Wednesday, October 5, 2022

HomeUkraine-Russia crisisNot only energy diversification: Europe must also enhance diversity of food supplies

Not only energy diversification: Europe must also enhance diversity of food supplies

While global leaders keep approving sanctions against Russia, after its aggression and invasion of Ukraine, Europe is also starting to address the issue of food security and the correlation between energy and agricultural markets.

Indeed, Ukraine is not only important as an energy corridor but, as Linda Zeilina, Founder and CEO of the International Sustainable Finance Centre (ISFC) wrote in her latest oped for CEENERGYNEWS, Ukraine is a critically important country for Europe also due to its resources. In fact, the country has approximately 5 per cent of the world’s mineral resources, including the largest titanium reserves and the largest uranium deposits in Europe.

Ukraine also exports food and its land use could be of critical importance to Europe. According to the Food Agriculture Organisation (FAO), Russia and Ukraine are among the most important producers of agricultural commodities in the world. In 2021, either Russia or Ukraine (or both) ranked amongst the top three global exporters of wheat, maize, rapeseed, sunflower seeds and sunflower oil, while Russia also stood as the world’s top exporter of fertilisers.

High energy prices affect the agriculture sector as well

During the meeting of the Expert Group on the European Food Security Crisis preparedness and Response Mechanism, it was reminded that the situation was already critical even before the war due to the record-high energy prices which affected different parts of the food supply chain. In fact, some farm types have a higher share of energy and fertiliser costs than others while fishers depend more on direct energy costs than farmers. The price increases also included other cost items in the food supply chain, such as freight and packaging.

food
Energy and food markets, tightly linked through input and output markets. Source: FAO.

Moreover, with prices of fertilisers and other energy-intensive products rising as a consequence of the conflict, overall input prices are expected to experience a considerable boost. The higher prices of these inputs will first translate into higher production costs and eventually into higher food prices. The EU is also warning that higher energy prices also make agricultural feedstocks competitive for the production of bio-energy and, given the large size of the energy market relative to the food market, this could pull food prices up to their energy parity equivalent.

Food security in CEE: Hungary’s concerns

While stocks of grain are at overall good levels in the EU, there might be a mismatch between the places where grain is available and the places where it is needed and the Southern European Member States, in particular, are facing real difficulties in procuring grain and stocks are in some cases very low. Several stakeholders, like Hungary, raised concerns about trade-restrictive measures for grains being introduced or being considered to be introduced (in Bulgaria or Serbia) as having a destabilising effect on markets and further driving up prices, pointing out that the destabilising nature of such measures is well known from experience.

Speaking at the National Association of Hungarian Farmers’ Circles and Farmers’ Cooperatives (MAGOSZ) and the Hungarian Chamber of Agriculture (NAK), Hungary’s Prime Minister Viktor Orbán recalled that Hungarian agricultural and food industry exports bound for Russia account for 2 per cent of Hungary’s total agricultural exports, while exports to Ukraine account for 1.8 per cent. A 5 per cent that, according to the Prime Minister is a lot in terms of agricultural exports, but it is bearable.

“The import side is a more difficult challenge,” he continued. “Raw materials imported from Russia, including artificial fertiliser and animal feed, amount to 7 per cent of our total imports. Meanwhile, imports from Ukraine account for 8.4 per cent. So the two combined amount to over 15 per cent of our total imports. This war is affecting 15 per cent of our imports. That is a lot.”

Poland and Czechia are on the safe side but fears of higher energy prices remain

On the other hand, Poland is said to be on the safe side when it comes to food storage. The Polish State Secretary at the Ministry of Agriculture and Rural Development, Norbert Kaczmarczyk reminded that the country is a large food producer in Europe and a significant exporter. 

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Secretary of State Norbert Kaczmarczyk. Source: Ministry of Agriculture and Rural Development.

“When it comes to the production of cereals, Poland uses 80 per cent of this production on the domestic market, while another 20 per cent is exported,” he said.

He also reminded that this is not the time to limit production but to increase it. One thing that could be simplified is the transport of food across the Polish-Ukrainian border.

Also, the Czech Republic said that food production is ensured in the country and current restrictions on exports from Ukraine are not having an impact.

According to the Ministry of Agriculture, the food supply is smooth and there is no danger of food shortages. However, the problem is rising prices for energy and fertilisers which can be reflected in food prices. 

“We have sufficient stocks of cereals until the next harvest,” the Minister of Agriculture Zdeněk Nekula underlined. “And there are no major problems with the import of other goods and food.”

He mentioned the rising energy prices as the biggest problem now, especially when these spikes reflect on fertilisers’ prices as well. 

Indeed, imports of fertilisers and inputs into the fertiliser industry (natural gas, phosphate, potash, nitrogen fertilisers) from Russia raised concerns; as did access to certain feed additives often associated with the fertiliser industry and traditionally imported from Russia. Belarus is also a large supplier of potash.

Other than the issue of fertilisers’ prices, FAO reminded that agriculture is absorbing high amounts of energy either directly through fuel, gas and electricity use or, indirectly, using agri-chemicals. Energy is also required to manufacture feed ingredients, such as the crushing of oilseeds to produce oil meals and the milling of grains to manufacture feedstuffs.

Diversifying sources of food supplies (not only energy)

The Food and Agriculture Organisation is suggesting that to absorb conflict-induced shocks and remain resilient, countries that depend on food imports from Ukraine and Russia should diversify the sources of their food supplies by relying on other exporting countries, on existing food stocks or by enhancing the diversity of their domestic production bases. Also, market transparency and policy dialogue should be strengthened as they play key roles when agricultural commodity markets are under uncertainty.

Also, the European Climate Foundation has underlined that this crisis is serving to highlight once more the urgent need to move away from a highly concentrated food system – where key food products are produced by a small number of countries or regions – and reduce the dependence on chemical inputs such as fertilisers that are produced from fossil fuels.   

“Building more localised, diverse and sustainable food systems with fewer chemical inputs is the most effective way of reducing our exposure to volatile prices or supply chain crises and ensuring food producers are better able to cope with increasingly extreme and erratic weather,” read the press statement.

“The invasion is a sharp reminder that our food system is highly vulnerable to short-term shocks whether driven by climate or conflict,” commented Sophia Murphy, Executive Director of the Institute of Agriculture and Trade Policy. “Governments must take steps to shift agriculture away from the fossil fuel-dependent production of a few calorie-dense but nutrition-poor staple foods by a handful of suppliers. This should include far greater public investment in agroecology which offers multiple benefits including higher incomes for farmers, greater resilience in the face of weather catastrophes, protection of biodiversity and improved nutrition.”
 
 
 
 

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