The Peter Zeihan Podcast Series - The End of Ukrainian Agriculture || Peter Zeihan

Episode Date: July 28, 2023

Russia has pulled out of the grain deal brokered by Turkey and the UN, and the countdown on Ukrainian agriculture has officially started. Full Newsletter: https://mailchi.mp/zeihan/the-end-of-ukrainian-agriculture

Hey, everyone, Peter Zion here coming to you from Pine Creek in the Collegiate Wilderness in Central Colorado. Today we're talking about what's going on with the Ukraine War and Agriculture. Specifically, the Russians have pulled out of the grain shipment deal that allowed the Ukrainians to send wheat and corn and sunflower and such out by water, primarily through the ports of Mikhailov and Odessa. And they've since started targeting the physical infrastructure that allowed those shipments to happen. Now, for those of you who have been following a coverage since the war began, you know that there's nothing here that's really too new or unique. The Russians have been going after the agricultural supply chain in Ukraine from the beginning, going after cold storage facilities and maintenance vays, rail systems, loading facilities, all ports. There's nothing new here. The exception, of course, is stuff for export that came to a handful of very specific.

ports that were in a deal that was brokered by Turkey and managed by the United Nations. And that's the deal that the Russians have now pulled out of. And so the Russians have really just expanded the scope of their attacks to the facilities that are specifically linked to that deal and ones that allow the Ukrainians, sorry, it's a little chilly here, ones that allow the Ukrainians to export in general. Now, Ukraine had already seen a mammoth drop off in their ability to export goods and grain and specific. The problem is transport costs.

For those of you who have been to follow me from the beginning, you know that moving things by an ocean-going carrier is about 1.12th the cost of moving it by truck. And so having Odessa and McLehlyev and Miryapul and all the other facilities offline because of the war or constrained has really hurt the Ukrainians a lot. They have attempted to divert some cargo to the Danube and river ports are still, you know, maritime transport,

but the sort of balker that can operate on a river is significantly smaller. You're talking maybe at most 10,000 deadweight tons versus 100,000 for an ocean-going bulker that can dock it Odessa. And even then, you have to truck primarily the grain to it. So you're talking about something that has an order of magnitude higher transport costs, and then it's competing with roads and trucks for everything else that you call. Ukraine needs right now. There has been some effort to do rail. The problem is twofold. Number one is distance. You've got to get not just to Poland or Romania, but through them. These countries were also significant green exporters, and they viewed the Ukrainian grain coming into their markets as product dumping. So you now have to get it not just to Warsaw-Gadansk, you have to get it all the way to Hamburg. And that means you need those rail systems for two and three times a distance that you originally thought. Second, there's not a lot of interoperability between the Ukrainian rail system, which is post-Soviet,

and the European system, which runs on a different gauge. So you also have to switch things over. So overall, total grain exports from Ukraine from before the war until a month ago, we're already down by well over two-thirds. Now we're looking at probably the rest of that going away, because if you can't even get stuff to the Danube, because the Russians are now bombing storage facilities right on the river, right on the border with NATO. You're looking at the inability of the large-scale producers in Ukraine to be able to function. Remember that agriculture at large is one of the most financially dependent industries in the world.

If something goes wrong, you don't just have to wait a season. You have to wait a year, maybe two, before you can kind of get things back online. So not just for infrastructure repair, but think finance. because if people who have harvested grain a year ago are now discovering they can't even get it out of the silos to get it to the international markets, then they're not getting any income. They don't have income, they don't have the money to plant.

So this winter wheat crop that is being harvested right now is probably the last one of size that we're going to see actually playing in international markets. So last year really was the last year that Ukraine is a significant agricultural producer. Now, the Russians are doing this for two big reasons. Number one, they're trying to do anything they can to crush the Ukrainian economy. And number two, now that they can't take out the power grid because it's summer,

no one's going to freeze to death in the summer, they're going after the food supply system in order to trigger a deliberate famine. It's a pretty dark picture. There's no way you can expect this to get cleaned up very soon. What we've seen with the missile strikes on these sort of facilities down in the Danube region or in Odessa, is that Ukraine has gotten some decent air defense up in a few specific places, most notably Kiev, the capital.

But there's not enough to go around. And so these shots are still getting through. And it's unclear whether or not the West, even if it had the political will, has the military bandwidth to spare more equipment in order to provide air defense for a country that is roughly the same size as Texas, building it from scratch.

Certain things are more important than others. Kiev is obviously more important than Odessa. And unless somebody is willing to intervene and protect maritime shipments, which is basically a declaration of war against the Russians, this is probably the end of Ukraine as a significant food exporter. And very soon it is going to be a food importer because it will no longer have the capacity to grow enough for its own population. And that enters the war to a fundamentalities phase.

To that end, one of the... things that I've been encouraging people to do is to find a charity in Ukraine that helps people out. The one that I have chosen is MedShare. They provide medical assistance to communities who are incapable of providing it for themselves. And there's a donation link at the end of all of my newsletters. I encourage you to tap that often. Keep in mind that the newsletter is free and it will always be free and I will never share your data with anyone. But in exchange, if you do come across something that you find useful and you think you would have paid for, just kick a little change to MedShare. I would appreciate it. Or find your own. Meds and Sons Frontiers is a great one.

Red Cross, UNICEF, these are all organizations that are operating aggressively in Ukraine to try to alleviate the human suffering that has been caused by the war. All right, that's it. Bye.