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Crimea stand off could impact UK food prices

03 March 2014

The Russian stand off against the Ukraine in Crimea could have a direct impact on UK bread prices, as export routes for grain are blocked.

Ukraine is second only to the US in terms of global grain production and the main Sevastopol and Odessa ports (pictured) could remain inaccessible.

Kona Haque, head of agricultural commodities research at Macquarie, told The Telegraph: “Crimea is extremely important as it is where most of Ukraine’s grain is exported by ship from its ports. Ukraine is very important and by some counts it is already the second largest grain exporter.” Agricultural production accounts for 24% of the Ukraine’s total exports and brings in more than 5% of total gross domestic product annually.

A week after the fall of the deposed Russian backed president, Viktor Yanukovich, Ukraine’s parliament late last week declared Russia’s reported seizure of airports in the region as ‘foremost foreign interference’. Ukraine’s acting president has also accused Russia of using its Black Sea Fleet troops based in Sevastopol without permission from the new Ukrainian authorities in Kiev.

“If there is a stranglehold placed on that region, then it would have a very big impact on the global grains market,” Haque continued.

According to Macquarie, Ukraine is expected to produce, in the growing season that will end in 2015, around 44.5million tonnes of grain – mainly corn and wheat – nearly 16% lower than last year. The Ukrainian ministry of agriculture forecasts the crop at 51.4m tonnes but Macquarie expects corn output to fall, as it is no longer as profitable as in the previous season.

“Prices are rising but maybe a little more than they would normally because of the political risk. There is a premium attached to Ukrainian grain exports right now, which puts the pressure back on the US,” said Haque. She added that the increase in export prices, together with problems in Ukraine’s bank financing of future deals, have weakened the foreign appetite for Ukrainian commodities, especially for corn. This has also contributed to higher than expected export demand for US origin corn.

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