Jeremy's Blog 4th March 2022: Ukraine Consequences

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 3rd March 2022.

“There are decades when nothing happens, and there are weeks when decades happen.”

A week ago, Russia invaded Ukraine unleashing an increasingly brutal assault against determined resistance in the breadbasket of Europe. The consequences, reaching far beyond Ukraine, are likely to echo for years.

With the deaths, devastation and intended destruction of democracy and civil society, the early effects can also be seen in markets. Last night, markets closed with:

• Brent Crude at $114.54/barrel, the highest since 2010-2014 and only surpassed in the 2008 crisis
• UK natural gas futures at £4.01/therm, seen briefly in the autumn and ten times the price last spring
• UK (ICE) feed wheat futures for May 2022 at £269/tonne.

while ammonium nitrate was being offered at towards £700/tonne. Nothing points to early price falls. Meanwhile, laying waste and waging terror, Putin has made Russia a pariah state and five decades of German foreign policy have been re-written in five days.

With Ukraine’s crops not yet sown, railways broken, ports wrecked, shipping avoiding the Black Sea for both countries and world stocks tight, the consequences for grain and vegetable oil markets are stark, increasing political risk. The grain export bans and the price spike of 2010/11 helped drive the Arab Spring; the world now seems more febrile still.

Global supply chains are already jolted by the last two years but the challenge for UK farming now runs beyond this season. High gas prices limit fertiliser production, perhaps now even a by-product of CO₂. Arable farmers may get the expensive fertiliser ordered for this crop. Many livestock farmers, having held back from ordering, now must look for other strategies if they are to have enough winter feed. Substitutes from more grass keep to conservation or legume seed mixtures will be more dear or scarce. The greater arable challenge may be planning for this autumn – what will be available at what price?

Putin struck at Georgia when the West had its 2008 financial crisis. A stronger and productive economy with good businesses is better able to handle such events and support influence abroad. Affirming that, the Chancellor set out on Friday the role for tax reform in:

• improving the poor level of business investment
• promoting innovation and private R&D as the key to productivity.

With successive economic and political challenges, coming not singly but in battalions, farming as much as the rest of the economy needs innovation and resilience. Food security needs good, competitive farming businesses. Lets see what the Chancellor does.