Wheat, Fertilizer, Pipelines and Trade
The impass over extending the Black Sea Grain Initiative
[A CC0 image.]
Published: 2023-07-23
Updated 2023-07-23: Added an M.K.Bhadhrakumar article to sources.
Separating the Chaff from the Grain
Joanna Partridge's article for The Guardian begins by informing the reader that "wheat prices have been climbing on global markets, just days after Russia pulled out of" the Black Sea Grain Initiative (BSGI). She and her editor then continue by describing recent attacks in Odessa as being on "Ukraine's grain stores". The internal-link to another Guardian article to justify the phrase used described "a huge crater close to a dormitory building across the street from a grain facility not far from central Odessa". So, the attack just missed a dormitory building which happened to be near a "grain facility". The article continues with "one strike hit a wholesale market and storage facility just outside the city. Video taken overnight showed a raging blaze and fireworks stored in the facility going off above the warehouse". One obviously does not store "fireworks" in a "grain storage facility".
The article is, therefore, more war propaganda with Russia's missile targeting of a "dormitory" and a "storage facility" which contained "fireworks" being attributed to "grain stores". (See sources for links.)
Ignoring this grossly misleading fodder, the price for Chicago Board of Trade wheat futures as traded on NASDAQ did rise, with Partridge claiming around 10% after previous falls of 35%. How she arrives at these summary numbers is unclear.
Here's the 5 year price data:
[CBOT wheat futures price.]
The huge price rise on the graph just after the beginning of Russia's Special Military Operation, or invasion of Ukraine, or defending the local population against an impending genocide by Ukrainian Nazi's, or whatever you want to call this conflict was entirely unsurprising. The conflict involved the 4th largest and 8th largest producers of global wheat production, according to World Population Review using numbers from 2020.
Examining their figures yields some results which may seem surprising, but are obvious once considered. The top ten produce 536 million tonnes of wheat annually. The two largest, by far, wheat producers are the two most populous nations on our precious planet, China and India. The third largest, Russia, produces a bit less, but almost twice as much as the fourth placed US with only 10% of the population of the two largest producers. Ukraine is significant, in 8th place with an even smaller population (40 million pre-conflict, perhaps 25 million now). Ukraine produces less than 5% of the world total, with Russia at 16%. Hence the spike, 20% of the world's wheat production is potentially unavailable.
The alarming Guardian article quotes EU foreign policy mouthpiece Joseph "Jungle" Borrell:
What we already know is that this is going to create a big and huge food crisis in the world
The comment invokes the unreliable activity of predicting the future, is unwieldy using "big and huge" and alarmist using "crisis" as should be expected from Mr Jungle when commenting on activities by the current target of his political block, namely Russia's refusal to immediate re-ratify the BSGI. It is worthwhile noting that Mr Jungle's political block has placed trade restrictions on the 3rd largest global wheat producer, which, as noted produces over three times as much as Ukraine. So, Mr Jungle has his rhetoric in a bit of a muddle, though The Guardian is happy to spout it.
Beyond Narrative
There is, unsurprisingly, much more to the story. Firstly, producing large quantities of grain requires large quantities of fertilizer and Russia is the largest exporter of nitrogen based fertilizers (15% of global exports). As many may know, one of the most cheap and dangerous explosives uses fertilizer. Fertilizers are an hazardous product to transport, and one of the safest ways to do this, as with oil, is via a pipeline.
One of Russia's largest fertilizer exports was from Ukraine via the Black Sea. The ammonia is transported via the Togliatti-Odessa pipeline from Russia, via Kharkiv to Odessa from where it can be loaded onto ships for export. One June 8th, Ukraine blew up a section of this pipeline in Kharkiv.
An additional challenge for Russia's agricultural sector has been acquiring spare parts and machinery because of export restrictions from the EU and other nations. The BSGI was meant to support both Ukrainian and Russian agricultural industries, and thus exports, to minimize the conflict's impact on global grain supply. One of the key reasons for Russia's decision to not immediately extend the BSGI is because many of the elements of the initiative that were to assist it's industry and exports have not been met.
There is yet more to the story, which Vijay Prashad also covers in his "World hunger and the war in Ukraine". The issue is not that of supply and demand, but price. He provides links to an article by academic specialist Sophie van Huellen, an opinion by the EU's European Economic and Social Committee and a report by the World Development Movement on the role of financial speculation in futures trading. The three sources examine the issue of regulation of markets for essential commodities, like food, by governments to prevent speculative price rises in food from impacting societal well-being due to malnourishment.
In addition to the influx of external funds to pay the wages of the current Ukrainian civil service and political establishment, Ukraine has been selling its land to international investors. The role of the centralization of control of such a core good as food through the control of seed (GMOs), herbicides (Roundup), fertilizers (via sanctions) and land (aristocracy/corporate) is an ongoing challenge.
Partridge's article at The Guardian fails to provide any vision into the wider current challenges around the BSGI, as does Mr Jungle. Vijay assists us by connecting food production with markets and would no doubt with sufficient time and space also connect food production to the wider multi-generational issues hinted at above.
The issue is not the conflict in Ukraine, but that of the control of global food supply which occurs via differing mechanisms.
If one steps back even further one sees concentrated agriculture as a key development in what are seen as "advanced" or "complex" human societies. The creation of excess food supply enables both a concentration of power in the hands of the Kings or Barons and also a specialization of roles in society. Trade itself is enhanced via both that of excess foodstuffs and of other products which are able to be produced because the production of food requires only a fraction of the society.
Just as we have "externalities" in economics, a lovely example being that of the labour dominantly given by women of child rearing and cleaning, there is another in agriculture. It is perhaps both a little more blatant and subtle.
All food production is dependent upon the energy supply from the local star(*) and the evolutionary development of the micro-organisms in the soil, the biochemical factories which exist in symbiosis with the plants and fungi. May I suggest you reflect on this at your next meal.
* For the pedants, yes, you can grow food with "grow lights". But from where is that energy derived? Even if its geothermal, that is derived from the gravitational gradient of the local star. Nuclear? Okay, other, earlier generation stars. Its "stars all the way down".
Sources
World hunger and the war in Ukraine, Vijay Prashad, People's Dispath, 2023-07-19
Going Against the Grain, Separating the Wheat from the Chaff – This is How the New Black Sea Campaign Will Go, John Helmer, Dances With Bears, 2023-07-21
Storm clouds gathering in the Black Sea, M. K. Bahrakhumar, Indiapunchlines, 2023-07-21
Helmer and M.K.B provides additional political and military background to the conflict on the Black Sea.
Wheat Production by Country 2023, World Population Review, 2023
Top Fertilizers Exports by Country, Daniel Workman, World's Top Exports, 2023-07 (based on source data access times)
Inflation: how financial speculation is making the global food price crisis worse, Sophie van Huellen, The Conversation, 2022-11-29
Broken markets: How financial market regulation can help prevent another global food crisis, World Development Movement, Global Justice Now, 2011-09
Food price crisis: the role of speculation and concrete proposals for action in the aftermath of the Ukraine war, European Economic and Social Committee, European Union (EU), 2022-12-14
Grain prices rise after Russian pullout of Black Sea deal sparks food crisis fears, Joanna Partridge, The Guardian, 2023-07-20
Odesa suffers ‘hellish night’ as Russia attacks Ukraine grain facilities, Shaun Walker, The Guardian, 2023-07-19
Culture
AMAZING GRACE, Royal Scots Dragoon Guards, glenzboyz, uploaded 2011-12-15