DES MOINES, Iowa – The Ukraine/Russian conflict is being felt much more closely in Europe than it is around the rest of the world, as the European consumers and markets are taking it badly, according to Rupert Claxton, director of livestock and meat with Gira, a livestock consulting firm based in Geneva, Switzerland. Claxton was a panelist during a webinar sponsored by the National Pork Board.

“This feels like a war on Europe,” Claxton said. “It is very close to home and it is reflected in consumer confidence and the way the market is thinking. Other effects will impact Europe that the United States won’t see.”

Claxton said one of the first things to look at is the exchange rate, which has a massive impact on the products going in and out of the markets. In the case of Ukraine, they can’t move products in and out of the country very easily, but there is still product coming across into Europe, along with four million refugees at the time of the webinar, which has a massive impact on the markets, especially in Poland.

Claxton compared the U.S. dollar with the ruble and he said the ruble had a sharp decline against the dollar when the conflict began, but it is slowly coming back.

“This decline meant that inputs, especially agricultural inputs, had gotten seriously expensive,” he said. “Companies are looking at whether they can continue to afford to bring them into the country, even if they can get around the embargo restrictions and the fact that ships weren’t going off the main shipping lanes.”

He added that higher oil prices are another key issue as the increased prices are not only passed along at the pump, but in things such as transportation costs.

“But the world is finding a way to balance it as some countries can’t afford not to buy Russian oil, because they need cheap oil and at the moment this is their best route,” Claxton said. “European gas prices are soaring and there is a huge impact on fertilizer prices because gas is an important part of fertilizer manufacturing. Russia is a major exporter of gas and oil and they are getting more for their gas and oil, due to the exchange rates and higher global prices.”

Claxton said inflation has a major impact on the food system, with costs increasing for fertilizer, feed, energy, transportation and everything else, reducing consumers’ disposable income.

He added that looking at the fertilizer market, fertilizer was expensive before the crisis in Ukraine and Russia. 

“Heading into the 2022 planting season, some farmers may have already purchased their fertilizer for the 2022 planting season, or they may buy and use less fertilizer,” Claxton said. “With fertilizer priced out of the market for most farmers, they may be applying less fertilizer at lower rates, resulting in lower yields globally at increased costs, reduced export availability, and higher grain prices carrying over into 2023 or even 2024.”

Claxton said the reason fertilizer is so sensitive is that Russia is a major source of fertilizer as well as raw ingredients. Worldwide, Russia accounts for 13 percent of the global fertilizer value with China right behind at 12 percent. Russia accounts for 23 percent of ammonia produced worldwide, 21 percent of the potash produced worldwide, and 14 percent of the urea. Russia is also restricting exports to protect its prices and its domestic supply. Russia is nervous about leaving fertilizer on ships in ports of call for fear of attacks.

Claxton said the Ukraine/Russia situation is also impacting the feed market.

“Cereal and vegetable oil prices are reaching record levels due to weather events, transportation disruptions, higher input costs, combined with war destabilization, production volume, and trade” he added. “Feed and input prices will reach record levels in 2022 and margins will be squeezed along the supply chain. And if there is any kind of a climate disaster before the summer harvest it will be even more catastrophic.”

Claxton added that a transfer of buyers is inevitable as the world splits between countries that buy from Russia and those that can afford not to buy from Russia. He cited fears of rising prices and supply shortages as pushing some countries to ban exports.

“The world has suddenly become aware of food security,” he said.

Both Ukraine and Russia are massive producers of grain and oilseed. Prices are already high due to a poor harvest outlook for China and the United States in 2022. An added challenge, according to Claxton, is the fact that the production outlook for Ukraine is negative due to supply chain disruptions, skyrocketing input costs, low liquidity, planting difficulties in wartime and possible loss of labor due to people being called to serve in the military. These challenges could result in production being reduced by as much as 20-80 percent.

“Ukraine is a major supplier of wheat, corn, rapeseed and sunflower oil, soy not so much,” he said. “Russia is also a major global supplier, especially of wheat, but not to the United States or the European Union, Ukraine has banned the exports of grain, meat, sugar, salt, cattle and byproducts because they are concerned about food security. They want to keep their food inside Ukraine. Russia has pummeled feeding centers and food distribution centers.”

Claxton said Ukraine doesn’t ship a lot of products to North America, so we aren’t going to see much impact from the crisis. But they ship a lot of corn and some rapeseed and wheat to Europe.

“It isn’t a major disruption, but it will be missed,” Claxton said. “Africa is more significant as well as Asia and the Middle East. In that case, the countries will look to North America and they will take supplies, lifting prices.”

As for the meat market, Claxton sees a decline in both pork and poultry production.

On the pork side, pigs were harvested early on to feed the armies on both sides. But with faltering cash flows, farmers can’t restock their herds. Also, due to African swine fever, there are little to no export markets available and imports from Russia and the European Union are dropping.

Poultry production is seeing disruption in the supply chain which limits restocking. Energy issues, such as power outages impact freezers and incubators, and disruptions in the processing chain, but consumption demands are supported by lost export volume.

Claxton said key issues facing processors include staffing issues, infrastructure, inputs, cash flow, markets and theft. Export markets will see a loss of export products from Ukraine for the next five years.

Claxton said the negative impact on meat consumption is influenced by several factors.

First, Russia is not a massive importer of meat, nor is it a major exporter of meat. With the decline of the ruble, it will likely impact products such as pork and poultry. Consumption is likely to fall as consumers have less disposable income due to a weak ruble, higher unemployment, higher energy costs and higher costs of nearly everything else they use on an everyday basis.

“Unlike Ukraine, Russia will probably not see much impact on meat consumption,” Claxton said. “Russia is only a modest importer of meat and as with during COVID, Russian consumers who are pretty much stuck in Russia will buy more food. But the main issue is the affordability of food. Rampant general inflation and a serious squeeze on disposable income will be a challenge.”

Claxton added that Russian producers do have lower feed costs and they have labor, but they have input challenges, such as availability of additives, veterinary supplies, equipment, genetics and spare parts. 

From a market perspective, challenges such as rising costs are hard to pass along and most of the products sold in Russia are priced in rubles. On the plus side, Russia does have access to markets in China and Vietnam.

The immediate impact of the war on the global meat and livestock industry centers on two parts – higher feed costs and higher energy costs. Fertilizer could also be a limiting factor as higher costs could reduce use and therefore production.

“Ukraine is seeing a growing regional export of poultry and grain products, but both of these markets have closed off and aren’t likely to recover in the short term,” he said. “Global meat consumption is declining as inflation squeezes consumer spending. This is most apparent in developing markets where feed cost hikes will limit production and pricing some consumers out of the markets.”