Feed the world: supply strains from the war in Ukraine
As the Russia-Ukraine war continues, feed firms scramble for raw materials.
June 3, 2022 By Bonnie Waycott
In the weeks since Russia launched attacks on Ukraine, the world has experienced political and economic upheaval. Gas prices are soaring, and many businesses have pulled out of Russia or halted operations in protest. It seems no industry is unaffected, even aquaculture, and feed firms are feeling the effects.
Russia and Ukraine are among the most important producers of agricultural commodities. According to the FAO, in 2021 they ranked amongst the top three global exporters of wheat, maize, rapeseed, sunflower seeds and sunflower oil and amongst the top ten for corn and barley. Corn, and especially wheat, are important for feed manufacturers but now, prices for wheat, barley, corn and others are all picking up speed.
“Some of the biggest implications that we’re seeing from the war are reduced availability of ingredients, higher prices and a lot of uncertainty in the market about the new crops coming from Russia and Ukraine,” said Robert van den Breemer, procurement director at Skretting. “Over the past two years, we have seen disturbed logistics, disturbed raw material flows and extremely disturbed prices. The war comes on top of an already very challenging sourcing environment due to COVID-19.”
“We are very much influenced by the increasing raw material prices as a result of what’s happening,” said Kenneth Patrick Madsen, Group Marketing Manager at Aller Aqua, which purchases significant volumes of protein crops from Ukraine. “We have also closed activities in Russia and Ukraine and our logistics have been disrupted.”
Some feed firms have taken significant steps in response to the war. In early March, BioMar announced that it would cease trading with Russia following the invasion of Ukraine. The move includes sales of finished products as well as the sourcing of raw materials and applies to all BioMar entities around the globe. The ban is a major step for the company, as substituting raw materials and losing sales volume will have a significant impact. That same week, SHV, the Dutch conglomerate that owns feed producer Nutreco and its aquafeed subsidiary Skretting, said it would not undertake any new investments, projects or exports to Russia.
Others, however, are continuing with a business-as-usual attitude but the situation is having strong impacts, especially when it comes to raw materials.
Van den Breemer says that for firms like Skretting, the ingredients most impacted are rapeseed, soy protein concentrate and other vegetable ingredients originating in Russia. In addition, the overall pressure on the prices of wheat and corn, and reduced availability of vegetables and other ingredients, are making it difficult to contract what is needed. This has led to previously unheard-of prices due to little or no alternatives.
“Regarding our expectations in the future, in the short-term, prices are expected to remain at current levels,” said van den Breemer. “When the summer crops from the Americas become available, it’s possible that prices will decrease slightly but overall, inventories are at record low levels. To a certain extent, the price increases can’t be avoided. We have a continuous and active dialogue with the commercial team to ensure that we manage the price increases in the best way for our customers.”
“We expect to see fluctuating prices but when the global market has adapted to this. Things may become more balanced,” said Madsen. “The need for cheaper food protein alternatives will also rise and solutions for better feed efficiency will be in high demand. This is likely to affect feed prices and the price of raw materials in the future.”
Going forward, Skretting is looking to source more local materials where possible, find alternative ingredients and use its decades of expertise to ensure that it continues to supply its customers with feed that meets the nutritional requirements that they need.
“We are a strong team and capable of handling this situation,” said van den Breemer. “Stopping the war in Ukraine will be beneficial for the world and also for the feed industry, when some uncertainty is removed from the market.”
“The rise in feed prices due to more expensive raw materials will force many farmers to choose cheaper feeds or other solutions,” said Madsen. “This could prolong production cycles and lead to less production output and less fish. This, in turn, will become a problem because fish is consumed more frequently now but there will be less supply for consumers. The Russian and Ukrainian markets are important when we look at the raw material situation. They are major players and of significant importance to feed firms. However, at Aller Aqua we are managing, and we believe that the market will adapt from having gone through this difficult period. Governments could invest more in fish production or perhaps make other plant-based materials such as wheat more easily available so that farmers can keep their optimum feed and maintain production.”
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