Navigating Current Supply Chain Restrictions

The impact of the Russia / Ukraine conflict on the supply chain and how to mitigate risk

By Stephen Reynolds

To say that it has been difficult six years for the Food & Beverage industry would be an understatement. First the years of Brexit uncertainty, followed by the devastating impact of Covid 19 and now, the crisis in Ukraine. This article explores how the conflict is impacting the food industry, which is still in a state of recovery after the global pandemic.

Oil & Gas

To truly understand the impact of the crisis we need to understand how Russia and Ukraine are important to the global supply chain. If we start with Oil and Gas, which even before the conflict, was seeing significant price rises due to the impact of Covid 19, as the various national lockdowns lead to a fall in production and pricing globally. The re-opening of the global economy caused pricing to shoot up with the rise in demand outperforming production. This situation has been made worse by the Russia/ Ukraine conflict as Russia accounts of 17% of global gas supply and 12% of oil production. European countries such as Italy and Germany are reliant on Russia with Italy alone importing 90% of its gas, in turn generating 40% of its electricity from Russia. Sanctions and market sensitivities have led to steep price rises along with a European desire to move away and diversify its supply base.

The reduced supply has been felt, even in countries such as the UK, which imports only 5% of its gas from Russia, but who’s privatisation of supply has tied it to global energy markets. These price rises are heavily impacting production and transportation costs across the industry. With the conflict showing no sign of ending there is a chance of gas rationing in Germany which would impact the entire country including the food manufacturing industry. Whilst these worries persist expect pricing to remain high and volatile as the markets digest the latest news. At the time of writing, oil has fallen back slightly due to city-wide lockdowns in China; exemplifying the fact that volatility will remain while the market is nervous about Covid and the consequences of the conflict. To help mitigate the impact of this review your supply chain; can you hold more stock, reduce your delivery days, increase your average delivery value? Even the smallest change could make a significant impact and, need not be permanent.


Putting Oil and Gas to one side; production costs have been compounded by the increases in fertilizer, of which Russia accounts for 15% of world market share along with Ukraine at 1%. Russia is unable to export along with the Ukraine banning exports of phosphorus, potash, nitrogen, and blends. This leaves farms across the world a decision, buy and cut margin or produce with a lower yield, with a knock-on effect across the crop production and supply. Again, ensure you are communicating regularly with your suppliers, as relationships with be critical.

Food Commodities

Now lets us explore the impact the war has had on food commodities such as: Wheat, Corn and Sunflower oil. Let’s begin with Wheat, whilst not being the largest producers, Ukraine and Russia are large exporters to Asia and Africa who are now turning to European supply to make up the short fall. Ukrainian production moving forward is expected to be at least 10 million tons lower year on year. An end to the conflict would not immediately translate into an increase in production due to the level of infrastructure damage across the country (an estimated 80 billion dollars’ worth).  Whilst wheat pricing is high now, be sure to monitor any news coming out of India which has a large stockpile which they may bring onto the market.

Corn, along with wheat, is seeing significant price inflation, due to Ukraine being among the top global producers. Worryingly with 60% of corn growing areas located within conflict zones there is a question mark around how much or if any can be planted. Due to corn being a key ingredient in animal feed this is pushing up other commodities within the Meat & Poultry and Dairy industries, compounding the increases already being seen in oil, gas and labour. Eastern Europe has been a popular origin for corn, look at sourcing from alternative origins such as Turkey to help mitigate the impact, however, expect prices to continue to rise.

The concern around planting extends to sunflower oil of which 65% is produced in conflict zones, at time of writing reports suggest the EU has 2-3 weeks of stock left. We are, also, now seeing rationing in the supermarkets as supplies fall. The commercial fall out we can expect with sunflower oil is much greater than wheat and corn, with the Ukraine and Russian being the main global exporters. Ordinarily buyers would switch into rapeseed oil, however last year’s harvest was heavily impacted by drought in Canada, a switch into rapeseed will put pressure on an already tight market (watch out for palm oil increases also). This will be further exacerbated by the increases seen in the diary market, as buyers may look to switch away from products such as butter to alternatives for which sunflower oil Is a key ingredient.  If you haven’t already, we suggest you lock in your rapeseed (sooner rather than later) till the end of the year. If already locked in your volume, look to blend your price and cover yourself for longer.

Poultry and Seafood

The impact on crop production is obvious but what is less clear from the outset is the impact on Poultry and Fish.  Prior to the conflict, the Ukraine accounted for around 20% of European chicken production. Due to a missile strike in the early stages of the war this production was taken offline. This clearly leaves a massive gap within the market, however, once you factor in the number of refugees entering another key producer: Poland, supply becomes even tighter as poultry stock in country is being held for domestic use rather than for export.

Pricing is already up by 32%, and we expect this to continue rising for some time, especially as we enter BBQ season! Fish has also been impacted by the conflict but not in the same way. Many have been surprised by the dominance of Russia within this market owning 40% of global market share of frozen white fish. Unlike other commodities we have explored, white fish is not banned for export into the European union (unlike the UK). However, it has lost its most favored nation status leading to a higher EU tariff. China is a major exporter of white fish, so is an option as an alternative, although its open for debate how much of it is Russian fish processed and re labelled as Chinese. However, to go down this route means you need to face into shipping rates of around $15k a container and considerable delays. You could look at purchasing products such as Pollock from the US which while costing more at raw material, is arriving on time.

Pricing across all these commodities will be volatile for some time to come, many will take years to fully recover to pre-war levels. The market is watching and reacting to all the latest news from the conflict, any talk of a ceasefire or peace will help stabilize the market.  

If you require support or expert advice across your supply chain, speak to us at Procure4, our procurement and supply chain experts have the relationships, inside knowledge and insight to ensure your business is in the best position possible. 

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