transfers, and port restrictions may impede freight flows.

There may be disruptions to shipping routes via Russia, but alternative routes may be through Asia, Eastern Europe, and Finland.

Some exporters are experiencing issues receiving funds from customers or partners in Russia. Each situation needs to be looked at individually. Work closely with your bank and talk to them about options. You may need to seek legal advice to help you deal with these challenges.

The Impact on New Zealand Exports to Europe

With inflationary pressures affecting commodity markets, New Zealand companies now need to be thinking about future-proofing their cost structures and cost-to-market models.

It's essential to consider your contingency planning process and prepare for a long, potentially worst-case scenario with substantial volatility. Not just for Russia and Ukraine but also in a broader Europe context and globally.

Economic Impacts on New Zealand

Energy prices are rising, particularly for oil. Significant movements in global oil prices are impacting New Zealand's economy, affecting freight costs when export markets are already experiencing difficulty.

Russia is the world's second-largest exporter of crude oil after Saudi Arabia, producing around 10% of the global supply. Although technically, Russian crude oil can flow, there is resistance from refineries to take the oil, with shipping and insurance companies reluctant to finance or facilitate trade.

Disruption to Global Wheat and Grain Markets Will be Significant

Russia and Ukraine export 28.6 percent of the world's wheat and around 20 percent of its corn. The conflict is now threatening production in Ukraine, and access to the Russian market is also highly challenging.

In February, wheat prices jumped over 50 percent, which will flow through to global food prices. Continued volatility in these financial commodity markets will increase prices for imported goods. That will increase pressure on domestic inflation, which is already a struggle, and likely to squeeze business margins further.

"The conflict coincides with a very challenging cereal (and other seed crops) harvest (Feb-Mar) in the Canterbury region (85 percent of NZ's seed and grain production)," explained Thomas Chin, General Manager, NZ Grain & Seed Trade Association.

"Growers have had to work through poor weather conditions, which has affected crop quality and even the ability to harvest and perform other farm duties, for example, preparations for the next sowing season.

"On top of all this, global logistics and transport issues have affected our industry imports and export movements."

Chin added that the uncertain times and volatility for the sector call into focus New Zealand's overall food security and the supply chain's resilience.

"Industry initiatives already underway, such as our 'NZ-grown milling wheat' project (for bread, pasta, pastries, cakes, biscuits, etc.), becomes even more relevant.

"Wider uptake could help lessen import requirements and overseas shipping worries,” said Chin.

Some one million tonnes of cereals are imported into New Zealand every year – mainly from Australia.

"NZ produced product's quality is equal or even better than imported product," continued Chin.

"Another initiative underway is to find ways to improve our domestic seed and grain distribution and freight logistics, particularly the work currently underway to better assist the movement (e.g., rail) of grain from the South Island/Ashburton (the key production and hub area) to the key consumer markets in the North Island."