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Potential Impact of the Russia-Ukraine Crisis on Agriculture in the Americas Technical Note -June 2014 Victor M. Villalobos A., Director General, Inter-American Institute for Cooperation on Agriculture A sharpening of the political crisis between the Ukraine and Russia could have an impact on agriculture in the Americas and on the world’s basic grain trade. This analysis, prepared for the Ministers of Agriculture of the Americas and the Offices of the Inter-American Institute for Cooperation on Agriculture (IICA), aims to serve as support for the design of strategies to cope with a possible downfall in food availability that could result from increased tension among those two nations. Information from the Black Sea region is complex and highly variable. All estimates to date suggest that, should political tensions worsen in that region, exports would fall, which would drive up international food prices. Given that region’s importance to the world’s supply of wheat and corn, IICA, through its Center for Strategic Analysis for Agriculture, considers it pertinent to report on possible impacts in the American hemisphere of a sharpening of the crisis between the Ukraine and Russia. Russia and Ukraine are two of the world’s largest producers and exporters of agricultural products; in 2012, they were among the world’s ten main grain exporters. In the case of wheat, Russia is the fifth largest exporter in the world, while Ukraine is the seventh. In the case of corn, Ukraine is the fourth largest exporter and Russia is the ninth. Together, these two countries furnish nearly 13% and 14% of world corn and wheat exports, respectively. Therefore, any situation that affects their productive or marketing capacity will have an impact on international agricultural markets. Since the outset of the Russia-Ukraine conflict, trading on the grains futures markets, particularly corn and wheat, has displayed a certain degree of nervousness. From January to April 2014, wheat and corn prices rose by 18% and 12%, respectively. For wheat, it was the highest price increase since mid-2012, confirming that, should the conflict worsen, the prices of these commodities will increase even further. Nonetheless, the international price hikes seen to date seem to be temporary and Table 1. The Americas: Contribution of wheat and corn to the national diet Contribution to national diet High (20% to 40%) Corn Wheat Guatemala Mexico Honduras El Salvador Nicaragua Paraguay 36,10% 32,49% 27,43% 26,57% 25,35% 20,21% Uruguay Chile Saint Lucia Argentina Trinidad and Tobago Dutch Antilles Jamaica 31,73% 29,23% 25,83% 23,24% 23,19% 21,95% 21,20% Venezuela Bolivia Colombia Haiti 14,23% 13,90% 12,26% 11,22% Antigua and Barbuda Bermuda Dominica Canada Saint Vincent Bolivia Belize Guyana Saint Kitts United States Barbados Surinam Granada Peru Ecuador Bahamas Venezuela Brazil Haiti Panama Honduras Costa Rica Cuba Guatemala 19,55% 19,40% 19,07% 18,80% 18,70% 18,69% 18,32% 17,77% 16,97% 16,43% 16,39% 16,21% 15,31% 13,46% 13,01% 12,36% 12,31% 12,10% 12,03% 11,59% 11,25% 10,98% 10,90% 10,87% Belize Cuba Chile Peru Brazil Uruguay Panama Barbados Canada Costa Rica Trinidad and Tobago Saint Vincent Argentina United States Dominican Republic Bahamas Ecuador Granada Dominica Jamaica Guyana Antigua and Barbuda Saint Lucia Surinam Dutch Antilles Saint Kitts Bermuda 9,37% 8,01% 7,26% 7,18% 6,59% 6,30% 6,22% 3,87% 3,44% 3,15% 3,02% 2,88% 2,78% 2,58% 2,45% 1,82% 1,63% 1,63% 1,59% 1,53% 1,10% 1,01% 0,96% 0,47% 0,19% 0,12% 0,00% El Salvador Paraguay Colombia Dominican Republic Nicaragua Mexico 9,63% 8,58% 8,24% 7,91% 7,83% 7,44% Medium (10% to 20%) Low (to 10%) Source: Prepared by author (CAESPA) with FAOSTAT data lower than what could be expected given the importance of that region. The low impact of the political stress on international markets can be attributed primarily to the fact that, despite the conflict, the Ukraine’s thirteen ports and the five Crimean ports on the Black Sea, from which the vast majority of the region’s grain is exported to world markets, seem to be operating without significant setbacks. Moreover, harvest forecasts for the Ukraine, Russia, and other wheat- and corn-producing countries, especially the United States, are favorable, mitigating market nervousness. In the case of the Americas, a shortfall in basic grain supplies in the international market or an increase in grain prices will have varying impacts, depending on: i) the duration of the conflict and the duration of possible changes in grain prices; ii) each country’s grain inventory; iii) each country’s productive and commercial structure: countries that are net exporters of grains (mainly wheat and corn) could benefit from an increase in international prices, while countries that import large amounts of grains will experience greater financial and supply pressures in order to satisfy domestic needs; and iv) the contribution of wheat and corn to each country’s diet. Figure 1 shows a summary of the share of imports in domestic wheat and corn supplies, while Table 1 shows the contribution of wheat and corn to the diets of the inhabitants of the countries of the hemisphere. In light of this situation, IICA recommends that its member countries keep a close eye on market signals and review their wheat and corn import-export strategies. If they are net importers of these grains, they should ensure that fluctuations do not weaken their food security; if they are exporters, they should take advantage of the opportunity to position their harvests in international markets with better prices. Given the importance of the Black Sea region to the world’s grain trade and the potential impact of an aggravation of the crisis in that region on food availability and prices, IICA will continue to monitor this topic and report on it to its member countries.