European consumers will face higher prices | Agricultural expert about the effects of Russian-Ukrainian war

European consumers will face higher prices | Agricultural expert about the effects of Russian-Ukrainian war

“The main problem is when production and market become disconnected, our region tends to fall into this mistake”–says Gábor Nagy, the CEO of Agrina Consulting, Hungary. The expert is asked about rising food prices, the opportunities for regional agricultural policy and the effectiveness of sanctions against Russia.

Russia is one of the world’s largest wheat producers, and together with Ukraine they account for a third of world wheat production. What can consumers in Central Europe expect if this crop is lost? Food prices were already rising before the war, how will the Russian-Ukrainian war push prices even higher?

In fact, Ukrainian sunflower oil (41% of EU sunflower oil imports come from Ukraine), maize (21%), millet (19%), vegetables (17%), rapeseed (17%), soya oil (15%) and honey (11%) account for a significant share of total EU imports. In addition, several European countries are heavily dependent on imports from Ukraine, some with only three to four weeks’ supply of maize and a problem of fertiliser supply for ever-rising energy prices. Hungary is, however, a net exporter of these cropswe export an average of 3 million tonnes of maize per year, which could improve the sales potential of some Hungarian agricultural products in the EU and on the world market. However, this does not mean that Hungarian consumers will not face higher prices. It is now much better to be a farmer than a consumer, especially when you add EU farm subsidies to the high prices. And what does this mean for food security in the war? The EU and its member states are major exporters. European consumers will also face higher prices, but unlike consumers in developing and less developed countries, they will typically be better able to manage these prices. North African countries, Egypt, Libya and Morocco, are particularly dependent on Ukrainian grain. According to the UN Food and Agriculture Organisation (FAO), the number of undernourished people is expected to increase by between 7.6 and 13.1 million between 2022 and 2026.

What are the strong agricultural links and dependencies of our region and your country with Russia and Ukraine?

There used to be a boom in food exports to Russia. However, previous sanctions have significantly reduced trade. The war made it virtually impossible. Not only because of the closure and difficulty of transport routes, but also because of European social and consumer expectations.  Russia and Belarus are the main importers of fertilisers in addition to the raw materials mentioned above. Fertilizer prices were already high when the war started, and this often led to a reduction in imports of fertilizers from these two countries. A fertilizer shortage typically results in lower yields, which, as it moves down the value chain, further increases consumer prices.

László Bárdos | Hype&Hyper

How can the agricultural sector and its policies in your region and country be transformed?

The Hungarian agricultural market has remained stable over the past 10 years, with 85% of trade within the EU and 15% with third countries. This raises the question of how European consumer demand is changing. Before the war, there was a demand for a more climate-friendly production and healthy food. The question is whether food insecurity will override this. The main problem is when production and market become disconnected. Unfortunately, our region tends to fall into this mistake. That is why it is so difficult to move from commodity production to export of processed products. In the short term, this year and to a lesser extent, next year the focus in the region is likely to be on the quantity and price of food but over time we will move towards green goals and in a good way recognise the market potential of new types of food.

To what extent might the loss of production in Ukraine due to the war improve the sales opportunities of some regional and country-specific agricultural products in the EU and on the world market? Which markets should we think of when we talk about the world market?

We can think of many things, but the world is becoming more and more protectionist and closed. In addition, we are always faced with the fact that it is useless to open up to the East and South if the consumers who pay well and have a stable legal system are in the West.

What are your views on the overall economic impact of the sanctions and to what extent will the EU and the region’s agricultural policy need to be redefined in the light of the EU sanctions package against Russia?

The sanctions and the associated consumer and voter opinion have made Russia a pariah. Not only will it be impossible to invest or trade there for years to come, but those who break the rules will be “punished” by the electors. In addition, Western values are being reinforced and the real question is how long the EU can maintain its special policy towards China. China is drifting closer to Russia and the EU to the US. And those who look out from these blocs are likely to be put in their place much more firmly than at present.

What does the current very intense economic war in agriculture look like?

We are moving towards a more self-sufficient economy. A world where high quality, expensive food is produced in the EU and cheap, mass-produced goods are produced in the EU’s partners. The question is countries like Serbia, Bosnia and Herzegovina and South American countries will join which bloc. If they can stay in the western sphere of interest, then outsourcing production could be an excellent place.

What are the lessons for 2014, Ukraine-Russia conflict and initial sanctions by EU?

Rely on political promises can have a price and a consequence. Sanctions are only worth anything if they are actually painful and immediate, as in the present situation. If we only sanction a bit, it is counterproductive. We lose credibility and encourage the other side to move forward.

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