The world economy and geo-politics are dynamic and tumultuous modern day phenomena. While the world is engrossed in dealing with the Covid-19 pandemic and domestic political situations that are in a flux, the conflict between Russia and Ukraine has added insult to injury. Both the Covid-19 pandemic and the invasion of Ukraine by Russia have affected all sectors of the world economy in various ways. The pandemic initially disrupted markets and workplaces because of the containment measures that were implemented by governments the world-over including restrictions of peoples’ movements, shutdown of businesses and complete lockdowns in some instances. These measures slowed down production, demand for certain commodities and products and logistical difficulties in getting productive economic activities going and getting products to the markets. The agricultural or agri-food sector was not spared from these disruptions, despite having been declared essential services in South Africa.
The tensions between Russia and Ukraine, and the subsequent invasion of Ukraine by Russian forces will have telling deleterious on the South African agribusiness sector with debilitating effects on consumers and food security. Both Russia and Ukraine are significant players in the world grain market. These two countries are also among the most important grains trading partners with South Africa. The main grains that South Africa are wheat and sunflower. Russia and Ukraine account roughly for 24 percent, 14 percent and 60 percent of globally traded wheat, maize and sunflower, respectively. It should be noted that South Africa is a net importer of wheat and wheat is one of the major grains consumed in the country if one takes into account the quantities of bread consumed. Furthermore, bread is considered a stable foodstuff, particularly for the lower income deciles. Thus, a disruption in the world supply of wheat would have more food security implications for the poor. Although South Africa imports considerable quantities of wheat from both Russia and Ukraine, the country has a bit of reprieve in this area because South Africa can easily diversify its sources of wheat imports to include countries like Australia. However, the biggest threat is the effect of this conflict between Russia and Ukraine on the world grain prices. It should be borne in mind that grains are traded commodities with their prices set at the international markets, notably the Chicago Board of Trade (CBOT), based on international supply and demand.
Another pathway through which the Russian invasion of Ukraine could affect world food supplies and escalate prices worldwide, including South Africa, is through an increase in the price of crude oil. The impact of sanctions on Russia imposed by both the United States of America and the United Kingdom are already being felt through the increase in crude oil prices. Fuel is one of the most important costs of production for the agricultural sector and its importance transcends beyond the farm gate and the impact is carried throughout the value chain. Transportation of both inputs and agricultural products, distribution and storage are all impacted by fuel prices. So, the higher the price of fuels such as diesel and electricity, the higher the cost of production and distribution and these price increases are ultimately transmitted to the consumer. One can reasonably expect the price of both crude oil and wheat to increase in the short-run and be carried through for the medium- to long-term.
Given the above scenario, South Africa should build a resilient agricultural sector that is able to withstand exogenous shocks such as pandemics and geo-political tensions that threaten the supply of crucial food and fuel supplies. One way to do this is by diversifying the sources of all major agricultural and food imports while building the internal capabilities to produce some of these imports thus achieving import substitution by local production. A caveat here is that no one country can produce all that it consumes given issues of natural resources endowment, climatic conditions and comparative advantages. Furthermore, self-sufficiency in everything is hardly a prudent policy aspiration to pursue, especially in an era of globalization and an integrated global economy. There is also scope to increase the production of grains like wheat and sunflower despite the conventional wisdom that South Africa neither has the comparative or competitive advantages to produce the former. Research conducted by the Agricultural Research Council (ARC), amongst others, has shown that with sufficient research and support, South Africa can produce substantial quantities of good quality wheat mainly in parts of the Free State and Western Cape provinces. This calls for sustained research endeavours in the technologies required to achieve an increased production of crops such as wheat. The main focus in this regard should be the development of suitable and suited cultivars with the concomitant technologies necessary for supporting such advancements.
As a parting shot, South Africa should use its strategic position as a member of important international groupings such as the Brazil, Russia, China and South Africa (BRICS) and others to foster peace and persuade the like of Russia to desist from aggression towards smaller countries like to Ukraine to de-escalate the tension thus remedying the situation. It is in the interest of all, South Africa, included to quickly diffuse the tensions between Russia and Ukraine to bring back a semblance of normality in the international markets.
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Dr Thulasizwe Mkhabela is an experienced agricultural economist and is currently Senior Partner at Agriculture House (thulam@agrihouse.co.za) and Managing Director at Outcome Mapping (thulasizwe.mkhabela@gmail.com).
