The Peter Zeihan Podcast Series - 5 EU Countries BAN Ukrainian Agriculture Exports || Peter Zeihan

Episode Date: June 16, 2023

We're talking about agriculture today, specifically the ban that five EU countries just placed on Ukrainian exports. With Poland, Hungary, Slovakia, Bulgaria, and Romania dropping this hammer, I would expect Ukraine exports to fall by up to 90%. Full Newsletter: https://mailchi.mp/zeihan/5-eu-countries-ban-ukrainian-agriculture-exports

Hey everybody, Peter Zine here coming to you from Canada's famed Okanagan region, an area famous for its deep lakes, its nice wine, and its crystal blue skies. But maybe not today because it's just as smoggy and smoky as the rest of the continent is going to be for the rest of the summer. Anyway, I want to use today as an opportunity to talk about some of the agricultural things that are going on in the Ukrainian space. Specifically, we now have a coalition of five EU countries that have decided they're not. not going to accept any shipments any longer from Ukraine. They'll still allow transshipments. So it's not like this stuff is completely gone now. But they're not going to take the deliveries themselves. You've got five countries, Poland, Hungary, Slovakia, Bulgaria, and Romania, all of who are relatively significant agricultural producers for a lot of the same products that come

out of Ukraine. And what's been happening is the Ukrainians have lost the ability to do their normal export systems. Normally they would ship everything out by water. down the Niebuhr, get a packaged at a place like Nikolaev or Odessa, and then shipped out to the wider world. Or they would process it and crush it, in the case of sunflower at home, and then ship out the intermediate product. They can't do any of that right now. Power grid is not stable enough to do the crushing, and most of the crushing is in ports, several of which are under Russian control. And the Russians have the ability, because they have naval supremacy in the area to prevent any sort of bulker from coming or going without their express say-so.

Now, there has been a deal in place that allows the Ukrainians to export somewhat. Basically, the Russians insist on inspecting the bulker on the way in and the way out to make sure it's not being used to smuggle. And that deal has basically fallen apart now. So it's been going less and less and less over the winter, and now it's basically defunct, and the Russians are indicating that they really have no intention of re-upping it at all. Now, this used to be 80%, almost 90% of Ukraine's exports. You can rail stuff out, but now three problems.

Number one, there's a different rail gauge between the European Union and the former Soviet world. So that's a problem. And there are only so many carriages that can adjust. Number two, all of the countries that are on the edge, you know, Poland, Romania, and the rest, they're all grain exporters themselves. So when the Ukrainian stuff was coming in, it was getting dumped on the local market, local farmers were getting quite aggroved, and now they can't do that. So you can still export it through these countries to other places, but then you need twice as many rail cars that are capable of that jump.

Or you need a facility at the border that can shift the grain from one car to another, and those just don't exist at scale. And now you need twice as many to get the same amount of stuff out. So all told with these two problems in place, you're looking at Ukrainian grain exports dropping by roughly. 80 to 90% and there's really no way around that. The third problem is that processing stage. The Ukrainians, while always being a significant exporter of the raw stuff, also did a lot of crushing specifically for their sunflowers. Well, with that crushing now unaccessible, they need to find another facility.

There are facilities in all five of these countries, but they process local stuff. So once you process an agricultural commodity into things like oil, it takes up a lot less space. it's higher value to bulk. Well, not only are the Ukrainians not able to do that now, so they've got this higher, bulk, lower value product. They have to send it farther. And it just takes too much effort and too much cost, and there's not enough infrastructure to support it.

They've been trying to build out the rail system. They've been trying to bring in more rail cars, carriages, but it just hasn't been enough to move the needle. And so even without the Russians deliberately attacking the agricultural infrastructure, which they are doing, you're still looking at that 80 to 90% reduction in the ability of Ukraine to participate in the international market. The biggest losers, aside from the Ukrainians, of course, are the Egyptians who source the majority of their imported wheat from Ukraine specifically. But there's a large number of countries in Africa and in South Asia that source ultimately Ukrainian and to a lesser degree Russian wheat.

And we're going to see all of them get hit to a significant degree. the question will be if we get to a point where the Russians start actually targeting shipments themselves. We're not there yet. It's probably just around the corner. The only way that this is going to change is the Ukrainians get access to the water again. And that means if this counteroffensive that they've just launched is successful, it would have to include at a minimum the liberation of the entirety of the Crimean Peninsula because most of the grain goes down the Nipur River to Odessa,

and as long as any part of that route is within range of Russian weaponry, it's just a no-go. So you're talking about them having the Ukrainians would be deliberate the entirety of southern Ukraine and the entirety of the Crimean Peninsula. And that is a very, very tall order probably won't happen this year, which means that any of the agriculturalists and farmers in Ukraine who gets screwed this year because of a lack of export options won't have the income that's necessary, to afford to plant next year.

And assuming a runaway Ukrainian victory, it still means that Ukraine is not going to be a significant agricultural player in the world for several years. And then, of course, if the counter-defense it fails, a lot longer than that. Well, crap, I kind of was looking for a happier topic. This is not it.

I'll try harder tomorrow. Bye.