Original article (in Croatian) was published on 29/03/2022
Croatia produces sufficient quantities of cereals but is not self-sufficient in producing meat, fruits and vegetables. Prices will rise in all segments.
After the global disturbance in the energy market, which is a consequence of the Russian invasion of Ukraine, the world has already begun to face food shortages.
Russian and Ukrainian exports account for as much as 30 percent of world trade in wheat, 32 percent of barley trade, 40 percent of world trade in corn and more than 50 percent of world trade in sunflower oil. Along with Belarus, Russia is the leading exporter of fertilizers, and its rising prices will affect agricultural production.
Due to the Russian destruction of Ukraine, this year’s spring sowing in that country is also questionable, which could be more than halved. As recently stated by Roman Leshchenko, Ukrainian Minister of Agriculture, planted areas could fall to about seven million hectares compared to the planned 15 million hectares before the Russian invasion (1, 2, 3).
Following the disruption of the supply chain due to the Covid-19 pandemic, from which the world has not yet recovered, the war in Ukraine imposes additional disruptions in the food supply chain that will affect the European Union and neighboring countries, as well as many African and Asian countries dependent on imports of cereal from Russia and Ukraine.
Egypt, Turkey, Bangladesh, Pakistan, and Sudan import half or more than half of the wheat for their needs from Russia or Ukraine, and the consequences of the war have already begun to be felt. Ukraine has currently halted grain exports. If the war continues, the world could face a shortage of six million tonnes of Ukrainian wheat and 15 million tonnes of corn. As exports from Russia have been suspended, about eight million tons of grain will not be delivered from this country.
The poorest countries could be pushed into chaos
According to the World Food Program (WFP) of the United Nations specialized agency, until the beginning of the war, Ukraine exported only half of this year’s wheat orders to Libya. If Libya is left without the rest of the wheat it imports from Ukraine, as WFP warned, it could have 30 percent less wheat than it needs for domestic consumption.
Libya imports as much as 80 percent of its wheat from Ukraine, and its storage capacity for the grain is limited to a month.
On the other hand, Egypt, the largest importer of wheat from Ukraine and Russia, predicts that due to the rise in the price of this grain, it will have to increase the already large subsidies for bread. Therefore, the Egyptian government announced the possibility of raising the price of bread, which would be the first increase in the price of bread in that country since 1988.
In an interview with Politico, David Beasley, executive director of the WFP, warns of serious shortages and famine resulting from the destruction of Ukraine. According to him, the situation in Ukraine will push the poorest and most devastated regions into political chaos and create an unprecedented migration crisis.
“If you think that now we have hell on earth, just be prepared”, Beasley warned, adding that “if we don’t worry about North Africa, North Africa will come to Europe. If we don’t take care of the Middle East, the Middle East will come to Europe”.
Human Rights Watch warns that global food chains demand global solidarity during the crisis. Its executive director for the Middle East and North Africa, Lama Fakih, emphasizes the importance of the deepening global food crisis over Russia’s attack on Ukraine. According to her, without coordinated action to address food supply and accessibility issues, the conflict in Ukraine is a threat to the deepening global food crisis. This is especially true in the Middle East and North Africa.
European Commission Action Plan
Due to rising food prices and energy and fuel import costs, the European Commission presented a series of measures. At the same time, the EU Parliament adopted a Resolution on an EU Emergency Action Plan to ensure food security inside and outside the EU following Russia’s invasion of Ukraine. The resolution calls for urgent assistance in the form of food supply for Ukraine and the relaunch of the EU’s food production strategy (1, 2, 3).
With an urgent action plan, the European Commission will ensure financial aid to European agriculture of around € 500 million, more direct payments to farmers, a temporary production permit for fallow land (land that is not temporarily cultivated) and easing requirements for feed imports.
Parliament is also on the same track, stating that the Covid-19 pandemic and the war in Ukraine have shown that the EU must reduce its dependence on imports from too few suppliers. Parliament proposes switching to alternative organic sources of nutrients for agriculture and supporting innovation in agriculture to reduce dependence on fertilizer imports in the long term. MEPs asked the Commission to support the most affected sectors and mobilize a 479 million euro crisis reserve.
Market disturbances will not bypass Croatia either
“Croatia will do everything necessary to contribute to the food security of citizens and to enable the work of Croatian farmers and fishermen”, said Marija Vuckovic, Minister of Agriculture (1, 2).
Groceries account for 50 percent of strategic commodity stocks. In early March, the government decided to replenish strategic commodity stocks of wheat, corn, and barley and procure outstanding strategic commodity stocks. Details of the decision, which was classified as secret, were not released by the government. However, the Minister of Agriculture stated that an extraordinary procurement of strategic goods worth HRK 594.6 million is planned. It was estimated that purchasing corn, wheat, pork and turkey meat, seed corn and wheat, and oil, milk, and eggs was necessary.
Croatia produces sufficient quantities of cereals but is not self-sufficient in producing meat, pork, beef, veal, poultry and fruits and vegetables.
