War and food crisis in Europe
01 March 2022, Norway: Russia and Ukraine are world powers in a global and fragile food system. The long-term consequences of the war on global food supply will impact both the rich and the poor parts of the world. It is essential to reduce the dependency on Russia.
We are extremely concerned about the grave situation which is now unfolding in Ukraine and stand fully behind the Norwegian government’s condemnation of the Russian military invasion. Yara has been directly hit by the conflict both by having employees in the war zone in Ukraine and by a missile that hit the Yara office building in Kiev. Fortunately, none of our employees were physically harmed. At the same time, we are sourcing a considerable amount of essential raw materials from Russia, used for food production worldwide.
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In addition to the immediate threat to life, and the gruesome sufferings that we are witnessing in Ukraine, few things are more important than access to food. While we can choose to delay consumption of most products and services, food is an essential good. In 2015, the international community decided to eradicate hunger by 2030. Over the last two years, several external shocks, including climate change, the pandemic and increased European gas prices have exposed the weaknesses in the food system and the urgency for change. The World Bank highlighted that even though the current food supply is stable, food prices increase in most countries in the world. In 2020, around 800 million people went hungry to bed, representing an increase of 120 million people from 2019. The war threatens to reinforce this development. Executive Director of the World Food Programme (WFP), David Beasley, had the following reaction: “Just when you thought it could not get any worse (….) Now, food, fuel & transport costs will skyrocket. An absolute catastrophe” he said and announced their extraordinary efforts to help the more than three million people fleeing from the war.
Russia and Ukraine are world powers in agriculture and food production:
- Ukraine is one of the world’s leading agricultural nations and the world’s second biggest within grains. The farmers are now entering a crucial stage in the agricultural season in which input factors such as fertilizer, seeds and water will determine the yield of the coming harvest. The most extreme calculations indicate that if fertilizer is not added to the soil, the crops can be reduced by 50% by the next harvest.
- In addition to being one of the largest producers of wheat, Russia has enormous resources in terms of nutrients. Plants need nitrogen, phosphate, and potash to grow. Nitrogen is supplied from ammonia, which is produced from nitrogen from air and natural gas. The importance of gas has been on the agenda in the debate around the high European gas prices in 2021 and beginning of 2022. 40% of the European gas supply is currently coming from Russia. With regards to potash (a salt extracted from clay deposits), the market is highly concentrated and fragile towards change. Today, 70% of extracted potash and 80% of all exported comes from Canada (40%), Belarus (20%) and Russia (19%). In total, 25% of European supply of these three nutrients come from Russia.
Yara is both a provider of solutions to the agricultural sector in Ukraine and a big buyer of raw materials from Russia. We always comply with current regulations, sanctions and our own guidelines. Free float of goods across boarders has been possible in a time with higher geopolitical stability. Now, with the geopolitical conditions out of balance, the biggest sources of raw material to Europe’s food production are being subject to limitations, and there are no short-term alternatives. One potential consequence is that only the most privileged part of the world population gets access to enough food.
Higher food- and fertilizer prices may positively impact Yara’s bottom line in the short-term. However, the societal and economic perspectives are completely in sync in the longer term: Long-term value creation for private companies can only be achieved through a sustainable food system with food being affordable and accessible to the world population. A world with unstable food supply is a world with famine in parts of the world, increased mortality, armed conflict, migration, riots, and destabilized societies which can further accelerate geopolitical tensions.
It is therefore crucial that the international community come together and work to secure world food production and reduce dependency on Russia, even though the number of alternatives today is limited. This constitutes a difficult dilemma between continuing sourcing from Russia on a short-term basis or cut off Russia from the international food chains. The last option may have considerable social consequences. These considerations are not to be taken by individual companies but need to be made by national and international authorities.
The urgency now lies in helping Ukraine and the Ukrainian people. At the same time, we are pleading Norwegian and international governments to get together and protect the global food production and work together to decrease dependency on Russia.