Abstract
Russia’s unfolding invasion of Ukraine is expected to have a far-reaching negative effect on global food security and Ukraine’s economic growth. Over the last 30 years, Ukraine has emerged as an increasingly important global supplier of grains and vegetable oil, with a capacity to continue closing its productivity gap and delivering even more food to the global market. However, this trend was disrupted by Russia’s unprovoked, full-scale military invasion of Ukraine in February 2022. The price of the continued war is already immense for Ukraine, including its agriculture. Beyond the terrible human toll, suffering, and destruction, the total estimated agricultural war damages and losses for Ukraine increased to beyond US$ 40 billion. Almost one-third of this sector has been destroyed and the destruction is only mounting; farmers experience a glaring shortage of liquidity and capital for current harvesting and planting tasks. In the current tight global market conditions and outlook, the capacity to replace the expected missing exports from Ukraine in the world is very limited and the Russian war in Ukraine remains a major risk to unsettle grain and oilseed prices and, as a result, further endanger global food security.
1. Introduction
Since the breakup of the Soviet Union, Ukraine has emerged as an important global supplier of grains, oilseeds, and vegetable oil. It more than doubled its production of grains and oilseeds and increased its exportable supplies by more than 40 times, reaching 10% of the world wheat, 15% of corn and barley, and 50% of sunflower oil in global exports (Glauber and Laborde, 2022). Abundance of black soils (27.8 mil hectares or almost one-third of the total world stock), favorable climate conditions, landscape characteristics that allow for larger fields and large-scale farming, suitable geographical location and access to the Black Sea, on-farm and post-farm investments, have all been very instrumental for a substantial productivity increase. Nevertheless, Ukraine’s agriculture was still performing below its potential and could have, possibly, reached yields as in the EU and in the US, making even a much larger contribution to the economy of Ukraine and to global food security (Nivievskyi et al., 2022).
Ukraine’s economic and agricultural growth, however, was terminated by Russia’s full-scale military invasion on February 24, 2022. It has already caused immense human suffering and economic destruction to Ukraine (World Bank, 2023) and has spilled over to every corner of the globe by means of food and energy inflation (Glauber and Laborde, 2022a; Ihle et al., 2022) and food shortages. This article provides an assessment of the scale of the humanitarian crisis in Ukraine caused by the Russian invasion and of the overall destruction and economic losses, including to agriculture. Also, we comment on implications with respect to food supplies from Ukraine and on global food security.
2. Mounting humanitarian crisis in Ukraine
The price of Russia’s aggression is already immense for Ukraine and increasing daily. The total damage across sectors mounted to more than US$140 billion (Figure 1) or almost 73% of the country’s 2021 GDP. Housing is the most damaged sector (38% of total damages), followed by transport (26%), energy (8%), commerce and industry (8%), and agriculture (Figure 3). The most affected oblasts are the ones that have seen the most intense fighting, i.e., Donetska, Kharkivska, Luhanska, Zaporizka, Kyivska, and Khersonska (Figure 2).
On top of the widespread destruction, the total economic and social losses amount to an additional US$290 billion, dominated by commerce and industry (30 % of total loss), explosive hazard management (clearing landmines and unexploded ordnance, 13%), transport (11%), agriculture (11%), and energy (9%, Figure 4).
Based on the damages and loss estimates, the total reconstruction and recovery needs are estimated at about US$411 billion (World Bank, 2023), with the highest estimated needs being envisaged for transport (22% of total needs), housing (17%), energy (11%), social protection and livelihoods (10%), explosive hazard management (9%), and agriculture (7%).
Huge and mounting war damages and losses caused Ukraine’s GDP to drop by 30% in 2022, generating unprecedent fiscal financing needs reaching US$54 billion, needed to finance primarily military expenditures. The consolidated budget deficit excluding grants amounted to 26.5% of GDP in 2022 (World Bank, 2023a) and it was covered mainly by external financial assistance and NBU monetization.
The figures above hide the terrible human toll and suffering caused by the Russian war, the significant losses of jobs and income in the private sector, the loss of purchasing power, and the loss of assets among Ukrainians, particularly the most vulnerable (World Bank, 2023a):
- Almost 10 thousand civilians have lost their lives, including 461 children (some sources report more than 100 thousand civilians killed); thousands have been injured.
- 13.5 million people (or almost 30% of Ukraine’s population) have been displaced, including 8.1 million across Europe and 5.4 million internally displaced within Ukraine; and millions have lost their homes. At least 2 million children have left Ukraine and are expected to remain abroad in other countries in Europe, contributing to brain drain of human capital.
- 75% of IDPs and 62% of the general population need cash support. 24% of IDPs report that cash assistance was their primary source of household income. The share of households with insufficient food consumption increased over 2022: 25% for nondisplaced people and 30% for IDPs. Finally, 17% of IDPs require accommodation, compared to 4% of the general population.
- 7.1 million people have been pushed into poverty, as poverty increased from 5.5 to 24.1%, reversing 15 years of progress. Overall, there have been dramatic setbacks on many of the Sustainable Development Goals (SDGs), especially those related to poverty, health, education, energy, industry, peace and justice.
- Up to 10 million Ukrainians (or 25% of the population) are at risk of some form of mental disorder, ranging from anxiety and stress to a more severe condition.
