The immense damage caused by Russia in Ukraine has weakened grain production and grain profitability in Ukraine. Australia is and will continue to be an unintended beneficiary.

Nightly portrayed on television screens across Australia is the destructive damage inflicted by Russian aggression in Ukraine. Russia specifically targets essential infrastructure and housing to create fear and weaken resolve among Ukrainians. As at February 2023 analysts in the Kyiv School of Economics estimate conservatively that the cost of replacing the damaged infrastructure in Ukraine is currently USD144 billion. Half of Ukraine’s energy system is destroyed and 7 million hectares (or 22%) of Ukraine’s arable land is under Russian occupation.

Often underappreciated is the extent of damage to farm assets caused by the conflict. Over USD4.7 billion worth of agricultural machinery has been destroyed or damaged. USD1.9 billion of grain and other farm products has been stolen and USD1.4 billion of grain storage assets have been destroyed or badly damaged. Unfortunately, about 5 million hectares of farmland (or 15% of Ukraine’s arable land) is now considered to be mined (Broyaka, 2023).

Understandably, the war has greatly affected Ukrainian grain production and grain exports (Table 1). The disruption to Ukraine’s internal supply chains and the global impacts on farm input prices, also experienced by Australian farmers, have curtailed input use, reduced crop yields and reduced the area planted to crops in Ukraine. As a consequence, grain exports in 2023/24 are estimated to be over a third less than occurred in 2020/21, before the war.

Table 1: Grain production and exports from Ukraine: 2020/1 to 2023/24e. 
Source: Based on information from “APK‐Inform”, the State Statistic Service of Ukraine and the State Customs Service of Ukraine.

Of particular interest to Australian farmers, Ukrainian wheat production and export has suffered in the conflict (Table 2). The area able to be safely sown to wheat has declined. Wheat yields are limited now by the availability and expense of key crop inputs; and as a result, projected wheat exports in 2023/24 are only 8.8 mmt or under half what they were in 2019/20.

Table 2: Wheat statistics for Ukraine: 2018/19 to 2023/24e. 
Source: Based on data from the Ministry of Agrarian Policy and Food of Ukraine, the State Statistic Service of Ukraine and UCAB

The reduced availability of Ukrainian wheat for export, combined with the enhanced export supply chain costs of bringing Ukrainian grain to export customers, means that Australian wheat exporters are now relatively advantaged. Moreover, even if the war ends soon, it will take several years before the damage to Ukrainian grain production and its supply chain infrastructure is repaired or the infrastructure is replaced to facilitate Ukrainian grain exports.

Reference

Broyaka, A. (2023) Trends and challenges during the spring season on the Black Sea agricultural markets. Kansas State University’s Agricultural Economics Department, webinar on April 27, 2023.

Banner image: Mariupol. Ukraine. (YuriyMaltsev/Shutterstock.com)