Sueme Mori: “Agricultural products global trade in times of crisis”

04/20/2022

The Russia–Ukraine conflict and its social, geopolitical, and economic consequences are the focus of analysis by experts from different areas and are present all the time, and in real-time, on the news and in conversation circles. In the economic and social aspects, the impact on the international trade of goods, and especially of products related to agribusiness, occupies a central role in discussions. This debate about global supply chains, interdependence between countries, and even national sovereignty has gained strength due to the COVID-19 pandemic. Limitations imposed by the health crisis strongly impacted international trade in goods and services.

The issue has become so relevant that, in 2021, it was the subject of the World Trade Organization’s (WTO) yearly report, the World Trade Report. Entitled “Economic Resilience and Trade”, the document assessed how the interconnected system of global trade both makes countries more vulnerable to shocks and also makes national economies more resilient to withstand crises. The report states that, in 2020, despite global trade having fallen by 7.6%, the medical equipment sector recorded an increase of 16% and trade in agricultural products remained stable, preventing the health crisis from becoming a food crisis.

The WTO’s concern is with the indiscriminate increase in measures that restrict world trade and, thereby, make economies less resilient to shocks. In the context of COVID-19, since the beginning of 2020, countries have registered at the WTO 35 restrictive measures for the export of agricultural products and eight aimed at facilitating sales to other countries. On the import side, four restrictive measures and 44 facilitation measures were reported.

Due to the pandemic, governments began to question the value for money of importing/exporting this or that product. In the agricultural sector, countries used the phrase “food sovereignty” to justify the use of regulations aimed at facilitating or hindering the trade of certain products. The fear of a possible interruption in the supply of food, especially for countries that rely heavily on imports to guarantee domestic supply, has become a priority for governments. What is behind this is the increase in international trade in agricultural products, which, between 2010 and 2020, grew by around 40%, from US$ 1.2 trillion to US$ 1.7 trillion.

To understand how this interdependence works, it is necessary to look beyond the major players (the United States, China, Brazil, and the European Union) and identify the most relevant suppliers for each production chain. For most people who do not work in international trade, it came as a surprise to learn that Ukraine is a major player in the international agricultural market. The country is the third-largest exporter of corn, the second of barley, and the first of sunflower oil. Russia also occupies a prominent position: it is the world’s main supplier of wheat and nitrogen fertilizers.

The partial or total interruption of agricultural production and exports from Russia and Ukraine affects the supply chain of several countries. Similar to what happened because of the COVID-19 pandemic, the conflict brings up the issue of interdependence between countries motivated by international trade. Recently, the United Nations Food and Agriculture Organization (FAO) released a note entitled “The Importance of Ukraine and Russia for the Global Market of Agricultural Products and the Risks Associated with the Conflict.” The document presents data that prove the relevance of the two countries, such as the fact that 50 countries import more than 30% of the wheat they consume domestically from Russia and Ukraine. Regarding Brazil, trade in agricultural products with those two countries moved, in 2021, about US$ 1.5 billion.

To prevent or limit the negative impacts of the conflict, FAO recommends that domestic production and trade in food and fertilizers between the two countries and the rest of the world remain functioning and that those who depend on supplies from Russia and Ukraine to ensure domestic supply diversify their imports.

With the world population predicted to reach 8.5 billion in 2030, 9.7 billion in 2050, and 11.2 billion in 2100, inevitably the demand for food will also grow, as will the interdependence between countries. Ensuring food security involves increasing global trade.

The complete self-sufficiency discourse is illusory. Crises such as COVID-19 and the conflict between Russia and Ukraine are used as a justification for some countries to increase their degree of protectionism. Since the beginning of the pandemic, international trade has faced challenges that should be seen as an opportunity to improve this exchange system, from production, logistical, regulatory, and also marketing points of view.

The issue of fertilizers exemplifies this situation well. As the world’s fourth-largest consumer and with increasing imports of that significant input for national agricultural production, it is necessary to discuss ways to reduce external dependence and diversify sources of supply. Between 2009 and 2019, Brazil increased the use of fertilizers by almost 120%. In the same period, China and the United States, two other major food producers, recorded growth of 1.3% and 5.4% respectively. In this and other cases, there is no need to talk about self-sufficiency, but about ways to make economies less vulnerable.

With production chains increasingly globalized, the risk is inherent to the process. Lessons learned from the pandemic and the conflict between Russia and Ukraine will help governments and the private sector to define more assertive strategies to reduce those risks. Proposals must aim to strengthen national economies and international trade at the same time.

 

Sueme Mori is the director of International Relations at the Brazilian Confederation of Agriculture and Livestock (CNA)