3. Climbing agricultural war damages and losses
Agriculture is a key sector of the Ukrainian economy and is of vital global importance. Together with upstream (e.g. agricultural machinery) and downstream (e.g. food processing) industries, the entire agri-food sector’s share of Ukrainian GDP amounts to roughly 20%. Ukraine’s agriculture is mainly crop-based, with grains and oilseeds increasingly becoming a backbone of agricultural growth (Figure 5) and accounting for almost 90% of the total arable land (Nivievskyi et al., 2022).
Over the last two decades, Ukrainian agriculture became an increasingly important source of staple food supplies. Agriculture accounted for 45% of Ukraine’s exports in 2020 (Gagalyuk et al., 2022) and close to 60% during the wartime. On average over the 2018-20 period, Ukraine accounted for 10% of global wheat exports, 16% of global maize exports, and 50% of global sunflower oil exports (Glauber and Laborde, 2022). As Ukraine’s agriculture was still performing below its potential, it could eventually have made an even much larger contribution to global food security (Nivievskyi et al, 2022). Figure 5 indicatively shows a possible growth scenario under a ‘no war’ scenario, assuming decelerating productivity growth as Ukraine approaches its productivity frontier and with additional output predominantly being supplied to global markets.
Ukraine’s agricultural growth, however, was terminated by Russia’s full-scale military invasion of Ukraine on February 24, 2022, with the expected immense consequences not only for Ukraine, but also for security in Europe, for energy markets and for global food security (von Cramon-Taubadel, 2022; Glauber and Laborde, 2022a). Essentially, almost a decade of agricultural progress has been reversed. Total grain and oilseed output is expected to be 53 million tons this year, or 50% of the record 2021 harvest. It might take at least a decade to return to the prewar output levels (Figure 5 depicts an average recovery scenario) if an average prewar productivity growth is assumed.
Total estimated agricultural war damages and losses for Ukraine have been increasing (von Cramon-Taubadel and Nivievskyi, 2023) and surpassed US$ 40 billion (World Bank, 2023). This estimate includes US$ 8.7 billion (Figure 3) or approximately 30% of the net capital accumulated in the sector before the war. In other words, almost a third of Ukraine’s agricultural sector has been destroyed already. The largest categories of damages are agricultural machinery (US$ 4.7 billion), stored products (US$ 1.9 billion including 2.8 and 1.2 million t of grains and oilseeds, respectively) and damage to storage facilities (US$ 1.3 billion). The remaining categories include reductions in livestock numbers, damaged perennial crops such as fruit orchards, and, finally, destroyed and stolen inputs (World Bank, 2023; von Cramon-Taubadel and Nivievskyi, 2023).
While the estimated damages reflect the destruction of tangible assets and inventories, the losses estimate the foregone revenue due to lower yields and/or prices and due to additional costs accrued because of the war. Agricultural losses reached US$ 31.4 bn (Figures 4), which is roughly 75% of the gross agricultural output in 2021. Forgone revenues due to export disruptions and lower yields are the two major categories of losses.
The losses due to disrupted exports account for more than a half of total losses. Virtually all agricultural exports from Ukraine (about 93% and mainly grain, oilseeds, and sunflower oil) have been delivered to export destinations primarily in Northern Africa, the Middle East, and Europe by the sea via its Black Sea ports. Since the first days of the Russian invasion, however, Ukraine’s Black and Azov sea ports were either occupied or blocked by the Russian naval fleet, thereby triggering panic and extreme growth in international prices (Ihle et al., 2022; Glauber and Laborde, 2022a). A huge backlog of exportable surpluses of grain, oilseeds, and sunflower oil in Ukraine’s ports and in inland elevators, and insufficient capacity of alternative export routes to accommodate this mass, increased transportation costs and depressed domestic prices to the level or even below production costs (von Cramon-Taubadel and Nivievskyi, 2023; Martyshev et al., 2023, Nagurney et al., 2023), depriving the farmers of liquidity, increasing uncertainty and causing them to switch their business operations to a survival rather than a development mode. The negotiated Black Sea Grain Deal in late July 2022 increased export flows considerably, but its reliability has been constantly undermined by Russia, and its functioning is continuously under the risk of suspension (Laborde and Glauber, 2022b; Laborde and Glauber, 2022), so the trade costs remained high and domestic prices in Ukraine correspondingly low (von Cramon-Taubadel and Nivievskyi, 2023; Martyshev et al., 2023).
The second major component in total losses is crop losses due to reduction in the harvested areas (since a substantial number of crops were produced on the territories directly affected by the hostilities) and, due to increased input costs and constrained liquidity, the farmers reduced their application rates of fertilizers and agrichemicals, thus cutting the crop yields (von Cramon-Taubadel and Nivievskyi, 2023).
4. Concluding remarks and continued threats to global food security
Mounting agricultural damages and losses due to Russia’s invasion make Ukraine’s agricultural outlook rather grim and subject to increasing concerns for global food security; more than 349 million people worldwide are projected to be food insecure in 2023 (more than double the number in 2020, World Bank, 2023b). Global grain and oilseed markets have been tight (von Cramon-Taubadel, 2022), making global food prices and security very fragile and sensitive to disruptions such as the war in Ukraine, and the capacity to replace the expected missing exports from Ukraine in the world is limited (Glauber et al., 2022). Despite a somewhat better outlook because of good harvests in major grain producing countries that contributed to declining global prices, the Russian war in Ukraine remains a major risk to unsettle grain and oilseed prices and, as a result, further endangers global food security (World Bank, 2023b). Hence, the current projections for this and the next season may even be optimistic, and this is bad news for the mounting global food insecurity. In other worlds, and, by no means exaggerated, every ton of grain and oilseeds from Ukraine counts.
5. References
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