Ukraine war disrupts cereal markets, threatens food security in SE Asia

Indonesia and the Philippines will be particularly hard hit, Zachary Abuza says.
Commentary by Zachary Abuza
2022.04.07
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Ukraine war disrupts cereal markets, threatens food security in SE Asia A combine picks up wheat during the harvest in a field near Krasne village in the Chernihiv area, 120 km north of Kyiv, Ukraine, July 5, 2019.
AFP Photo/FAO/Anatolii Stepanov

As war rages across Ukraine, farmers have been busy towing captured Russian tanks, artillery, and downed helicopters. In addition to their new calling, is the planting of the spring crop.

It’s another reminder that Russia’s illegal invasion is occurring in one of the world’s major bread baskets, with consequences for food security in Asia and beyond.

What’s at stake? In 2021, Ukraine was the third largest producer of wheat, exporting 60 million of its 80 million-ton harvest. That accounted for 17 percent of global exports. In addition, Ukraine was the second largest producer of barley, the fourth largest producer of corn, and the largest producer of sunflower oil.

Both Ukraine and Russia are major players in global markets. But they have a greater role in the developing world and in humanitarian disasters: Half of the World Food Program’s grain is purchased in the Ukraine. In 2021, Ukraine exported U.S. $2.9 billion in wheat to Africa.

Since the war began the price of wheat, which was already at a historic high, has increased by 30 percent.

Ukraine, along with Russia, is an important provider of grain and food staples to Southeast Asia. In 2020, Ukraine exported $708 million to Indonesia, accounting for 25 percent of imports; $92 million to Malaysia, 23 percent of imports; and $131 million to Thailand, around 17 percent of imports.

But Indonesia and the Philippines – Southeast Asia’s most food insecure nations – will be hit particularly hard. Almost 75 percent of Indonesia’s imports from Ukraine consists of cereals, including wheat. In 2021, Indonesia imported 3.07 million tons of wheat from Ukraine. In 2020, Ukraine was the single largest source of grain for the most populous Southeast Asian nation, and the largest in 2021.

And in both Indonesia and the Philippines, demand for wheat is growing.

According to the Philippine statistics agency, in 2021 imports of cereals increased by nearly 48 percent over 2020. In Indonesia, flour consumption increased by almost 5 percent in 2021.

At the same time, the populations of the neighboring countries are growing.

Indonesia’s population is increasing by 1.1 percent per annum and the Philippines’ at 1.3 percent – making it the fastest growing population in Southeast Asia. In both countries, food production has never kept pace with population growth. And both governments are very sensitive to inflation in food commodities.

Fighting spreads to farm fields

Meanwhile, in the middle of Ukraine’s sowing season, the war has shifted from north of Kyiv, to the eastern part of the country. The fighting is now taking place in some of Ukraine’s most productive farmland. 

In places where it is not too dangerous to farm, the physical infrastructure has been destroyed. Able-bodied men and women are serving in the military or territorial defense forces. The Ukrainian government is expecting a 30 percent decline in agricultural production this year because of the war. Dire warnings by the government suggest that exports in 2022 could plummet to 15 to 20 percent of 2021’s exports.

Even if the farmers are able to grow crops, there are questions about their ability to get the grains to global markets. The Russians razed Mariupol and have devastated the physical infrastructure and depopulated most of the other of Ukraine’s ports on the Sea of Asimov. Odessa is the last major port that Russia has not attacked, but Russian forces are blockading it. 

For the time being, Ukrainian grain exports are only leaving the country by train or truck, but if the Russians target logistic nodes in western Ukraine even those exports could be dented. Local farmers are also vulnerable to a liquidity crisis, unable to get the loans they need to cover operations in the first half of the season.

That’s not suggest that there is a shortage of sources of wheat outside Ukraine.

Last year, Indonesia imported 4.69 million tons from Australia. In 2020, it imported 2.63 million tons from Argentina. Having suppliers in both the Northern and Southern Hemispheres is essential for the steady importation of food stuffs. And next to Russia, the United States, and Canada, Ukraine is the largest exporter in the Northern Hemisphere.

Without a doubt, the war is bad news for global food markets.

Prices for cereals have been climbing steadily in the past few years at a time when most countries have experienced economic slowdowns, the loss of income, and climbing poverty rates due to the prolonged COVID-19 pandemic. Inflation in energy markets and food staples is hitting consumers hard the world over.

Other uncertainty in food markets

Beyond the Russian invasion of Ukraine there are other factors unsettling global food markets.

China’s winter wheat harvest was described by their agriculture minister as “the worst in history.”

A decline in water levels along the Mekong River due to damming has increased salt intrusion into the Mekong Delta, leading to a smaller harvest. According to the Stimson Center, the delta accounts for 50 percent of Vietnam’s rice crop, but 90 percent of rice exports. In 2020, Vietnam’s exports accounted for 7.4 percent of the global supply. Indonesia and the Philippines are amongst Vietnam’s top export markets.

The economic fallout from Myanmar’s coup d’état is another factor.

The kyat lost 60 percent of its value since the February 2021 military takeover, prompting a shortage of U.S. dollars and making imports of pesticides and fertilizers exorbitant.

While Myanmar itself will remain food secure, the expected diminished crop will impact global markets. Myanmar is the seventh largest exporter of rice in the world. In 2020 it accounted for 3.2 percent of global exports. Optimistic estimates suggest that exports will be around 2 million tons in 2022, down from their normal export of 2.5 to 3 million tons.

With the exception of Singapore, countries in Southeast Asia have been reluctant to criticize Russia’s invasion of Ukraine and none have been willing to impose sanctions, professing a desire to be neutral. But most countries in Southeast Asia will be feeling the economic pain cause by Russia’s military strike on its neighbor next-door.

As this year’s president of the G-20, Indonesia is causing controversy by inviting President Putin to the Bali summit, arguing that the forum is really about economic matters and not political or security concerns. Yet the cause of commodity inflation – and potential political unrest – will be President Widodo’s invited guest.

Zachary Abuza is a professor at the National War College in Washington and an adjunct at Georgetown University. The views expressed here are his own and do not reflect the position of the U.S. Department of Defense, the National War College, Georgetown University or BenarNews.

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