This was not necessarily a robbery per se. Rather, this was a period when the US sold large volumes of grains at subsidised prices to the former Soviet Union without anticipating that these sales were in the year that would have a poor grain harvest across several major grain-producing countries. Additionally, there was a rise in demand for grains from the global livestock industry, as well as US farm policies that discouraged the expansion of soybeans at the time, which was a key input for the livestock industry (in the place of maize). The realisation of crop failures across the world, and the volumes of grain the US had shipped to the former Soviet Union, amongst other factors, led to a spike in US and world agricultural commodity prices. By this time, the former Soviet Union had managed to secure sufficient supplies for their domestic needs and was thus arguably slightly insulated from the global grain shortages at the time. For this reason, some tend to refer to this as the Russian Great Grain Robbery.

The current Russia-Ukraine war has invoked questions of global food supplies and discussions about national food supply because of the significance of both Russia and Ukraine in global grain exports. Both Russia and Ukraine account for nearly 30% of global wheat exports, about 14% of global maize exports, roughly 32% of global barley exports, almost 60% of global sunflower oil exports and about 14% of global fertiliser exports. With various shipping lines avoiding the Black Sea region, and the extensive sanctions that Western countries have imposed on Moscow, including the agreement to exclude some Russian banks from some global payment systems such as SWIFT, there is anxiety in global agricultural markets that the risks of food insecurity are now elevated. This is particularly the case as the war occurred when global agricultural and input prices such as fertilisers were already elevated, up by double-digits from the previous year.

In terms of agricultural commodities, the poor agricultural production conditions in South America due to La Niña, combined with a strong demand for grains and oilseeds in India and China, and a poor palm oil harvest in Indonesia were key underpinning drivers of prices. Small grain-producing regions such as the East Africa region were also negatively affected by the La Niña conditions, which led to drought and raised fears of increasing food insecurity. A range of factors has been behind these sharp input cost increases regarding fertilisers. These include supply constraints in critical fertiliser-producing countries like China, India, the US, Russia and Canada. Rising shipping costs, as well as high oil and gas prices, have also been contributing factors, along with firmer global demand from agricultural produces. For instance, in January 2022, the international prices of a range of key fertiliser ingredients shot through the roof. Since January 2021 the price of ammonia has gone up by 220%, urea by 148%, di-ammonium phosphate by 90%, and potassium chloride by 198%.

The question on some people’s minds is how long the war will continue and how severe will the infrastructure damage be at the shipping ports because of the bombings, and how the farming communities of Ukraine and Russia will be distracted by the war? These questions have implications for food supplies in the coming months or the following season.

If the Ukrainian farming communities are disrupted and unable to fully produce in the next season, then global grains and vegetable oils supplies will be negatively affected. Similarly, a disruption in the fertiliser market impacts its usage and crop yields in various countries. Still, in South Africa, the near-term impact of this war is through price transmission and not the limitation on the commodities’ availability. The one commodity that South Africa is most exposed to is wheat, as the country imports roughly half of its annual 3,4 million tonnes consumption. For the current season of 2021/22, which ends in September, South Africa has imported 40% of the estimated imports of 1,5 million tonnes.

Regarding inputs, fertiliser is a key product to monitor closely whether there will be sufficient supplies when the 2022/23 production season begins in September 2022. For the near-term activity, the winter crop season that starts at the end of April 2022, we have not observed any shortages in supplies. The challenge that farmers face is the rise in prices.

The exporters, such as the South African fruit industry, stand to lose as Russia is a major export market. Both the limited shipping lines and the exclusion of Russia in the global payment systems are major challenges. The citrus industry export season starts within the next two months, and this will be a challenge in addition to the pressures the apples and pears industries are already feeling through this impact. There will be a need to divert the roughly 7% of citrus exports to Russia elsewhere, which could add downward pressure on prices and, after that, profitability.

Ultimately, South Africa is a major exporter of most agricultural products. The priority at the moment will be to ensure that the country doesn’t face its own “Great Grain Robbery” within the near term. This could be done through close monitoring and publication of export volumes, as is already the case for most major commodities such as grains, to ensure that the country doesn’t experience the US 1972 challenge of grain shortage. The information about the supplies and domestic stocks will be a sufficient signal to the market, which will adjust the export volumes through price. When South Africa’s stocks are stretched, the price increases will force the buyers to look elsewhere than South Africa, and thus ensure that there is availability of supplies in the country.

The inescapable transmission for the South African consumer will be through prices. The rise in agricultural commodity prices, domestically and globally, along with rising fuel costs, presents significant upside risks to food price inflation. We had initially thought in 2022, South Africa’s food price inflation would average between 4 to 5% (compared with 6,5% in 2021). However, we now see more upside risks to these numbers. When we made these estimates, the war was not on our radar, even though the global food prices were already relatively high. For example, the FAO Food Price Index averaged 136 points in January 2022, up by 1% from December 2021 and the highest since April 2011 (see Exhibit 1 in the attached file). Vegetable oils and dairy products mainly underpinned the recent increases in the Food Price Index. The grains will now add to the global food price drivers.