The Peter Zeihan Podcast Series - Ukraine War Q&A Series: Why Worry About Ukraine's Agriculture Exports? || Peter Zeihan

Episode Date: May 18, 2023

The fourth question of the Q&A series is...why am I so worried about agriculture exports coming out of Ukraine? And if you get foodstuffs from Ukraine, why you should be really worried... Full Newsletter: https://mailchi.mp/zeihan/ukraine-war-qa-series-4

And why do I care so much about agricultural shipments? I mean, Ukraine only has one water frontage. It's got Poland to the northwest and Romania to the southwest. Why can't it ship stuff by land? Well, agricultural products really doesn't matter what it is, have a very high weight and bulk to value ratio. So transport really is important from a cost point of view. And on average, as you know, from me, blah, blah, blah, and forever, it costs about 12 times as much to ship anything. by truck as it does by water. And so Odessa and Kyrson are the big blue water ports in the area. It's always been easier in the Russian and Ukrainian spaces to get the stuff on water wherever you can and send it out. In this case, there's another problem. There are rail connections that go into the countries to Ukraine's west, and some grain has gone there. But two problems. Number one, there's not nearly enough of them and capacity is limited.

So you're talking about maybe one-fifth of Ukraine's pre-year-year-one. War grain could have made it out through the Western zones by rail. Problem number two, the rail gauge is different. So once these carriages get to the border, they either need to be on a special kind of carriage where you can adjust the rail gauge car by car at the border, or you need to switch the cargo to a new carriage in order to go into Europe.

And I guess there's a third problem too. What has happened for the first years in order to maximize that 20%? They'd be going into Romania or Poland or Hungary, and then they'd dump their cargo, and then the rail cars would come back empty to get loaded up again. That is what allows Ukraine to hit that 20% number. The problem is Romania and Hungary and especially Poland are all green producers and exporters. And all this Ukrainian grain getting dumped on the local market was pushing town the cost of local grain and forcing the polls, the Hungarians, and the Romanians to then increase their shipments out. well that meant they had to pay the transport costs now as well and it was starting to drive some local farmers out of business

so what we've seen in the last three months is most governments on the entire swath of European countries that border or near Ukraine have stopped accepting Ukrainian cargo as an end destination you can still transship get it through you can still get to a port no problem but that means that the carriage that used to be able to do short back and forest now has to go all the way through these countries to get to another country or to get to the coast and then it takes up port space. And so that's taking that 20% and probably cut it at least

by a third, maybe as much as half. And the only solution to this that isn't waterborne is to lay twice as many tracks or get a lot more rail cars. That's not something you do in a few months. And so we are now looking at an environment where maybe 10% of Ukraine's grain can out get out this year. And once the Russians actually start going after the infrastructure, especially in places like Odessa, those venues close off completely. So last year was probably the last year that Ukraine is going to be a significant producer of foodstuffs for the world. Next question.