“Regarding agricultural production, we have seen that we are self-sufficient in terms of cereals and oilseeds – cereals 150 percent, and oilseeds over 200 percent. This leads us to the conclusion that we do not have to be afraid in that part and we do not have to create reserves. We just need to strengthen additional storage capacities so that as many of these cereals and oilseeds as possible remain in Croatia”, said Tugomir Majdak, State Secretary at the Ministry of Agriculture.
Rising prices
As far as Croatia is concerned, the war in Ukraine should not result in a shortage of agricultural products, i.e., food, but there will be and are already rising prices. This is partly thanks to the consumers, who are stockpiling in fear of shortages or the possible spread of conflict.
According to the Central Bureau of Statistics data on trade at the level of 2021, Croatia exported goods worth almost 1.54 billion kunas to Russia, while it imported goods worth 3.48 billion kunas from Russia. At the same time, goods worth over HRK 435.5 million were exported to Ukraine, while goods worth HRK 330 million were imported.
Croatia mainly exports medical and pharmaceutical products to Ukraine; essential oils, perfumery, cosmetic or toilet products; industrial machines, special machines for specific industries; various products for food, fish and processed products; cereals and cereal products; electrical machines, devices; tobacco and tobacco products.
At the same time, from Ukraine, we mainly import electrical machines, appliances, devices; cork and wood products; non-metallic mineral products; special machines for specific industries; industrial machines for general use; furniture and components; iron and steel; vegetables and fruits; yarns, fabrics, textile products; sugar, sugar products and honey.
As in Ukraine, Croatia mainly exports medical and pharmaceutical products to Russia. This is followed by oilseeds and fruits; apparel; essential oils, perfumery, cosmetic or toilet products; industrial products for general use; prefabricated buildings, sanitary facilities, plumbing, heating and lighting equipment; various finished products; propulsion machines and devices; various food products.
Of the 3.48 billion kunas of goods imported from Russia, the largest part or 1.44 billion, falls on oil and oil derivatives. This is followed by non-ferrous metals; gas (natural and industrial); coal, coke and briquettes; fertilizers; cork and wood products; propulsion machines and devices; electrical machines, devices; paper, cardboard, cellulose products; apparel; non-metallic mineral products.
Provisional data from the Central Bureau of Statistics on trade show that Croatia is not dependent on wheat, barley, corn, and sunflower oil imports from Russia and Ukraine. However, its production is reflected in the rise in energy prices that was present before Russia’s aggression and the rise in prices of cereals and fertilizers on world markets.
Manufacturers will sell where they can get the price
“Among those products that Ukraine and the Russian Federation are known for, and that is the production of grain, corn and wheat; oilseeds, especially sunflower, Croatia is self-sufficient and has a surplus. However, this does not mean that there will be no increase in the prices of wheat and corn and processed products based on corn, i.e., wheat”, points out Ivo Grgic from the Faculty of Agriculture, University of Zagreb. Croatia is part of the common EU market and thus the world market. According to the agroeconomist, there is no justifiable reason for corn that appears on the Croatian market from domestic production to be cheaper than corn in another EU country.
“The market is open and our producers, i.e., houses that deal with trade, will sell corn where the highest price is achieved. So, there is an overflow of prices in Croatia and they will rise”, explains Grgic.
Cereal prices are rising for two reasons. On the one hand, due to the growth of input costs – from mineral fertilizers and fuel to protective equipment – which will be reflected in the spring sowing and will be included in the price of products that will appear on the market at the end of the year. The speculative part should not be neglected either.
“Someone will pay more for corn or wheat at this moment, expecting less supply, and less supply is due to lower production”, said Grgic, recalling that Ukraine and Russia are important exporters. It should be added that the fear of rising prices, which makes people buy more, actually contributes to rising prices.
“What will happen in July when the wheat comes or in November… The price can be much higher than it is today, and if the situation calms down, it can decrease. If the price falls, then all those who buy the ‘future price’ today will be at a loss”, says Grgic, adding that it is to be expected that everything that happens this year will have an impact on plant production, and thus on livestock because much of the corn ends up as fodder in production of meat, milk, eggs…
Domestic producers are not in a great position. However, Grgic notes that all interventions coming from the EU, including the domestic Ministry of Agriculture, are aimed at helping producers and keeping them in production.
“We must not forget that they will sell their products at a higher price, so the cost benefit will be that larger producers will not be at a loss. But then comes one big danger – autumn sowing. If the price of input prices continues to run wild, and the state cannot limit it because we often do not have these inputs, we will have high entry costs in the fall, and we do not know what will happen next year”, explains Grgic, reminding that we already have a shortage of mineral fertilizers on the domestic market (Petrokemija Kutina has stopped producing urea for fertilizer due to high energy prices) and there is more and more mineral fertilizer coming from Hungary and other countries.
However, if high prices are introduced in the autumn, there is a possibility of reducing market prices.
“And then the state will have to intervene again to save the income of producers, because they will suffer big losses”, Grgic points out.
In his opinion, a wrong move would be to limit prices or restrict exports, which is often suggested in public.
“This is bad. Consumers should be allowed to respond to the increase in retail prices with reduced purchases, or to form their purchases in some way according to disposable income. As long as you have a demand for products, their price will rise”, says Grgic, stating that, for now, traders are behaving correctly.
