Original article (in Croatian) was published on 04/07/2022
People on social media are wondering how it is possible that weapons are imported into Ukraine, but food cannot be exported. We’ve checked what’s really going on.
“Hundreds of thousands of tons of weapons are imported into Ukraine from Europe so that the war in Ukraine will last until the last Ukrainian is there, but one ton of wheat from Ukraine ‘cannot’ be exported to Europe”, claims the photo spreading among Facebook users.
We also received a request from a Faktograf reader to check why large quantities of weapons can be imported into Ukraine from the West while wheat cannot be exported. It is a fact that weapons are imported into Ukraine to help against Russian aggression, but it is not true that Ukraine, despite the blockade of its ports, does not export wheat to the world through alternative channels.
How are weapons brought into Ukraine?
According to the BBC’s writing from June 15, the Western powers had by then delivered weapons and ammunition worth about $8 billion to the Ukrainian army. On June 30, US President Joe Biden announced a new US tranche worth $800 million.
According to a BBC report, around 66,000 tons of military material were sent to Ukraine by mid-June. The coordination of the transfer of weapons to Ukraine takes place from the US Army base in the German city of Stuttgart. Soldiers from 26 countries perform the work, and a smaller team of soldiers and officers from Ukraine also participates.
A British officer, Brigadier Chris King, revealed that military aid to Ukraine is being sent by air, road, rail and sea to various locations. American Rear Admiral Duke Heinz, on the other hand, said that Western powers do not transfer weapons across the border, but that is the task of the Ukrainian army.
“Ukrainians take equipment from Poland and other countries. They decide how to transfer it across the border”, said Heinz, and the BBC article adds that the equipment can arrive from the border to the front line within 48 hours. It is clear from reports and videos from the Ukrainian front that the Western powers managed to transfer a large amount of weapons to that country.
In June, Ukraine exported at least 104 thousand tons of wheat
On the other hand, the statement from the Facebook post that Ukraine cannot export wheat is not correct, but it is correct that due to the blockade of their Black Sea ports, that export is difficult and significantly reduced. The Ukrainian Ministry of Agriculture, according to Reuters from June 27, reported that in the first 22 days of June, compared to June last year, grain exports from Ukraine fell by 44 percent, to 1.1 million tons.
Among other things, Ukrainians exported 104 thousand tons of wheat, 978 thousand tons of corn and 24 thousand tons of barley in 22 days of June. However, it is added that Ukraine, before the beginning of the Russian invasion in February of this year, exported up to 6 million tons of grain per month. Exports in May were around 1.7 million tons, and Reuters explains that the decline occurred because Ukraine, before the Russian invasion, exported most of its products through seaports, and now they had to switch to rail or road transport across the western border or river transport through small Danube ports.
One way Ukrainians bypassed their ports’ blockades was by exporting through the Romanian port of Constanta. It has Europe’s fastest grain transshipment terminal, and since the start of the Russian invasion on February 24, Ukrainians have exported about a million tons through it, writes the Associated Press. Cereals from Ukraine are delivered to the port mainly via the Danube river. In the coming months, the delivery of Ukrainian grain from Constanta could decrease as harvest begins in Romania and other countries that also export via Constanta, so fewer logistics capacities will remain available for Ukrainian exports.
Grain export across the western border of Ukraine
At the end of June, Ukrainian Infrastructure Minister Oleksandr Kubrakov said that Ukraine was increasing grain exports across its western borders by 50 percent every month. He claims that they are working on new routes to export agricultural products, which especially applies to roads across the borders with Poland, Slovakia, Hungary, Romania and Moldova.
The Ukrainians claim that they still have 20 million tons of grain from the last harvest in their warehouses, which they cannot export due to the port blockade, and alternative routes are not yet sufficiently developed to absorb these quantities. The problem is that they have to quickly “clean” the silos because they will have nowhere to store this year’s crop.
All this shows that it is incorrect that “not a single ton of wheat can be exported from Ukraine” because Ukraine has been exporting grain to the world via alternative routes in a reduced form since the beginning of the Russian invasion.
The European Union does not need Ukrainian wheat
The question of whether Ukraine can export wheat to Europe is less important because the European Union is one of the world’s largest producers and exporters of grain.
In June, the European Commission estimated that the EU countries would increase grain exports by 30 percent in the next two years to reduce the impact on the world market due to the reduced supply from Ukraine. It is expected that in the 2022/23 season, the export of wheat from the EU will increase to 40 million tons, while the estimate is that the export of the 2021/22 season will be around 33 million tons. They increased the estimate because they expect “greater global demand due to less supply from Ukraine”. In the 2022/23 season, the production of 131.3 million tons of wheat is expected, which is an increase of 1.3 million tons compared to the previous season.
According to the assessment of the European Commission in the season 2022/23, EU countries will have 145.5 million tons of wheat available, while it needs 92.5 million tons for domestic consumption. Based on these data, it can be concluded that the European Union does not need to import wheat from Ukraine because it produces enough for its own needs.
The most affected poor countries of Africa and Asia
While the inhabitants of the European Union, as shown by the data, do not need to fear a shortage of wheat and its products, hunger could prevail in other parts of the world due to the Russian invasion of Ukraine and the instability of prices and the impossibility of supply.
