SWEDEN – Global Sweden-based producer of vegetable oils and fats AAK has temporarily halted deliveries to and sales in Russia following the country’s decision to conduct a “special military operation” on its neighbor Ukraine.
Russia’s decision has already attracted a swift response from Western nations who have responded with sweeping sanctions aimed at crippling the country’s economy.
Western leaders have frozen the assets of Russia’s central bank, limiting its ability to access US$630bn (£470bn) of its dollar reserves.
The US, the EU and UK have also banned people and businesses from dealings with the Russian central bank, its finance ministry and its wealth fund.
Selected Russian banks will also be removed from the Swift messaging system, which enables the smooth transfer of money across borders.
While AAK is a supplier in the food sector, which is not subject to sanctions related to Russia’s invasion of Ukraine, the sanctions still have an impact on its business.
According to the Karlshamn-based company, it has become difficult to secure compliance to sanctions related to logistics and trade flows as well as third parties.
Russia makes up about 3% of AAK’s volumes as measured in tonnes and the suspension of trading will definitely have an impact, albeit limited, on the company’s earnings.
Earlier, New Zealand multinational dairy cooperative Fonterra suspended shipments of its products to Russia following the federation’s decision to conduct a “special military operation” in Ukraine.
Fonterra director of global stakeholder affairs Simon Tucker has downplayed the impact of the move on its business noting that the exports only accounted for just 1% of its annual exports.
Impact of Russo-Ukrainian war on global food supply
Russia’s attack on Ukraine could lead to a major food crisis by disrupting current supply chains and further advancing Moscow and China’s influence in global markets.
Russia and Ukraine are among the top five international exporters for many important cereals and oilseeds such as wheat, sunflowers, and corn.
Ukraine accounts for 16 percent of global corn exports and 12 percent of wheat exports, according to the US Department of Agriculture (USDA).
Ukraine also produces 50 percent of the world’s sunflower seed oil, and alongside Russia, meets over 50 percent of the cereal needs for North Africa and the Middle East, according to the International Food Policy Research Institute (IFPRI).
Currently, Russia’s attack on Ukraine has closed Kiev’s ports and led to a ban on commercial vessels in the Azov Sea, which connects to the Black Sea – one of the world’s most important regions for trade.
At immediate risk are vulnerable countries highly dependent on Ukraine for food supplies that are currently being halted.
Ukraine supplies Lebanon with 50 percent of its wheat consumption, Libya with 43 percent, Yemen with 22 percent and Bangladesh with 21 percent, according to the Financial Times (FT).
In addition, Ukraine and Russia account for 86 percent of Egypt’s wheat imports in 2020 and 75 percent of Türkiye’s wheat purchases, says FT.
If the war persists and exports continue to be halted during the Ukrainian harvest season coming up in a few months, the chaos will reverberate throughout the globe.
Independent agronomist Michael Lee says he believes the long-term consequences are “too early to even consider” but the conflict poses a risk to global food prices as “Ukraine (and Russia) dominate the grain trade.”
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