Russia-Ukraine war and the ongoing impact on Australian agri
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Russia-Ukraine war and the ongoing impact on Australian agri

Cost increases will be felt right across Australia’s farm sector in 2022, driven by expected further hikes in energy and, to some degree, fertiliser prices as a result of the Russia-Ukraine war, Rabobank says in a newly-released report.

In the report, ‘The Russia-Ukraine War’s Impact on Food and Agri: What Oceania’s Food & Agri Chain has to Plan For’, the agribusiness banking specialist says disruptions to trade flows from the two major agricultural powerhouses of Russia and Ukraine have had a major direct impact on global grains markets and will continue to keep global grain and food prices elevated throughout 2022 “and likely beyond”.

But it is the war’s impact on the key agricultural inputs of fuel and fertiliser – sending prices of both skyrocketing – which will cut into farmer margins in a range of sectors including not just grain, but also livestock and dairy, fresh produce, tree nuts and sugar, the report says.

Price impact analysis

The report says the bank’s analysis shows while the European Union’s latest sanction plans – which entail a move to ban Russian oil imports by late 2022 – will have a relatively small impact on grain and also fertiliser prices, there will be significant increases for energy prices, which are already very high, as a consequence.

Energy prices – both oil and gas – will rise further, and farmers and the food supply chain will have to prepare for continued high and volatile prices, says report author, RaboResearch general manager for Australia and New Zealand Stefan Vogel.

“For the Australian food and agri sector, the implications of the planned next round of EU sanctions on Russia are therefore more negative than positive as prices of farming outputs like grains are expected to move substantially less upward than those of input costs like energy and, to some degree, fertiliser,” he said.

“Farmers and the food supply chain will have to plan for elevated input costs, not only for fertilisers, but also because of strong energy prices.”

Heavy trade disruptions for grains and oilseeds

Mr Vogel said over the past two decades, Russia and Ukraine had “risen into the ranks of major powerhouses in the food and agri space” to now account for a combined share of 20 to 30 per cent of world exports of several key commodities.

While this year will not see a full loss of grains, oilseeds and fertiliser exports out of the Black Sea, Mr Vogel said, with volumes still flowing from Russia and Belarus – albeit with sanctions making trade more difficult – Ukraine’s production and exports in 2022/23 are set to be heavily reduced.

“Ukraine in the 2021/22 season without the war would have shipped about as much wheat, barley and canola to the world market as Australia in the current record season. In addition, Ukraine’s corn export volumes are again about the size of the whole Australian grain and oilseed export volume,” he said.

“As the war started in February 2022, Ukraine had already shipped at least half of the season’s volumes. Consequently, the world has not yet felt the full impact of the heavy absence of Ukraine’s supplies. However, this is about to change from July onward when Ukraine harvests its next crop.”

Locally, the report said, Australian grain farmers are benefiting from increased prices, but not as much as in many other parts of the world, as the recent record Australian crop is stretching export logistics to their limits.

“Australia is therefore unable to ship much more this season, and rather is seeing local stocks rising,” Mr Vogel said. “Still, for the upcoming season, and potentially seasons beyond, Australian grain and canola farmers will be benefiting from strong prices.”

Fertiliser price records

Global fertiliser prices reached all-time highs in early April, the report said – and not just due to the elevated grain prices, but also because Russia and Belarus are major exporters of various fertiliser types.

“Fertiliser prices elevate with grain prices and the current high price period is not an exception,” Mr Vogel said. “And while Australia does not typically import much of its fertiliser needs from the Black Sea region, we are importing most of our needs from the world market and therefore we will still face a tough fertiliser market in the coming months.

“Australia may face some temporary shortages for certain products as key import competitors like Brazil and India will also try to secure their needs in the global market.

“Given Australia’s import dependence for fertiliser, our fertiliser chain is more vulnerable than usual.”

Energy pricing

And there is no relief expected ‘at the bowser’ any time soon, with the bank saying energy prices face a further big price “upside” due to the EU’s plan to ban Russian oil imports by late 2022.

“As Australia is a net importer of crude oil, the global energy price volatility will be felt by consumers here,” Mr Vogel said. “Crude oil and diesel price increases due to the war will add to costs in farming and the supply chain.

“While crude oil prices above US100 dollars a barrel already feel expensive, a further price increase of more than 50 per cent is possible as a result of those planned EU sanctions, if they come to pass.”

Freight logistics

The already COVID-stressed global freight logistics system also faces more pressure from the war, the Rabobank report says.

“Shipping costs will continue to feel the impact of rising energy prices. And especially container freight, not only because of the war but also due to continued COVID-related disruptions like lockdowns, especially in China, and continued labour shortages.”

The report says container freight prices remain significantly elevated due to the ongoing impacts of COVID, and “it will likely take two or more years to unwind congestion around the world and for freight rates to move back down closer to historic levels”.

“Russia’s war in Ukraine though has so far not added much to fuel the fire of container freight costs as the region is a rather small shipper of containerised goods,” Mr Vogel said.

Other farm sectors

Mr Vogel said Australia’s livestock and dairy sectors are also indirectly impacted by the Russia-Ukraine war through higher input costs from feed, fertiliser and energy.

“Neither Russia nor Ukraine are major importers or exporters of beef, dairy, pork or poultry though, so global trade flows of animal protein have not been disrupted anywhere close to the magnitude of grain trade disruptions,” he said.

Similarly, the report says, Australia’s fresh produce and tree nut sectors will feel indirect cost impacts from fertiliser and energy.

“Ukraine and neighbouring Moldova are amongst the top 10 global walnut exporters and the war may somewhat impact this trade flow. The knock-on effect to Australian almond producers is likely rather small,” Mr Vogel said.

“Russia is also amongst the world’s top 10 fruit importers – including bananas, citrus, stone fruit and lemons – which could drive trade re-routing.”

The immediate impact of the conflict on international sugar trade and prices has been negligible, the report says, with neither Russia nor Ukraine playing a large role in international sugar trade.

“Even severe disruption to the Ukrainian sugar harvest – which is almost inevitable – is unlikely to trigger additional trade flows that would impact the market,” Mr Vogel said.

“Also, the increase in oil prices prompted by the war has not been fully transmitted to Brazil’s gasoline price, where it could influence decisions regarding allocation of cane to sugar or ethanol.”

However, if the conflict is sustained, the report says, international sugar prices will likely feel further support from grain prices as the sugar crop in several countries will need to compete for planted area for the 2023 harvest.

Rabobank Australia & New Zealand Group is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 38 countries, servicing the needs of approximately 8.4 million clients worldwide through a network of more than 1000 offices and branches. Rabobank Australia & New Zealand Group is one of Australasia’s leading agricultural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 90 branches throughout Australia and New Zealand.

Media contacts:

Denise Shaw
Head of Media Relations
Rabobank Australia & New Zealand
Phone: 02 8115 2744 or 0439 603 525
Email: denise.shaw@rabobank.com

Will Banks
Media Relations Manager
Rabobank Australia
Phone: 0418 216 103
Email: will.banks@rabobank.com