As Faktograf previously wrote, Russian and Ukrainian exports represent as much as 30 percent of the world wheat trade, 32 percent of barley trade, and 40 percent of the world corn trade. How long the war on the territory of Ukraine will last, no one can predict. And the future production as well as the delivery of agricultural products from the “granary of Europe,” which mainly feeds the countries of Africa and Asia, depends on it. Countries such as Chad, Egypt, Somalia and Lebanon are most dependent on Ukrainian exports.
Egypt, Turkey, Bangladesh, Pakistan, and Sudan import half or more of the wheat for their needs from Russia or Ukraine, and they are also feeling the consequences of the war because the food was not delivered to them due to the blockade of Ukrainian ports. Due to the fear of food shortages, some countries resorted to banning the export of wheat and other agricultural products.
Indian wheat export ban
Due to the quantities it produces, India’s wheat export ban resonated the most in the world media. Indian Commerce Minister Piyush Goyal defended the decision by arguing that the ban would not significantly affect global markets because India is not a major world wheat exporter.
India imposed the ban on May 13 after unusually hot weather affected lower yields and local prices rose. And while India is the second largest wheat producer in the world, its exports make up only one percent of the world market because it keeps a huge amount for itself. But before the ban, India had planned to export a record 10 million tons of wheat this year, compared to two million last year.
Such export bans, along with the war in Ukraine, create uncertainty in the world market, which then reacts with rising prices, putting more and more people at risk of not having access to basic food products.
Why did the price of wheat on the world market rise after the Russian invasion?
In its analysis from June, Deutsche Welle tried to explain the main reasons for the rise in the price of wheat on world markets after the Russian invasion of Ukraine. For years, the price of wheat was around 200 euros per ton, and then it suddenly jumped to 400 euros. However, out of about 785 million tons of annual wheat production, only about a quarter is sold on the world market, while the rest is consumed in the countries that produced it.
Although wheat is mostly a local product, prices are determined on special global trading platforms, the so-called raw materials exchanges (commodities exchanges), and the amount depends on the supply and demand ratio. The two most important exchanges for wheat trading are the Chicago Board of Trade (CBOT) and Euronext in Paris.
For producers, traders and processors of wheat, the prices from these exchanges serve as a reference point for determining the prices of their products. Such exchanges also offer “betting” on future prices, that is, securing contracts in the future, which leads to the appearance of speculators who seek profit through price jumps.
In May, the French Le Monde also tried to “reconstruct” why the record price of wheat reached 438 euros per ton, recorded on May 16. According to Agritel, an agricultural products market analysis company, several events have influenced the expectation of reduced wheat supply and created an imbalance in the world market. As the first reason for the increase in the price of wheat on world markets, they cite the weaker harvest last season in North America and increased demand due to the increase in the number of people on Earth. This was followed by the Russian invasion of Ukraine, which further reduced the supply, then the Indian embargo on the export of wheat, as well as the drought in France, which threatened the plantations.
Agritel’s analyst Nathan Cordier explained that in a normal year, Russia and Ukraine together “account for more than a third of the global export” of wheat, and this percentage reaches as much as “60 percent in the period from July to October”. He added that Russian President Vladimir Putin decided to introduce restrictions on the export of wheat to the world market in order to control consumer prices in his country, while Ukraine is facing two problems: a reduction in production and, as already mentioned, the problem of blocking ports and exporting via alternative routes. He states that as much as 95 percent of Ukrainian exports before the war went through seaports that are now “out of order”.
Due to the shock caused by the war in Ukraine, many have turned to India’s large wheat production, but a record warm March and April will reduce yields from an expected 110 to 115 million tons to 95 million tons. Such a situation caused panic in India, they feared that they would not have enough wheat for their needs, so the authorities introduced an embargo on exports. After that news, the price of wheat on the European stock exchange reached a record 438.25 euros per ton.
In conclusion, a drop in yield is expected in France due to the drought. Their production rose to 35.5 million tons in 2021, which is as much as 27 percent of production in the EU. While France is not threatened with food shortages due to lower production, concerns about the quality of their harvest have also been reflected in higher prices on the world stock markets. In addition, it should be mentioned that fuel prices have increased in recent months, which is why other agricultural production costs have also increased, which was also reflected in the final price.
Who is to blame for fewer deliveries to countries in need of food?
And while the situation with wheat and access to food in poor countries, mainly in Africa and Asia, is getting more and more complicated, and analysts warn that it could escalate and lead to political unrest and rebellions, Russia and the West are arguing over who is responsible for the decline in grain exports from the “Granary of Europe”.
While Western politicians accuse Russia of using food as a weapon, they receive an answer from Moscow that actually the sanctions against Russia are to blame for the shortage on the world market and the rise in prices. In early June, African Union President Macky Sall expressed concern that Russian banks had been excluded from the SWIFT international payment system as part of the sanctions.
However, the European Union responded that only part of Russian banks is excluded from that system and that agricultural products can still be paid for through other banks. They also emphasized that the sanctions apply only to bilateral trade between EU member states and Russia, while other countries can trade agricultural products with Russia.
Russia expects record wheat exports
Judging by the statement of Russian Deputy Prime Minister Viktoria Ambramchenko from June 15, it is estimated that in the 2021/2022 season, Russia will export 32 million tons of wheat and that this will rise to 39.5 million tons in the next season.
She mentioned Turkey, Egypt, North African countries and Saudi Arabia as the main importing countries of Russian wheat for the next season and added that they are discussing payment methods with “friendly countries”. Judging by these statements, it is obvious that Russia, regardless of Western sanctions, continues to export wheat to the world, but payment is difficult due to the expulsion of large banks from the SWIFT system.