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The toll of war in Ukraine to infrastructure, agriculture, and exports
December 20, 2022, will mark 10 months since Russia invaded Ukraine. To date, tens of thousands of Ukrainian civilians have lost their lives, among them hundreds of children. Millions of people have become refugees and were forced to move to safer places. It is estimated that about three million Ukrainians remain abroad, mainly in European countries. A part of the population ended up in occupied territories, and many were deported to Russia.
A lot of residential areas in Ukraine have been destroyed. In addition, civilian infrastructure including hospitals, roads, bridges, power lines, transformers, dams, irrigation, hydrotechnical facilities, and more have been destroyed or severely damaged. Some of the areas liberated from Russian control look like scenes from a horror movie.
Before the Russian troops withdrew from the occupied territories, they looted most farms and enterprises. What they could not steal, they destroyed.
The production of agricultural products in Ukraine has decreased due to losses in the occupied territories and zones of active military operations. Because many businesses have closed, the income of the population has decreased. As a result, there is an imbalance between the supply of products and the fall in the demand. Large producers can and are trying to solve this issue by increasing exports, but small and medium-size enterprises are in tough conditions, since they cannot easily turn to export and/or raise prices. Also small and medium-size producers have very limited access to product sales channels like large supermarket chains.
Beginning in October, Russia began constant, massive missile attacks on the critical civilian infrastructure. Since October 10, Russia has fired more than 1,000 missiles and drones at power facilities. Fifty percent of Ukraine's power infrastructure has been damaged.
Emergency and scheduled power outages directly affect the country’s entire economy in general, and agriculture and food industry, in particular. The latter includes production, processing, food storage facilities, cafes and restaurants, grocery stores and supermarkets, especially frozen food departments like seafood and/or partially-finished foodstuffs.
In rural areas, livestock farms may be cut off from electricity for several days or even weeks.
In some larger cities, due to shelling, air raid sirens, and power outages, grocery stores and supermarkets will not work for eight to 12 hours, which reduces the availability of food and other necessities. During the blackouts, many grocery stores and supermarkets operate “cash only.” At the same time, it’s not possible to withdraw cash from the ATMs because of the outages.
The increase in the price of energy for industrial consumers causes the increase of logistics costs. In order to ensure the normal production process, businesses are forced to buy power generators that run on diesel and gasoline. The cost of a kilowatt of electricity obtained from a diesel generator is up to three times higher than that from the grid. Both producers and processors are forced to bear such costs because long-term power outages lead to even greater production losses and higher production costs. Power outages may also lead to the loss of internet and mobile communications that further complicate the business operations, especially in rural areas.
Many agricultural producers complain about the low prices, which are often lower than the cost of production. There are also problems due to the shutdown of most Ukrainian seaports and the increase in logistical costs.
Damage and Losses
According to the World Bank estimate, the post-war reconstruction of Ukraine will cost about 500 to 600 billion euros. Before the attacks on civilian infrastructure, the World Bank predicted a drop in Ukraine's GDP in 2022 by 35%, but now this indicator may be 40%.
The estimated losses to Ukrainian agribusiness is about 50 billion euros. Indirect losses take into account foregone income from reduced production and lower domestic prices, as well as additional costs that producers are forced to bear because of the war. The specified amount covers losses due to disruptions in logistics and a decrease in prices for export-oriented goods, reduction in the production of agricultural crops, decrease in the production of animal husbandry products, increase in production costs, and reduction in the production of perennial crops.
Russian invaders stole about 6 million tons of grain from the occupied territories. Its value is about 1 billion euros.
In addition, 15% of livestock farms and 10% of cows were destroyed. Almost 20% of the cattle were concentrated in territories currently occupied or where active hostilities are taking place. In the first months of the war, it was possible to partially relocate livestock and enterprises, but only on a small scale.
For several months, processors have been faced with refusals of pre-ordered chilled meat, postponement of deliveries, and forced revision of schedules for production and/or shipment of finished products. Thus, many operators have significant transitional stocks of products and slumped income. In response, processors reduced procurement volumes and the workload of slaughterhouses by at least 20% to 30%.
Between mid-October and mid-November the average price of live pigs dropped about 20%.
Poultry
In March, as a result of Russian armed aggression and massive shelling, one of the largest, most modern poultry farms near Kherson had its power cut off. Because of the occupation, the farm did not have the opportunity to feed birds and maintain a sanitary regime. As a result, the vast majority of chickens died. Before the full-scale invasion began, the facility had more than four million chickens.
For the past nine months, the total number of poultry decreased by 14% or 16 million heads. At the same time, the number of laying hens decreased by 6.3 million. The production of meat for all types of poultry also decreased by 7.5%, or 73,000 tons.
In overall meat production, poultry products make up 56%. In poultry meat, 94% is broiler meat and 2.5% is turkey meat, with duck and goose meat dropping to almost zero. In addition, egg production has decreased by 800 million eggs, or 16%.
Many poultry farms are in territories currently occupied by Russia, primarily in the Kharkiv, Donetsk, Zaporizhzhia, and Kherson regions. One of the problems is that the Ukrainian poultry market is highly monopolized. For example, Myronivsky Hliboprodukt is the largest producer of poultry meat in Ukraine, with a share of 68% of the market. In addition, the egg market is divided between three companies.
