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The Russia-Ukraine conflict and resulting sanctions will drive additional burden on inflation, commodity availability, and supply chains that have already been strained by the pandemic and an all-time high food-price index.
In combination, these factors may threaten the top line and profitability of all food retailers. Retailers that are prepared and act nimbly can minimize the impact. Ukraine has long been called the breadbasket of Europe, but that understates its global importance. Together, Russia and Ukraine play an enormous role in the global food system.
Because Russian and Ukrainian agricultural exports play such a large role in the global food system, the world is bracing for the impacts from this conflict. In the short term, we are already experiencing supply shortages and skyrocketing prices (cereal prices are up 20%, oils are up 46%) due to crop damage in conflict areas, inability to harvest crops, and port closures.
In the medium term, planting cycle interruptions will likely exacerbate supply shortages. Sanctions may also shake up normal trade flow, prompting both farmers and buyers to seek new markets. But it’s the possible long-term effects that have the potential to be most severe. Because Russia is the number one exporter of fertilizer components (nitrogen, phosphorus, and potassium), farmers across the globe may have to pay much higher prices or go without fertilizers and see crop yields suffer. Some countries are already limiting agricultural exports, further impacting global supply and demand.
Food retailers should focus on three things to navigate this latest wave of disruption:
- Prepare but don't panic.
- Diversify (assortment, suppliers and methods).
- Reshape their margin structure.
Read more in our latest paper on this topic.
