You may remember Peter Zeihan’s analysis of world agricultural output in the wake of of deglobalization and the Russo-Ukrainian War, and his forecast of famine late this year.
That was just before the Ukraine export deal was signed. Now he’s looked at the facts and run the numbers, and says it isn’t going to help much.
Takeaways:
“Right now the Ukrainians have about 18 million metric tons stored up in their silos at or adjacent to their ports. That’s a lot that needs to move. That is in excess of half of a normal harvest for the country.”
“On August 1st we got our first ship, the Razoni, to dock to load up and to leave for Lebanon. It’s carrying 26,000 metric tons. So we need 700 more ships of this size if we’re going to get that grain out.”
“The Ukrainian harvest starts in less than 45 days. So you’re talking about needing to get a dozen or so vessels in there every single day. So far we’ve had one. I don’t have a lot of hope for this.” (Note: Since then we’ve had four more.)
“Right now the Ukrainians have nowhere to put it. Their silos are full from last year’s harvest. They weren’t able to export because the war started back in February.
“Even if the farmers were able to work their fields and not be molested by Russian troops (and remember we’ve already had mass evacuations from eastern and southern Ukraine) the problem remains that they can’t get fuel into the country. So you’re talking about needing to harvest industrial levels of wheat without industrial equipment.”
“The likely end result here is that this is the last year that Ukraine participates in international grain markets. They simply don’t have the capacity to get stuff up at a scale. In fact the only place that they might be able to ship stuff is by rail and at most with significant upgrades that have not yet been done. They can probably only ship about one-fifth of their normal produce out that way the rail lines are just not designed for that kind of bulk cargo.”
Bottlenecks have arisen due to the different rail gauge used in Ukraine, dating back to the Soviet era. That means shipments are being transferred to new wagons at the border.
Ukrainian Infrastructure Minister Oleksandr Kubrakov has targeted the upgrading of rail infrastructure in western Ukraine as a priority the EU should focus on. “Rail transport can partially undertake all the transportation of agricultural products, particularly grain,” he said. “However, transporting goods is difficult due to western Ukraine’s low border-crossing capacity, which is not designed for transshipping such volumes.”
“Some 768,300 metric tons of Ukrainian grain was exported by rail between May 1 and May 16.”
Back to Zeihan: “And a lot of them have to transit little territory called Transnistra [in Moldavia], which is under Russian control.”
The sobering conclusion:
You remove the world’s fourth largest wheat exporter from the market and you’re going to look at cascading problems. Not just with food prices and malnutrition, but civil conflict and breakdown, most notably in the Middle East. The last time we had a doubling of global wheat prices, we saw the Arab spring back in 2011. What we’re dealing with is an order of magnitude more complicated and deeper rooted. And to think that we’re only going to have doubling of prices is ridiculously optimistic.
Well, it’s a good thing the Middle East isn’t know for having populations full of unstable hotheads looking for an excuse to kill each other at the drop of a hat…