Environment
Three million hectares of forests have been affected in Ukraine, which is almost a third of the country’s forests. Some are lost forever.
It is estimated that the damage to Ukraine’s environment from the war is more than 37 billion euros. According to the World Wildlife Fund, 20% of nature conservation areas have suffered. Eight nature reserves and 10 national natural parks remain under occupation.
Dangerous substances enter the air every day due to forest fires, the burning of petroleum products, and the burning of industrial facilities. Since the beginning of the war, the number of such emissions has exceeded 67 million tons. For comparison: in 2021 and 2020, emissions amounted to 2.2 million tons per year.
Mined Territories
Since 2014, 180,000 square kilometers have been affected by mines, which is 30% of the entire territory of Ukraine or the size of two territories of Austria. It will take about 10 years to completely demine and clear the territory. According to preliminary estimates, the total cost of demining will be about 2 billion euros. In particular, agricultural lands are contaminated with improvised ammunition, cluster shells, anti-personnel mines, and anti-tank mines.
Military actions in Ukraine significantly aggravate the problems of sustainable management of water resources, according to the State Agency of Water Resources of Ukraine. During eight months of the war, more than 500 water infrastructure facilities have been destroyed, and the volume of water lost due to damage and destruction of dams and other hydrotechnical structures is 742.2 million cubic meters.
Harvest
According to the forecast of the Ministry of Agriculture, this year's harvest was supposed to be 65 to 67 million tons of grain and oil crops. The latest report shows one third of the areas under corn may remain in the fields. Because of the prolonged rainy season, the moisture content of corn is 30% and higher, and the high prices of natural gas make it unprofitable to dry corn.
Export and Import
Since January, Ukraine has exported 52 million tons of agricultural and food products for a total amount of 22 billion euros. In volume, it is 16.7% less and in value 13.7% less than during the same period last year. The main export commodities were corn, wheat, rapeseed, sunflower oil, oilseeds meal, barley, and soybeans.
From February 24 to August, 1, the export of all Ukrainian commodities and goods by sea stopped. The export, agriculture included, was possible only by railways and roads. Also a significant amount of export was by barges from Ukrainian ports on the Danube River to the nearby Romania port of Constanta.
According to the data from the European Commission regarding the trade in dairy products for the three quarters of the current year, Ukraine is the number one supplier of butter and cheese to the EU. Thus, Ukraine exported 4.3 thousand tons of butter to the EU.
Ukraine is the third largest supplier of poultry meat to the EU, or 85,000 tons. This year, due to the closure of exports by sea, 30% of poultry meat has been exported to the EU. Currently, meat is exported by road transport.
This year, the export of eggs decreased by 40%, or 370,000,000.
The So-Called "Black Sea Grain Initiative"
On November 19, the so-called “Black Sea Grain Initiative” signed by Ukraine, Turkey, and the UN, according to which Ukraine could export grain and oil crops, was set to expire. Until recently, Russian President Vladimir Putin threatened to not prolong the initiative. However, on November 17, the agreement was extended for another 120 days.
The same day, similar to the beginning of the initiative, Russia shelled Ukraine, including Odesa, from which the main grain export takes place.
In addition, until now, Russia has been hampering the implementation of the agreement, inhibiting the movement of ships in every possible way, including delaying inspections of ships for the presence of weapons or other cargo not provided for in the agreement.
Also, regular shelling of power facilities in Ukraine, primarily power generating and distribution facilities, transformers, and power lines has led to a shortage of electricity throughout the country. According to government statements, about a half of Ukraine's power infrastructure (mainly power distribution facilities) has been damaged by Russian missile attacks. On December 10, Odesa was attacked by Iranian made drones that damaged the region's power infrastructure. For about two days, the entire Odesa region was in full blackout. As a result of the attacks on the energy grid, blackouts have been introduced throughout Ukraine or consumers are significantly limited in electricity consumption, which, depending on the region, can last from several hours to several days, to balance the system.
In addition, during shelling, Ukrainian enterprises and transport stop, and personnel hide in bomb shelters. Due to this, the processing of grain cargo in the ports is significantly slowed down.
The 2023 Forecast
As our country looks ahead to 2023, let's hope for the best but remember: Man proposes, God disposes. We must keep in mind one very important thing. . . the uncertainty in Ukrainian everyday life is dominant.
- How long will the war last?
- What will Russians strike next?
- How serious will the strike be, especially for the infrastructure including power generation and distribution, damages to roads and bridges?
- How cold will winter be?
The questions are endless, as there are so many unknowns.
In 2022, Ukrainian farmers will sow up to 30% fewer winter crops compared to last year, according to Mykola Solskyi, the Minister of the Agrarian Policy and food of Ukraine. Last year's grain has already been almost completely exported.
The total export potential of Ukraine in the current season for wheat is about 15 million tons. However, it is difficult to make forecasts for corn due to the uncertainty of the harvest (preliminary estimates are 27 million to up to 32 million tons of export).
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