Ukraine’s breadbasket has run out fuel for its farmers. Two weeks into Russia’s assault on Ukraine supply chains are disrupted and a critical shortage of fuel for tractors and trucks is pushing Ukraine’s agricultural sector toward collapse. Europe may face severe food shortages and price rises if it doesn’t secure diesel fuel soon.
According to many reports, Ukraine is a significant agricultural powerhouse. In 2018, it produced 49.6%, 10.6%, 12.6%, and 15.3% respectively of the global sunflower oil and global wheat. Ukraine is also one of the largest producers of eggs, potatoes and rye. In Europe, Ukraine is the fourth or third largest source of agricultural imports in any given year. According to Nazar Bobitski, head of Ukraine’s Business and Trade Association in Brussels, Ukraine supplies 88% of Europe’s sunflower oil, 41% of its rapeseed, and 26% of its honey. The Middle East even more at risk of food shortages due to Russia’s invasion of Ukraine. Lebanon, for example, gets over 80% of its wheat from Ukraine and has now banned the export of “foodstuffs” to protect itself.
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It is often not reported that the fuel shortages have caused the impending collapse in the Ukrainian agricultural sector. Fuel, mostly diesel is required by farmers to fuel their tractor, plows and combines as well as delivery trucks. Russia is cutting off fuel deliveries to Black Sea ports, while Ukraine diverts some of its fuel for military defense, there is no gasoline left to support agriculture.
Taras Panasyuk, Commercial Director for West Oil Group (WOG), one of Ukraine’s top retail fuel companies, said the “situation is really very serious.” Planting season starts in a few weeks, but farmers do not have fuel to sow the fields and have no confidence that they will have fuel with which to harvest later in the year. An agricultural official who requested to remain unnamed was more explicit, “Our agricultural sector is getting completely f*cked.”
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Ukraine’s agricultural sector consumes approximately 1.5 million tonnes of diesel in a normal year. Ukraine will need 200,000 tonnes of diesel to survive the peak months and the following two months. For commercial purposes, the country requires an additional 150,000 tonnes each month. This includes for delivery and supply chain logistics. According to an agriculture official, these figures are independent of military demands. WOG reports that OKKO will be the top retailer of fuel, and WOG has already announced they are going to run out in the coming weeks. They have also stopped selling diesel to agriculture, except under prepaid contracts.
To be clear, Ukraine’s current diesel shortage is not due to sanctions on Russian oil and gas, nor will it be exacerbated by stricter sanctions. Global economic recovery since COVID-19 had already affected supply chains. Saudi Arabia, for example, is now looking to import diesel. Meanwhile, China, which has carefully not hindered Putin’s invasion, has ordered its state-owned petroleum companies to cease exports since the invasion.
Yes, markets are in turmoil because of uncertainty created by Russia’s invasion of Ukraine and the absolute imperative of breaking Russia’s energy dominance over Europe. But Ukraine cannot secure diesel for its agricultural sector and supply chains precisely because Russia’s arrogance about its energy dominance gave Putin a feeling of invincibility. His logic was based on the conviction that Europe’s dependence upon Russian oil and natural gases makes it impossible for him to interfere.
It is becoming difficult for Ukraine, due to the Russian military presence in Black Sea, to find diesel and other fuel suppliers. Prior to the war, the majority of diesel entered Ukraine via Belarus, Mykolaiv and Kherson, as well as through the Black Sea ports at Odesa and Mykolaiv. Russia now controls Kherson and has preyed on Mykolaiv. Belarus is also part of this assault. Russian warships operating in the Black Sea are displacing suppliers even though there has been no direct fighting. Russian troops have blocked Mariupol, preventing humanitarian aid from getting there. Russia also made it more dangerous to ship fuel to Ukraine. They told Ukrainian counterparts.
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Ukrainian suppliers of agricultural fuel say that they would be open to negotiating with European traders. Ex-market rivals joined hands to boost their buying power. The logistics have been set up to allow diesel delivery to Constanca or Gdansk in Poland, respectively. For Ukraine, suppliers from Europe and the Americas may deliver.
Foreign governments can also supply diesel to Ukraine, just as easy, or even easier, NATO could tap its Support and Procurement Organization (NSPO) network of more than 50,000 contracting firms to help Ukraine’s agricultural sector survive. Some countries that have strategic oil reserves don’t always or frequently include refined products like diesel. However, others do. Some of the 1,000,000 barrels that are kept in the Northeast Home Heating Oil Reserve, New Jersey and Massachusetts by America could be released. Some diesel is also kept by other countries, although exact numbers for the stockpiled refined petroleum products are difficult to locate.
Priority should be given to Ukraine for diesel fuel. The world’s food prices have already reached record levels, with the exception of wheat. Together, Russia and Ukraine produce around 32% of the global wheat. They also account for 12% of all calories worldwide. With neither country exporting—Ukraine under siege and Russia under sanctions—the U.N. calculated a likely 20% increase in prices just from the invasion’s supply chain disruptions. If Ukraine’s farmers miss this planting season, too, already sky high prices for food will rise enough globally to trigger hunger in vulnerable populations all over the world and even more than the 8% inflation U.S. consumers are already facing.
