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europe’s breadbasket no more: the effects of putin’s invasion on caspian food security

Europe’s Breadbasket No More: The Effects of Putin’s Invasion on Caspian Food Security

Image source: Wikimedia Commons

Food security underpins political stability in much of the world. Both availability (or lack thereof) and cost of food are factors in unrest, from the French Flour War of 1775 to the Egyptian bread protests of 2017. In the 21st century, civil wars in Somalia, Sudan, and Syria were in part rooted in food shortages stemming from drought. What do disruptions to agricultural markets in Eurasia triggered by Putin's war on Ukraine portend? Three key perspectives may give us some insight: impact on global commodity trade, on farm inputs, and on availability in specific regions.

Agricultural Trade

In the 2020/21 marketing year, Russia and Ukraine together accounted for one quarter of world wheat exports, 77 percent of sunflower oil exports, and 16 percent of corn exports. If you add Kazakhstan, which relies on access to Black Sea ports, the wheat proportion jumps to 29 percent. As a result of Russia’s invasion of Ukraine, Ukrainian seaports on the Black Sea are lost to war, and Ukraine will likely be unable to harvest winter wheat this summer or to plant corn and sunflower this spring. Though Russian production itself is unaffected, moving commodities via the Black Sea is problematic since marine insurance is either unavailable or prohibitively expensive. As of April 4, underwriters classified all Russian waters as “high risk”. Adding to uncertainty, Russia banned exports of wheat to members of the Eurasian Economic Union, except Belarus, through June 2022, and announced intent to extend the ban through August. Kazakhstan reacted by announcing it might limit grain and flour exports until domestic needs are assured.

The impact of the war was immediately felt in commodity prices. Chicago corn futures jumped to over $7.50 per bushel, up from $6.37 on February 21. Kansas City wheat on February 21 was under $8.00 per bushel; as of early April, it remained over $10, having eased a bit after hitting a record high of $12.94 on March 7. These are price increases of 18 and 25 percent, respectively, and are reflected in staple grain prices globally. Numerous observers have predicted widespread hunger and unrest as food prices rise.

Table 1. Russian Exports of Diesel (HS Code 271019) to the Caspian Region, in thousand metric tons, 2018

Armenia

167.1

Azerbaijan

19.1

Georgia

61.9

Kazakhstan

904.7

Kyrgyzstan

761.8

Tajikistan

239.7

Turkmenistan

5.1

Uzbekistan

476.8

   Caspian Region

2,636.2

Source: UN Comtrade,
https://comtrade.un.org/data

Impact on Caspian Region Inputs

Among the most important inputs to modern production agriculture are mechanization (tractors and self-propelled implements like combine harvesters) and chemicals (fertilizer, herbicides, and pesticides). We should assess the machines themselves, fuel for them, and the chemicals modern agriculture needs for high yields.

The good news is that availability of farm equipment and replacement parts in the Caspian region, though generally worrisome, is at this point not critical. But tractors and combines run on diesel fuel, which is of concern. Kazakhstan, Azerbaijan, and Turkmenistan refine it. Kazakhstan produces about 5 million metric tons (mmt) of diesel per year. According to UN Comtrade data, in 2018 Kazakhstan exported over 3 mmt of diesel, including over half a million tons to Caspian neighbors. In late 2021 Kazakhstan reported it would have to import diesel from Russia to cover its own needs, and would also curb diesel exports due to growth in domestic demand. Azerbaijan produces about 2 million tons of diesel annually, of which it exports about 350,000 tons, insufficient  to cover Kazakhstan’s withdrawal from the export market. Turkmenistan does not publish data on diesel production or exports, but UN Comtrade data from partner countries indicate exports of just over 1 million tons per year, of which about 40 percent already goes to other Caspian region countries. All of this is dwarfed by Russia’s role in diesel trade: in 2018 Russia exported well over 2.6 mmt of diesel to its Caspian neighbors, as shown in Table 1.

The question is thus whether Russia can or wants to fill the half-million-ton gap in diesel Kazakhstan’s promised curtailment will create, or perhaps, whether the threat of western sanctions will prevent Caspian importers from buying Russian motor fuels. Refining capacity in the region is a serious chokepoint, as is transport infrastructure.

Then there is fertilizer. Russia's trade ministry has imposed a de facto ban on exports of potassic-, phosphate-, and nitrogenous fertilizers as retaliation for Western sanctions. Russia typically ranks with China as one of the two largest exporters of nitrogenous fertilizers in the world. In addition, Belarus is a major source of potassic fertilizers, the second largest exporter of such fertilizers in 2020. A combination of sanctions, seaport blockage, and export bans could cut fertilizer availability significantly and at minimum is already contributing to rising fertilizer prices globally.

Impact on Caspian Production

Shortages of diesel fuel, needed for farm equipment and in some areas for irrigation pumps, could constrain production in the Caspian region, with the probable exceptions of Kazakhstan, Azerbaijan, and Turkmenistan, which produce their own. It is too early to predict with any certainty what precise effect a diesel shortage could have on area planted or ability to harvest, only that it would be negative. Equally troubling are the higher cost and reduced availability of fertilizers. The soils of Central Asia are, with the exception of northern Kazakhstan, relatively poor and require fertilization to be productive. Black earth and chestnut soils are relatively more abundant in the mountainous south Caucasus states, but overall area or arable land is low and grain production on it is limited due to both topography and its use for higher-value crops than cereals.

Table 2. Wheat: Supply and Distribution, Marketing Year 2020/2021, Caspian Region, in thousand metric tons

Country

Production

Imports

Exports

Domestic Consumption

Armenia

132

340

0

500

Azerbaijan

1,867

1,435

0

3,400

Georgia

102

794

0

800

Kazakhstan

14,256

1,000

8,194

6,250

Kyrgyzstan

629

171

0

800

Tajikistan

810

1,150

0

2,025

Turkmenistan

1,320

100

0

1,485

Uzbekistan

6,200

3,758

200

9,300

Source: U.S. Department of Agriculture, Foreign Agricultural Service,
https://apps.fas.usda.gov/psdonline/app/index.html#/app/advQuery

All that said, in the Caspian region, only one country, Kazakhstan, is a major producer and net exporter of wheat and wheat flour and is thus likely to remain at least self-sufficient even if fertilizer trade is disrupted. As Table 2 shows, the rest are in varying degrees dependent on imports. Most hard hit by any trade disruptions will be Armenia, Azerbaijan, Georgia, Tajikistan, and Uzbekistan.

Policy options

The most obvious policy responses involve consumer subsidies to protect low-income populations. Directing limited financial resources efficiently will be important given the scope of the problem. The Caspian states all have in place programs for support of low-income citizens, so startup would not involve undue delays. Putting money for food directly in the hands of the populace additionally exerts a positive impact on the consumers’ psyche, showing that during tough times the government is looking out for them--and this helps reduce popular unrest.

The second response is for local governments to prioritize availability of diesel for agricultural producers and to seek alternative suppliers of both fertilizer for domestic agricultural production and wheat plus wheat flour for importation. If availability of Black Sea wheat is sharply reduced, as appears likely, most Caspian region governments will have to scramble to lock in whatever alternate sources are out there.  


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