Summer wheat harvest in Chernihiv, Ukraine, on Thursday, August 10, 2017.
Vincent Mundy | Bloomberg | Getty Images
From wheat to barley, from copper to nickel, analysts tell CNBC that supply chains are set to be disrupted as the crisis turns for the worse.
Ukraine is the “breadbasket of Europe,” said Alan Holland, CEO and founder of sourcing technology company Keelvar, and the invasion would “severely hit the food supply chain.”
Analysts said Russia and Ukraine are major suppliers of minerals and other commodities.
Tensions between Russia and Ukraine have reached their peak in the past few days President Vladimir Putin has ordered the Kremlin’s forces to join two pro-Russian breakaway regions in eastern Ukraine. This came after he said that Russia will officially recognize the independence of Donetsk and Luhansk.
Analysts said Ukraine produces wheat, barley and rye on which many European countries depend. It is also a great producer of corn.
“Although the harvest season is still a few months away, a prolonged struggle will lead to a shortage of bread [and increase consumer prices] This fall,” Holland said.
In fact, the European Union will not be the only one that will be affected – many countries in the Middle East and Africa also depend on Ukrainian wheat and corn, and disruptions in that supply could affect food security in those regions, said Don Teora, head of the industry group Sourcing.
“China is also a huge beneficiary of Ukrainian corn – in fact, Ukraine replaced the United States as China’s largest corn supplier in 2021,” she said.
Wheat and corn prices were already on the rise. Chicago-traded wheat futures have jumped about 12% since the beginning of this year, while corn futures are up 14.5% in the same period.
Food price inflation is rising, and could be exacerbated if armed conflict breaks out.
“Rising food prices will only be exacerbated by additional price shocks, especially if pro-Russians take over key agricultural areas of Ukraine,” said Per Hong, senior partner at consultancy Kearney.
Ukraine has steadily increased its exports over the years and is now a “huge supplier” of raw materials, chemical products and even machinery such as transportation equipment, according to Tyora.
It is also a major supplier of metals and other commodities, analysts said.
“The value of the Ukrainian currency has begun to depreciate since the Russian forces began to gather on the border. This will increase the cost of its exports,” Tyora added.
Russia also controls about 10% of global copper reserves, and is a major producer of nickel and platinum, according to Hong.
Nickel is a major raw material used in electric car batteries, and copper – widely seen as a key economic factor – is widely used in electronics manufacturing and home construction.
“The US chip industry is highly dependent on Ukrainian-sourced neon, and Russia also exports a number of items critical to the manufacture of semiconductors, jet engines, automobiles and pharmaceuticals,” Hong said.
While most EU countries will be affected by the escalating crisis, Germany will be particularly hard hit.
Germany derives most of its energy for manufacturing and electricity from natural gas it gets from Russia, said Atul Vashista, chairman and CEO of supply chain risk information firm Supply Wisdom.
“If tensions continue to escalate and we see an increase in unrest due to a possible war or sanctions, it will hamper manufacturing production in Germany. Factories will need to cut back on production that will shift to manufacturing in other countries,” he told CNBC. e-mail.
Germany’s major exports include automobiles, auto parts and other transportation equipment, electronics, metals and plastics.
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