Can you name this country? It is a major exporter of oil and natural gas, wheat and fertilizer. Big in gold, iron, aluminum, lumber. Coal, too.
If you picked Russia, you are correct.
If you picked Canada, you are also correct.
In the first weeks of Russia’s invasion of Ukraine, global fossil fuel markets were the top story, as already-high prices shot higher. Europe is particularly vulnerable, being dependent on Russia for almost half its gas imports. Canada isn’t in an immediate position to help – our country has exactly zero natural gas export terminals – though in the years ahead Canadian fossil fuels could replace some of those from Russia.
As the war grinds on, attention is turning to the global food supply. Like oil and gas, food prices have shot higher. In February, the United Nations’ measure of global food prices hit a record – up 5 per cent in two months and 50 per cent over the past two years.
What role can Canada play?
The reason food prices are spiking is because Russia and Ukraine together account for a quarter of the world’s wheat exports. They are also leaders in several other farmed staples, while Russia and Belarus are leaders in fertilizers. And Russian natural gas is a key input in making fertilizer. Less fertilizer would mean lower crop yields, alongside less food planted, harvested and exported.
Examples of the interconnected food chain are legion. Russia sends Europe a quarter of the nutrients used in the continent’s food production. Brazil, a major exporter of beef and corn, gets about a fifth of its fertilizer from Russia. Egypt relies on Russia and Ukraine for three-quarters of its wheat.
Canada can help – but probably not right away. Global trade, and the investments underpinning it, cannot be instantly redesigned. And farming depends on the weather. Thanks to “challenging growing conditions,” a.k.a. drought, Canada’s wheat crop saw its biggest ever year-over-year decline in 2021 – falling 39 per cent.
Disruptions to the global food chain could reverberate, even if the war is short. Eurasia Group predicts “a spike of starvation around the world.” The United Nations warns that food prices, already at a record, could rise another 20 per cent. Last Friday, it urged against protectionism: “Every effort should be made to keep international trade in food and fertilizers open.” Some countries, facing domestic pressure, are doing the opposite.
Food inflation – the other key half of the energy-food mix that propels higher prices around the world – is set to worsen. While it may already seem high in Canada – February’s inflation numbers land on Wednesday – higher-income countries, and higher-income people, are relatively less affected by food prices since they spend far less of their total income on food. In 2017, for example, North Americans spent on average about 5 per cent of their incomes on food, according to The Economist. Next year, that could rise to 8 per cent. But in Latin America it’s shooting toward 20 per cent, and in South Asia toward 30 per cent.
In wheat, major new supply is unlikely to be quickly found. Australia and India may both be able to produce more, but the U.S. and Canada remain partly hamstrung by drought.
In potash, Canada is the source of about 30 per cent of the planet’s output of the fertilizer, making it the top producer. But Russia and Belarus together produce close to 40 per cent. And potash is a lot like oil: The commodity swings wildly and producers that chase high prices fear being caught out if prices plunge. Nutrien, based in Saskatoon, is the world’s No. 1 potash name. It plans to mine as much as 14.3 million tonnes in 2022, the most it ever has, and might add 0.5 million tonnes later this year, but would still have three million tonnes of capacity in reserve and upwards of five million more beyond that. Nutrien insists on, despite the war, the company’s “pragmatic” approach.
But in the longer term, Nutrien suggests there might be a greater opening. Economists at National Bank Financial last week said the same of Canada’s commodities.
They wrote of a window for “resource-rich nations like Canada to step into Russia’s shoes.”
Ukraine’s farm economy has already been dealt a serious blow by Russia, while Russia’s ability to export food and fertilizer is being restricted by sanctions. The result, as in oil and gas, is an opportunity for the industrious Canadian beaver to displace the unwelcome Russian bear.
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