The Russia-Ukraine war / The consequences for South & central American pulses
Speaking to GPC members from countries across central and South America, Luke Wilkinson gives an in-depth report into the current and future consequences of the Russia-Ukraine conflict on the pulses market.
In addition to the devastating human cost of Russia's invasion of Ukraine, we are seeing an economic shockwave that has already had significant repercussions throughout the agricultural industry. Russia and Ukraine contribute to over a quarter of the world’s wheat supply and Russia alone is the largest exporter of fertilizers in the world. While fertilizer prices had been growing by up to 200% year-on-year in some countries even before the war, the conflict, and the sanctions brought against Russia have exacerbated the issue. A combination of economic and climatological factors have meant that energy prices have also skyrocketed, leaving farmers facing higher costs for their inputs across-the-board.
We spoke with GPC members across central and South America, to find out what effect these disturbances in the market are having on the pulse trade; how they are reacting to these changes, and what the future may hold if the war in Ukraine continues.
The impact on acreages
Cristobal López, General Manager of Comercializadora de Granos Los Arbolitos in Mexico, sees potential changes in seeding intentions given high prices of key commidities: “If the prices of wheat and corn continue to rise, I definitely see the panorama changing when it comes to pulses like beans and chickpeas - there will be a reduction in their acreage.”
When asked if there was anything that could mitigate this reduction, he said: “The only thing that might stop the reduction would be a year with particularly low rainfall, which would force producers not to plant so much corn for lack of water. Then they would need to spread out their water across products with lower water demand such as beans and chickpeas.”
In Argentina, Ivan Martín, commercial manager of Alimar, has already seen changes to acreage of pulses in the seeding province of Salta due to raised commodity prices:
"This year we've seen a trend towards selling more soybeans and corn because of the price rises, leading to a drop in acreage of white alubia beans.”
Asked what would happen if we were to see prolonged disruption to commodity prices, he warned that we would likely see more changes to acreage: "If (the conflict) were to continue long-term, maintaining the high commodity prices we’ve spoken about, next year there could be a significant change in producers' decisions. For example, here, both corn and soybeans are summer crops, which coincide with the summer pulses such as all the different varieties of beans. Wheat, which is obviously a winter crop here, would also coincide with some pulses like chickpeas. The overlap of crops has real potential to shrink the acreage of pulses overall.”
Inflation, inflation, inflation
Aside from the potential changes in acreage, the pulse market is currently having to react to significant inflationary pressure. Benjamin Perez, purchasing manager at Comercializadora Gran Colmado in Colombia, summarizes part of the issue pushing up commodity prices: “Ukraine is missing its seeding seasons, which means there will be less food in the world. This pushes their usual buyers, many of which are in Asia, over to other different markets that we buy from, like America, Canada and Argentina. Obviously this demand creates inflation.”
Inflation is being seen in commodities pricesbut also in fertilizer, of which prices had already shown a steady increase in recent years due to heightened energy costs but are now seeing further jumps as a result of the Ukrainian conflict. In March, monoammonium phosphate (MAP) and urea sat at an average of $1001 per ton and $954 per ton respectively. What will happen if fertilizer costs become prohibitive?
Sahid Hernandez of Agro Servicios Terminel, details the current fertilizer situation in Mexico: "The majority of Mexican demand for fertilizers is imported and, of the 62% that we import, 27% comes from Russia. So straight away, there will be a reduction.”
She continued: “We work with corn, for example, and corn producers this year will buy less (fertilizer) or buy whatever they can with the amount that they had budgeted and simply apply less, resulting in a lower yield. In terms of pulses, this will mainly affect beans, rather than chickpeas which don't require much application of fertilizer, if any.”
Carla Mayara Borges de Lima, head of Fazendas Nova Geração in Brazil, believes the reduction in current production could open up the possibility for increased acreage in certain pulse crops. In an interview with the GPC in March she explained: “…there is a lot of time to go before next year but what could happen is that we see a reduction in corn production because corn requires large amounts of fertilizer. This would open up some acreage for lower investment crops such as mung beans, cowpeas or sesame. That said, it's still very hypothetical, so I can't say that that would happen for sure.”
She also expressed some worry about the potential for continued fertilizer price surges: “…Brazil is around 90% dependent on imports of fertilizers. Now, with the war in Ukraine, every farmer is concerned about the possibility of not getting their fertilizers from their Russian providers. Historically, fertilizer prices have always been high but if you look at the future markets for the upcoming season, the prices are going to remain high. That's a concern.”
Alternative fertilizer sources
Regarding alternative sources, Mayara Borges de Lima was not optimistic: "There aren’t too many options. There is some contact with Iran and our agriculture minister was recently in Canada trying to negotiate deals to bring in fertilizer imports. I know there's also an internal effort to explore the quantity of fertilizer we can produce internally but that is a plan five years from now. Until then, we will be relying on imports.”
Benjamin Perez suggested there could be some alternative sources for Colombian producers: “Venezuela has a certain amount of fertilizer and Mexico also produces some. The only reason we don't buy from them now is because Ukraine and Russia have always been cheaper, but when we see scarcity like we're seeing at the moment then the sources closer to home become a more realistic option.”
To conclude, it seems likely that as long as Russia's invasion of Ukraine continues, we will see continued disruption to energy, commodity and fertilizer prices. For pulses, this will mean shifting patterns of seeding in 2022, and also potentially lower yields for some crops like beans, as producers adapt to having less access to fertilizer. This could also affect crops like corn and wheat, reducing the viability and decreasing the acreage despite high prices, leaving space for less demanding, lower investment pulses.