SEISMIC SHIFTS

  • Written by Andrew Davis
  • Posted on Mar 31, 2022
  • Articles

The world has changed dramatically over the past few years.  Only time will tell how far the tectonic plates have shifted and whether life will ever be the same again.  In the UK, the pressure has been felt particularly in the countryside and the food chain.

The first seismic shock came in 2016 when we voted to leave the European Union, although the impact came later on our subsequent secession.  That meant that we left the Common Agricultural Policy and had to design a new farming and countryside policy from scratch.  This has been a very slow process and we still have few details other than that direct payments are being phased out and, instead, farmers will be paid public money for public goods.  This is the most fundamental shift in policy since the Second World War and will inevitably cause difficulties along the way.  Brexit brought major disruption to our trade with the EU, by far our largest trading partner.  Some of that disruption has been smoothed over but much of it remains.  Another impact of secession was the end of the free movement of labour, which caused huge shortages that persist today due to a totally misguided immigration policy.

The second shock was the Covid pandemic which amplified some of the effects of Brexit but also brought more.  It caused economic damage as the Government was forced to intervene to keep many businesses afloat.  There were severe impacts in the hospitality sector with ripples throughout the food chain.  Shortages of labour became more explicit not least as many people were ill or self-isolating for protection.  The economy shrank alarmingly but then expanded rapidly once the worst of the pandemic was over.  That brought rampant inflation, not least in energy costs, and a cost-of-living crisis.

The third, and arguably most profound, seismic shock was the Russian invasion of Ukraine and the economic sanctions imposed by the West in retaliation.  The cost of energy rose even higher as European nations grappled with their dependency on Russian oil and gas.  The knock-on effects of higher energy costs are already apparent, but will grow with time and cause great economic disruption and hardship.  Even before the Russian invasion, the cost of gas had forced the closure of two fertiliser plants in this country with consequent shortages of carbon dioxide as well as ammonium nitrate fertiliser.  The Government stepped in to ensure supplies to food and drink companies amongst others dependent on carbon dioxide.  At the top of the market so far, the cost of gas to manufacture one tonne of ammonium nitrate was £1,500 and, even now, is over £900.  There are many other examples of the impact of such high energy costs throughout the economy, not least for transport.  The availability and cost of fertiliser will have a significant impact on the yields of crops and thus food supplies.

The war in Ukraine has sent ripples across the world.  The Black Sea ports are blocked which means that exports from Russia as well as Ukraine have effectively ceased.  This will have huge repercussions for food supplies in many countries.  Varying figures have been quoted but Russia and Ukraine are major exporters of grains and oilseeds.  Of wheat traded on world markets almost 30% comes from Russia and Ukraine, 33% of barley, 19% of maize, 11% from Ukraine alone, 80% of sunflower oil and 19% of rapeseed oil.  Most of these exports are shipped through the Black sea ports of Odessa and Kherson.  Many countries are partially or wholly reliant on these exports, including Eritrea, Egypt, Yemen and Lebanon.  Egypt spends $4 billion a year on wheat imports to feed its 100 million population, 70% of which comes from Russia and Ukraine.  But the price has risen by 50% already and many economies cannot afford it.  There is said to be 15 million tonnes of grain in Ukrainian stores but, unless there is access to the sea, there is likely to be famine in many African and Asian countries.  Some countries have banned exports, Argentina for example, whilst Ukraine would not export beef, sugar, salt and millet even if it could.

Whilst most of the wheat in Ukraine is autumn sown, maize and sunflowers should be planted this spring.  Whilst reports suggest that some farmers are trying to carry on as usual, many others are involved in the fighting or have tanks churning up their fields.  This year’s harvest in Ukraine is likely to be severely reduced.

But it is not just food supplies themselves that are the issue.  One quarter of key crop nutrients used in European food production comes from Russia.  40% of the world’s potash exports come from Russia and Belarus.  Ammonium nitrate fertiliser is in such short supply and so expensive that its use is bound to be cut back whilst the survival of four billion people across the world depends on crops grown using nitrate fertiliser.  The cost of many crop protection chemicals will also be much higher due to the price of energy.

Back home, the policy transition, lack of labour and rampant inflation are causing farmers major problems.  Tens of thousands of pigs have been culled for lack of labour in abattoirs and cutting plants.  The cost of animal feed is rising sharply due to raw material costs, grain and imported protein.  The national pig herd has fallen from 80% of that needed for self-sufficiency to 40%.  Beef and sheep can be raised largely on grass but dairy cows need some compound feed as well.  So many dairy herds have closed over recent years that there are some suggestions of milk shortages in the not too distant future.

Since the loss of European Union migrant seasonal workers for the fruit and vegetable harvest, 60% have come from the Ukraine.  Whilst there may be refugee women and children this season, all the men are fighting the Russians at home.

The cost of raising a chicken has risen by 50% in the past year but the price in the supermarket has not kept pace.  Indeed, the supermarkets are trying their best to hold down food prices due to the cost of living crisis which is bound to squeeze farmers further.  Defra privately expects that a third of farmers to go out of business during the transition and these seismic pressures could increase that number significantly.  That, too, will have a major impact on food supplies.

There was an interesting article in the Times recently suggesting that the Ukrainian crisis will lead to a big reduction in global trade, that the move towards globalisation and the just-in-time approach is in reverse.  This will cause economies to stall or shrink and could lead to a major economic recession.  Quite apart from the politics, the cost of transport fuel will limit international trade.  Not only will food prices rise but shortages, even in Europe, are highly likely.  In 2020/21, two and a half million people in the UK took advantage of food banks and the number in food poverty is bound to grow.  That has to be unacceptable in an advanced society.

Of course, it is possible that the war in Ukraine will soon be over, that OPEC countries increase oil and gas production, the current crisis will lessen and we shall return to some form of normality.  But is that probable?  It is time that our Government took the issue of food security along with energy security far more seriously.  It will be too late when supermarket shelves have limited stock and farmers have gone out of business.  It is only by understanding the pressures and preparing for a profound crisis that we can hope to avoid it.