Russian invasion of Ukraine disrupts food trade for halal market countries

The Russo-Ukrainian War has far-reaching implications for the rest of the world as food exports from the region stop.

Dubai, Tunis, and Kuala Lumpur: Russia’s unprovoked invasion of Ukraine has disrupted food supplies, especially cereals, to major halal food markets given Ukraine and Russia collectively control around 30% of the global wheat trade.

The military action, that on 17 April the United Nations (UN) Office of the High Commissioner said had killed 2,072 civilians, has put the Middle East and North Africa in a tight position over food supplies. This comes on top of the region's economies having been weakened by the COVID-19 global pandemic.

Dutch government figures reflect Russia produced 85.8 million tonnes of wheat in 2020, while news agency Reuters credits Ukraine with producing 24.9 million tonnes. With imports accounting for as much as 90% of food consumption, the Gulf Cooperation Council (GCC) region has been impacted by a steep reduction in grain and sunflower seed exports from Russia and Ukraine and freight rates inflated by the war.

“Supply chains have been interrupted and food prices have risen sharply due to the Gulf’s extensive reliance on Russian and Ukrainian staple foods,” said Matthew Hoffer, managing director of Europe and Middle East at OneAgrix, a global agricultural and halal digital trade platform.

“This is particularly so for wheat, corn, sunflower seed oil and barley, in some cases accounting for as much as 50% of imports. This scarcity has escalated costs and thereby prices (causing food inflation),” he said.

UN Food and Agriculture Organisation (FAO) data shows Saudi Arabia and Oman import around half of their wheat from Russia and Ukraine. Russia is also the United Arab Emirates’ (UAE) largest wheat supplier with a 50% market share, according to the United States Department of Agriculture (USDA).

Moreover, 73% of sunflower oil in the UAE was imported from Ukraine and 7% from Russia in 2019, according to the World Trade Organisation (WTO).

“The GCC imports as much as 90% of all food, so any disruption obviously has a knock-on effect,” said Hoffer, while adding the GCC states were protected by a diversified supply chain and their wealth, itself been sunk into more local production and food storage.

COVID-19 supply problems have also encouraged contingency planning – the UAE approved a new federal strategic food reserve law in 2020 to maintain crisis supplies. To protect consumers from food price hikes stemming from the Ukraine invasion, the UAE approved a new policy in April 2022 telling suppliers to submit evidence to justify price increases of goods including bread and rice.

The region has also sourced more sugar, wheat and barley from Latin America, particularly Brazil. Meanwhile, Gulf countries have increased payments to other Middle East and North African countries, such as Egypt and Algeria, to help them counter inflation.

“In return, these countries have stopped exporting to existing countries and diverted commodities such as grains, cooking oil and oilseeds to the Gulf,” said Hoffer.

That assistance will be welcome in North Africa, where even relatively wealthy Tunisia faces significant disruption of supplies as Russian tanks roll over Ukraine’s rich farmland. Sigma Conseil, a Tunisian statistical and polling organisation confirmed on 14 April that, with Tunisia importing more than 66% of its cereals, 61% of its durum wheat, 97% of its soft wheat and 98% of its barley, the risk of disruption is real. Most of Tunisia’s cereal imports come from Ukraine, particularly soft wheat.

According to data service Trading Economics, $151.96 million’s worth of wheat (and meslin); $89.9 million’s worth of corn and $62.1 million’s worth of barley was imported into Tunisia from Ukraine in 2021. 

Ukraine has been struggling to export 20 million tonnes of wheat and corn harvested in 2021 due to Russian navy blockades on the Black Sea according to the Ukrainian Grain Association.

Consequently, Mohamed Sadok Jebnoun, a Tunisian economist, said the invasion would reduce availability and increase prices.

He told Salaam Gateway the Russo-Ukrainian war had started while the world was still recovering from the economic aftermath of COVID-19. Governments were expecting to tackle post-pandemic recovery, but this process had stopped in light of the supply chain crisis and massive rise in raw material prices caused by the war.

“The war directly affected the price of cereals and barley has reached $500 per tonne,” said Jebnoun.

While the Tunisian ministry of agriculture, water resources and fisheries has confirmed the country is cushioned by having a three-month stock of wheat, other African countries are less well prepared.

Africa feels the brunt of rising prices

“The African continent has been the most affected and harmed by the COVID-19 pandemic and now by the Russia-Ukraine war,” he said.

Jebnoun predicted Africa’s collective public debt would rise by at least $300 billion because of the war and the pandemic in addition to the previously planned debts in the African countries’ budgets.

“Ukraine is a main exporter of wheat, cereals, sunflower oils and other food products to Africa… We can say Tunisia has average harm following this war, while other countries have harsher effects, such as the Sahel and Sahara Desert countries,” he predicted, indicating key food importers Egypt and Algeria would also suffer.

“The worst scenario is that importing countries will be left with no stock for next summer,” said Algerian economist Mourad Kouachi of the University of Oum El Bouaghi. He told Salaam Gateway the worst would come if the conflict continued through the Ukrainian harvest season as that would translate into famine for many poor countries.

Jebnoun said seeking alternative wheat supplies further afield – such as India, Australia and Argentina – may not be a solution given the current high shipping costs now running around 200% of pre-pandemic levels.

“The African Development Bank has been urging cereals self-sufficiency on African countries, but that will take time.”

Will price rises cause unrest and a new Arab Spring?

The Tunisian economist thinks not.

“The real problem today is an economic and social one that aims to fight poverty and boost the economic situation. The priority should go to the economic and social situation; the only revolution people should think about today is the technological one,” Jebnoun said.

The impact on the food trade with key halal markets in south-east Asia – Indonesia and Malaysia – will be less important, although still significant. In March, Wellian Wiranto, a senior economist for the Singapore-based OCBC Bank told Malaysian journalists Malaysian exports only comprised 0.33% of the country’s outward shipments in 2021.

Imports of Russian goods comprised 0.5% of Malaysian imports. However, Ukraine wheat imports have been important with Malaysia importing $72.3 million’s worth of wheat from Ukraine in 2020, according to the Observatory of Economic Complexity (OEC), a US-based economic data service.

Indonesia is even more reliant on Ukrainian wheat supplies. According to US-funded south-east Asian news service Benar News, in 2020 Ukraine exported $708 million’s worth of cereals to Indonesia and last year the country imported 3.07 million tonnes of wheat from Ukraine and 2,955 tonnes from Russia, according to the Asian Financial Review.

With Ukraine’s major farm industry seriously disrupted by the war, Indonesia may need to look to alternatives. This could include Australia, from which it imported 4.6 million tonnes of wheat in 2021, and potentially Russia as Indonesia refused to impose sanctions despite voting to condemn its invasion of Ukraine at the UN General Assembly.

In March, as its armed forces penetrated the territory of its neighbour, Russia’s ambassador to Indonesia Lyudmila Vorobieva stressed the country had improved its production capacity since 2014 and claimed its production was competitive with Australia.

“We are not only prepared to supply wheat, but we are ready to supply beef or chicken to Indonesia,” she said.

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