Benjamin Rutz
Director, Business Restructuring Services, PwC Switzerland
Claude Fuhrer
Partner, Deals Strategy & Operations Leader, PwC Switzerland
In this short blogpost we look at market trends in the agriculture sector, with a brief zoom-in on the situation in Switzerland. Key words: Russia, Ukraine, agriculture.
The agriculture and food supply chain had already been contending with multiple challenges including changing consumer patterns, ESG, subsidy regime changes, pesticide bans and a shortage of labour. And then came the Russia-Ukraine crisis, which has battered the sector even harder and created more volatility in the agri-market. The reverberations can be felt along the entire food supply value chain, from farmers and manufacturers to food retailers and the hospitality industry.
Grain
Russia and Ukraine are the breadbasket of Eurasia, if not the world, accounting for one quarter of global wheat exports and one fifth of global corn exports. Prices on the overall grain market had already increased last year as a result of the Covid pandemic, logistical problems, rising energy prices and a strong increase in demand with simultaneously low harvest volumes in previous years. Sanctions, the transfer of goods out of Ukraine and widespread protectionist responses to the Russian invasion have pushed up food prices even further, adding to widespread inflationary pressure in economies across the globe. However, there are now signs of a slight easing on the global grain market. One of the reasons is the export agreement concluded by Russia and Ukraine, which allows Ukrainian wheat to be exported via the Black Sea ports.
Global wheat price development
Hard wheat and soft wheat (Sep-2019 - Aug-2022)
Source: World Bank
Russia/Ukraine share of global exports
Agriculture (2019-2022)
Source: IHS Markit, PwC analysis
“Russia and Ukraine are such huge players in the production of food and fertilisers that what’s happening there literally affects the wallets and stomachs of people around the world.”
Fertiliser
It’s not just grain. Russia is also a major supplier of fertiliser (in particular urea and potash). Increasing gas prices and problems sourcing chemicals have forced fertiliser plants in Europe to close or cut back production. This has limited supply, resulting in major price increases, lower production of carbon dioxide (a by-product of fertiliser and vital to many food manufacturing processes) and delays in planting as farmers look for greater market stability.
Russia/Ukraine share of exports
Finished fertilisers (2019-2022)
Source: IHS Markit, PwC analysis
Energy and labour
And of course there’s energy. Energy prices have a disproportionate impact on the energy-intensive agriculture sector. Overall labour market conditions are also making life difficult for what is also a very labour-intensive business.
Zoom-in on Switzerland
In Switzerland too, even before the Ukraine crisis agriculture was already being forced to change and adapt to account for global trends towards sustainability and consumers’ regional buying behaviour.
However, Switzerland imports only very few agricultural goods from Russia and Ukraine, so it is not directly affected by the export restrictions in these two countries. Nevertheless, the turmoil in the commodities markets affects Switzerland indirectly via the increased prices for fertilisers and energy.
In case these elevated prices levels persist, this would continue to adversely impact Swiss agricultural producers.
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Contact us
Director, Co-Lead Performance & Restructuring, PwC Switzerland
Tel: +41 58 792 21 60
Claude Fuhrer
Partner, Global Health Industries Transformation Leader, PwC Switzerland
Tel: +41 58 792 14 23