JD Duarte


Jose Duarte discusses how Russia’s invasion of Ukraine will impact commerce

Ukraine has been known for centuries as the “breadbasket of Europe.” Today, it is largely the breadbasket of the world. Last year, it increased its cereal production by 32% to reach 85.7 million tons. However, Russia’s invasion of the country will alter economies around the world. Jose Duarte, an entrepreneur and commerce expert from Costa Rica, explains what changes might be seen.

If we add Ukraine’s production to that of Russia, they account for a third of world wheat exports, a fifth of corn trade and almost 80% of sunflower oil production. It is not surprising, therefore, that Russia’s invasion of Ukraine has turned grain markets around the world upside down. Yesterday the wholesale cereal markets of Spain suspended the quotations, due to the uncertainty about the exports already committed.

Ukraine has closed its ports and the attack has led to a ban on the navigation of any type of commercial vessel in the Azov Inland Sea. This body of water, which connects the country to the Black Sea, it is to be expected that the food trade will be almost completely cut off. 90% of Ukrainian cereal exports are made by sea.

No one has ventured to what extent the war will affect the price of food in countries around the world, but everyone is sure that it will be noticed. This includes not only grain. Many countries are deficient in maize, which is mainly used for animal feed, and Ukraine is a main supplier. 30% of imports to countries like Spain come from there. Ukraine is also the leading importer of sunflower; it accounts for 60% of everything Spain buys.

To this immediate breakdown of supplies must be added the trade sanctions that the European Union is going to impose on Russia, which will surely cause an impact on trade. Explains Duarte, “It is well known that much of Europe is dependent on Russian gas, but there is a derivative of this that also affects the price of food. Gas is also necessary to manufacture fertilizers, whose price has been rising since the beginning of the pandemic.”

Russia is one of the world’s leading producers of fertilizers and the second-largest producer on the planet of potash, an important nutrient for crops. The interruption of trade with Ukraine and Russia will cause, according to all analysts, a significant rise in inflation in global economies, especially in the energy and food markets, with the consequent loss of purchasing power of consumers.

But the consequences of the war will be even more noticeable in Africa and the Middle East. “Countries such as Egypt and Turkey import more than 75% of their cereals from Russia and Ukraine,” adds Duarte. “And, while China has sided with the conflict, it will also be affected by the invasion: about a third of its corn imports come from Ukraine and are used to feed the world’s largest herd of pigs.”

The conflict has had an impact on the multinational stage since the beginning. Since last February 24, the same day that the invasion began, Inditex was forced to suspend shipments. The round-trip route that the Air Bridge Cargo company covers on a regular basis with Moscow was suspended. Probably, the departure of Boeing 747 with the capacity to transport 100 tons of merchandise will also be paralyzed.

February 25, data that directly affects the supply chain was also known. Specifically, the paralysis of maritime traffic in the Black Sea. According to information from Lloyd’s List Intelligence, more than 100 ships queue in the Kerch Strait inlet, and another 52 wait on the other side, 45 of them with a Russian flag. According to this commercial office, since last February 22, no commercial vessel has crossed the strait.

All of this means that the impact of the invasion will be felt across the globe, not just in Eastern Europe. However, countries have shown their ability to overcome financial and economic challenges before, and will do so again.