Turbulent times ahead for agriculture

According to one geopolitical analyst, the war in Ukraine is going to have long-lasting and wide-ranging ramifications for agriculture. Peter Ziehan gave a recent online presentation for Farm Credit Services of America and if Ziehan is correct, turbulent times are ahead.

The world’s number one wheat exporter has invaded the world’s number four wheat exporter and speculation abounds over how much production and exports will be reduced. Ziehan is not optimistic with war in a major world breadbasket.

The large Russian farms that service the export market are heavily reliant on imported inputs that will slow to a trickle. Meanwhile, it will be difficult for ships to get insurance for loading grain in a war zone.

Russia has often put limits on its wheat exports to protect domestic consumption with countries in the Middle East most affected. Russia pulling back from the market has always caused wheat price increases. Now, Russia will involuntarily have to pull back for an extended timeframe. Ziehan expects huge wheat price increases that could lead to political instability in some importing nations.

Another big impact is in fertilizer markets. Overall, Russia is the largest exporter of fertilizer and natural gas. While shale gas will keep natural gas relatively cheap in the U.S., Ziehan says it will take many years to address the natural gas shortage in Europe meaning nitrogen will be expensive and in short supply. North American nitrogen will be expensive, but cheap compared to other regions of the world.

Meanwhile, unrelated to the war in in Ukraine, China has banned the export of phosphate fertilizer to preserve it for their rice crop. Ziehan believes that ban could last for years. Overall, many regions will reduce their fertilizer use because they just can’t afford it. Global crop planting patterns will change especially outside of North America.

According to Ziehan, China’s ongoing problems with Covid are related to the ineffectiveness of their vaccines. Without proper immunity in the population, they have no choice but to impose severe lockdowns in an attempt to quell the spread. This is making China an unreliable manufacturer.

Beyond the pandemic, China has a major labour force issue. The one-child policy of the past means an ageing population with not enough workers to replace those retiring. Many nations face this issue, but it’s much more dramatic in China.

Some observers speculate that China will buy all the products from Russia that it can’t sell elsewhere. Ziehan does not share that view. Logistics is not favourable. The two pipelines carrying natural gas from Russian to China are maxed out. So is rail capacity between the two countries. Overall, the analyst believes China will be very damaged by the Ukraine war.

Compounding all the issues, oil and gas has seen reduced investment in recent years as the world tries to pivot away from fossil fuels. As well, in much of the world, fossil fuel energy is typically produced far from where it’s consumed.

There’s nothing pro-ethanol in what is happening and Zieman wonders if the U.S. ethanol mandate will be revisited. Although he didn’t mention it in his presentation, one also has to wonder about the future of renewable diesel in a world struggling to feed itself.

Peter Zieman believes the globalization necessary to feed eight billion people on the plant is breaking down and it’s difficult to argue with his premise. With fertilizer shortages likely to last for years, he says we’re at the beginning of a de-globalization process.