U.S. Grain Exports Poised to Rise as the Russian War in Ukraine Disrupts Global Grain Trade
By Ramsha Hameed
UKRAINE AND RUSSIA: LEADING THE GLOBAL AGRICULTURE AND ENERGY MARKETS AS KEY SUPPLIERS
The 2022 Russian invasion of Ukraine precipitated major disruptions to the global food supply chain. Food and energy prices soared, causing persistent inflation in many food-insecure countries around the world. This article addresses the effects of the war on the Russian and Ukrainian grain exports and how the United States is well positioned to be an alternative source for these critical grain exports.
Ukraine is a leading grains supplier to global markets, especially in countries dependent on imported foodstuffs such as cereals and oilseeds. According to the U.S. Department of Agriculture (USDA), Ukraine was the world's seventh-largest producer of wheat in 2021 and 2022 at 33 million tons. As a major agricultural exporter, it accounted for 10 percent of the world wheat market, 15 percent of the corn market, and 13 percent of the barley market. It is also the main player in the sunflower oil market, responsible for more than 50 percent of world trade.
On the other hand, Russia is also a top producer of cereals and oilseeds as well as energy and fertilizer products. According to data from the International Trade Centre Trade Map (data sourced July 2023), as of 2022, Russia is the largest mineral fuels exporter; it ranks second in oil and third in coal exports, accounting for 9.6 percent, 9.7 percent, and 18 percent of total global exports, respectively. With its contribution to the global energy and fertilizer markets, Russia is a critical supplier in the global agriculture and inputs market.
The Russian war in Ukraine has disrupted food supplies for both developing and developed countries. In 2021, Ukrainian farmers sowed about 17 million hectares of spring crops. After the invasion, however, sowing among Ukrainian farmers declined by 22 percent, raising global prices. In addition, the war disrupted transportation and storage of food. Disruption to major sources of supply for wheat, corn and vegetable oils has precipitated food insecurity in low-income and food-deficient countries such as Afghanistan, Bangladesh, Yemen, Somalia, Ethiopia, Tanzania, and others that primarily source their food imports from Russia and Ukraine.
EXPLORING OPPORTUNITIES: U.S. GRAIN INDUSTRY POISED TO BENEFIT FROM RUSSIA-UKRAINE WAR
The United States is a major global exporter of essential agricultural products. It exports over 20 percent of its total volume of agriculture produce. According to data from the ITC Trade Map, in 2021, U.S. corn, wheat, and soybean exports surpassed USD 53 million, accounting for 36.7 percent, 12.9 percent and 35 percent shares of global exports, respectively. The onslaught of high crop prices has incentivized producers to plant more acres. As of February 2023, the United States Department of Agriculture (USDA) Grains and Oilseed Outlook projected an 8 percent increase in wheat planted areas in the United States. According to USDA surveys, U.S. farmers intend to plant 92 million acres of corn in 2023, up 4 percent from 2022. Similarly, soybean production is projected to grow 8 percent over the next ten years. Exports for the above-mentioned crops are also expected to increase over the next decade, reaching near record levels for corn and soybeans.
Although export prices for wheat and other food crops have increased since the war began, the increased prices also resulted in a knock-off effect on US crop production. The United States imports significant amounts of crop inputs like fertilizers. To address higher production costs and food security concerns, the U.S. government has taken a number of steps to address the challenges brought upon by the war. The Biden administration proposed a USD 500 million spending package targeted at the agriculture industry to boost U.S. crop production that is affected by the war in Ukraine. Of the USD 500 million, the U.S. government aims to spend USD 400 million on increasing the loan rates for food crops and USD 100 million on incentivizing double crop production for wheat and soybeans. The U.S. government also announced $500 million in grants to increase domestic production of fertilizers to combat the war-induced price hikes.
In addition to U.S. domestic policies aimed at increasing agricultural production, several external factors position the United States to increase its agriculture exports. Ukraine predicts lower grain harvests in 2023 due to disrupted exports and transport routes, lack of access to agricultural inputs, and the destruction of critical infrastructure. These factors increase the need for alternative suppliers to meet global demand. Moreover, the uncertainty surrounding Russian sanctions have made buyers hesitant to commit to Russian agricultural exports. Importers’ fear of reputational risk and financial institutions’ reluctance to trade in Russian commodities both deteriorate Russia’s credibility as a food and energy supplier in the global market. Additionally, there is growing demand from wheat-importing countries to seek alternative trading partners to absorb war-induced shocks and reduce their reliance on Russian and Ukrainian food imports.
THE CHANGING LANDSCAPE OF GLOBAL GRAIN TRADE: CHALLENGES AND OPPORTUNITIES FOR U.S. GRAIN EXPORTS
Despite the opportunities for grain exports, U.S. exporters will face challenges from both foreign countries and the market. The pace of Russian wheat exports has dramatically recovered due to the signing of the Black Sea grain deal, bountiful harvests from favorable growing conditions, and exports to new destinations like Saudi Arabia, Algeria, Brazil, and Mexico. Moreover, the Russian government has improved its export tax scheme, offering buyers better transparency. In the global wheat market, India has taken advantage of surplus stocks and price hikes to become a major exporter of high-quality wheat. According to estimates by the USDA and Food and Agriculture Organization, the global wheat trade is expected to grow in the next 7 years, with Russia, Ukraine, India, and the EU rising as major competitors to the United States. As wheat-exporting nations ramp up production volumes and fertilizer prices remain elevated, U.S. exporters will have to navigate new markets and volatile commodity prices while adapting to changes in the global geopolitical landscape.
In conclusion, the war in Ukraine has exacerbated food security issues for countries that were already facing steeper food prices due to regional conflicts, climate change, and the COVID-19 pandemic. The situation is particularly grave in east African countries, which are unable to offset their dependance on global markets via domestic production. Facing worsening droughts and extreme weather conditions, a rise in global fertilizer prices, and supply chain issues, agriculture in these countries is becoming more costly. Right now, food-insecure countries need to diversify their food sources, invest in agricultural development, and most importantly, increase imports from other countries like India and the United States. If alternative sources of food imports are not immediately found, these countries could see prices rising and could find themselves plunging into another cycle of poverty and social unrest. With bountiful grain harvests and a budding aid package, the United States has a unique opportunity to step in and provide these countries with an alternative source to grains through trade, demonstrating its commitment to helping those in need and strengthening its position as a global leader in food security.
Ramsha Hameed has a Master of International Business degree from The Fletcher School. She is an analyst covering global financial news at Factset. Her area of expertise includes business advocacy and economic policy reform, and she has worked alongside the International Finance Corporation and the World Bank to explore opportunities for private sector investment growth and trade potential. She aspires to be a trade economist and hopes to work in trade facilitation and strategic planning.
Flag of Ukraine is by Valdemar Fishmen and is licensed under CC BY 2.0.
