Russian battle groups and vehicles parked in Yelnya, Russia, in this photo taken on January 19. Picture: Reuters
The rising tension between Ukraine and Russia is worth monitoring because it could indirectly affect the business conditions in South Africa through global agricultural commodity prices in the near term, says the Agricultural Business Chamber (Agbiz).
The organisation’s chief economist, Wandile Sihlobo, said this week that South Africa would probably experience the impact of the Russia-Ukraine tension, through global price channels in the near term.
“Still, the situation remains fluid and uncertain but will require close monitoring,” Sihlobo said.
Both countries are key players in global agriculture and thus disruption in their production or export activity could impact global agricultural commodity prices.
“For example, Russia produces about 10 percent of global wheat while Ukraine accounts for 4 percent. Combined, this is nearly the size of the European Union's wheat production, according to the latest data from the International Grains Council.
“This wheat is not just for domestic consumption but for export markets. In 2020, Russia accounted for 18 percent of global wheat exports and Ukraine 8 percent. Together, this is just over a quarter of global wheat exports from just two countries.”
Sihlobo said the countries were also notable players in maize, responsible for a combined maize production of 4 percent. With regard to exports, however, Ukraine and Russia's contribution was even more significant, accounting for 14 percent of global maize exports in 2020, according to data from Trade Map.
The two countries were also among the leading producers and exporters of sunflower oil. Ukraine's exports accounted for 40 percent of global exports and Russia 18 percent.
Sihlobo said that while Agbiz did not know how the tension between Russia and Ukraine would unfold in the coming days and possibly longer as there were reports of 100 000 Russian troops along the Ukraine-Russia border. That had also caused panic among some analysts who were concerned that an intensifying conflict between the two countries and the potential trade disruption would have significant consequences for global food stability.
“We share this view, especially concerning global grains and oilseeds prices. These agricultural commodities have also been amongst the key drivers of global food prices since 2020, primarily because of dryness in South America, poor harvest in Indonesia, and the rising demand in China and India.
“Hence, a disruption in trade in this significant producing region of the Black Sea would add to elevated global agricultural commodity prices and potentially be consequential to global food prices,” Sihlobo said.
“However, the scale of the potential upswing in the global grains and oilseeds prices would primarily depend on the disruption and the time trade would be affected. For now, this can be viewed as an upside risk to global agricultural commodity prices,” he said.
From South Africa's agriculture and agribusiness perspective, the impact of potentially rising tension in Russia-Ukraine would be felt in the near term through the global agriculture commodity prices channel. There was direct agricultural trade between the two countries, which they viewed as minimal.
Sihlobo said South Africa typically imported wheat from Russia and Ukraine. Russia was the 17th largest agricultural products supplier to South Africa while Ukraine was the 44th.
“But in exports, Russia is a notable market – the 13th largest. South Africa's products to Russia and Ukraine are mainly citrus, nuts, vegetables and tobacco. South Africa has stronger agricultural ties with Africa, Asia, the United Kingdom, and the European Union.
“For example, in the third quarter of 2021, the African continent and Asia were the largest markets for South Africa's agricultural exports, accounting for 35 percent and 33 percent in value terms, respectively. The European Union was the third-largest market, taking up 23 percent of South Africa's agricultural exports. The balance of 9 percent value constitutes the Americas and other regions of the world.
Agbiz said African countries that would perhaps be more exposed to worsening tension between Russia and Ukraine are the Maghreb regions, specifically Egypt, Morocco and Tunisia.
Within the Sub-Saharan Africa region, Agbiz said Nigeria, Sudan and Tanzania would be the most exposed countries because of the large volumes of wheat they imported from Russia and Ukraine.
Other areas, such as the Middle East and Asia, also imported a substantial volume of grains and oilseeds from Ukraine and Russia, which could also be directly affected by the disruption in trade.
BUSINESS REPORT