“But if a chain in our country increased the price of, for example, oil by 70 percent, the demand for it would increase terribly because it would be a sign to customers that something is happening and that there will be a shortage. Something similar happened with toilet paper. “Those who had toilet paper during the pandemic made an extra profit based on the people’s fear”, Grgic said.
Croatia will not be left without food, it is just a question of how much it will pay for it. According to Grgic, the price will be determined by supply and demand.
“What is very important in the open market is that there are substitutes… If beef is expensive, eat pork, if pork is expensive, eat chicken, if chicken is expensive, eat starch. I know that my approach irritates many, but even before these crises we had a heterogeneous scene on the demand side of Croatia. Some ate meat, some ate greens, some ate sarma (stuffed cabbage) And for the most endangered, the state should, as before, react with certain vouchers, and not limit prices. Because wherever you limit prices, in the chain from producers to consumers, someone will fall”, claims Grgic, explaining that as long as we have an open market, people will buy where it is cheaper, while the producer will try to get the highest possible price.
Although these words sound rather harsh, Grgic points out that it is fortunate that Croatia is a member of the EU and that the relevant ministry is taking the same measures to preserve domestic production and maintain prices as it does in Germany, France, Spain and other countries.
Bad weather also affects yields
“And there is something else wrong. We are talking today about the impact of war on food production and prices. I heard a few warnings that sowing could be compromised due to lack of moisture. We have not had rainfall for ten days, and this year Croatia had snow only on Velebit and a few days somewhere in Slavonia. So, Croatia is already feeling the lack of moisture, so sowing itself may be in question due to this lack”, said Grgic, emphasizing that the impact of climate on sowing “can be, if not greater, like this war disaster”.
Unlike cereals, which we produce in required quantities, we import meat, partly due to the unpreparedness of the domestic market for EU accession and non-competitiveness.
“The price of meat on the EU market is often dictated by countries where the law of big numbers and business connections applies. In the dairy industry, these are cooperatives”, explains Grgic, adding that in cattle breeding and pig breeding, prices are dictated by the countries where farms with thousands of pigs or cattle operate.
Due to the unpreparedness of the domestic market upon joining the EU, there has been a decline in livestock, which is intensive. The support system has also contributed to this, as it is much more profitable to engage in, for example, the production of corn and obtain support for this production, than to have the production of meat, milk or eggs as an addition.
“Today, those farms benefit, especially larger ones, which have a good connection between the field and the barn. For example, large pig farms today have subsidies for manure. So, the need for mineral fertilizer for corn is reduced, and you are also rewarded for using slurry in the production of corn”, says Grgic.
He also reminds us that Croatia used to have livestock related to plant areas, while today, those who have milk or meat production and do not have enough areas are in a difficult situation.
“There is no reason for a producer who produces animal feed – corn, barley, oats – to sell it cheaper than he can sell it on the EU market”, said Grgic, adding that this is why the ministry is trying to give priority to cattle breeders in at least a part of the state-owned areas, and to link the area with the number of livestock and thus complete production.
Considering the events since the beginning of the Covid-19 pandemic, as well as the current war events in Ukraine, both Croatia and the entire EU should think about better use of their own resources. Grgic reminds us that the crisis of 2008 was best endured by the economy, which did not give up its own production. Those who turned to imports from China, Taiwan and other countries, and neglected their own production, suffered more severe consequences of the crisis at the time. Today, with the bursting of supply chains due to the Covid-19 pandemic and the war in Ukraine, Grgic points out that giving up its own production and turning to imports “was not very smart”.
“Globalization, like Europe without borders, is a beautifully conceived concept that offers freedom, but we have forgotten that it can even be the 22nd, 23rd century, and we have not changed the technique, the desire for destruction… And the war has led to all that is beautifully imagined is now crumbling”, says Grgic, adding that the paradigm in the EU will have to change because “the EU must be so strong that it does not depend on what is happening now”.
At the same time, Grgic emphasizes that he is not advocating closure but better use of production resources. And that applies to both the EU and Croatia.
Low level of Croatian self-sufficiency
“This is the moment when Croatia must withdraw its moves and take measures in order to mitigate a new blow to prices through its own agricultural production. We believe that we have another successful spring sowing ahead of us, despite the great risks when it comes to investments due to high input prices and that we must not influence the reduction of investments, which may result in lower yields”, says agricultural expert Zvjezdana Blazic, from the company SMARTER. She also states that only sufficient quantities of produced cereals, oilseeds and other crops and reasonable prices can bring stability to the market of agricultural goods, which is why it is essential to keep sowing and production at a high level.
She emphasizes that we should insist on better storage of raw materials and put them in the function of food sovereignty by connecting them with the livestock sector.
“Disorders in the food market raise the question of the low level of Croatian self-sufficiency in many industries, especially in the production of meat, milk, dairy products, fruits and vegetables, animal feed, but also many cereal-based products, from flour to bread and other bakery products, pasta, and other various products that are used daily to feed the population”, says Blazic, explaining that with all these products we have a chance to increase production and ensure greater security in supplying the population with essential food. In other words, you need to think better about using your own resources.