It has now been 731 days since the start of the latest ‘three-day’ war in Ukraine.
We currently plan our third wartime sowing, while Russian missile attacks intensify against infrastructure and civilians. The ingenuity and courage of Ukrainians continues, rewriting the manuals of drone warfare and air defence.
Ukrainian drone attacks on oil refineries as far away as St Petersburg hit Russian refining capacity. It is no longer a one-way street. This is coupled with winter failures of Russian infrastructure, due to both sanctions limiting spare parts, and skilled engineers and firefighters being conscripted away from the home front.
Russia has now drastically increased its defence by 70% to 6% of GDP. This is three times that of its education, environment and healthcare spend combined.
This only tells a part of the story. Italy alone has a similar GDP to Russia in absolute terms. So, in real terms, even now Russia is not spending enough to win, if we together put our resources behind our outcome, Ukraine’s and our need is as great as ever.
Russia’s ally China also struggles. China’s stock market has fallen nearly 30% so far this year. Its property bubble is bursting. It has no coherent plan to reverse this economic decline, as Western capital and businesses continue to flee the country for fear Xi still hopes to invade Taiwan.
A Putin victory in Ukraine would make this far more likely. We are not ready for the massive refugee crisis and subsequent special military operations a Russian victory in Ukraine would bring.
The Iran/Russian-backed Houthi rebels are also affecting costs of Chinese exports as well as Western imports, as I predicted in my last column. As UK border checks are pushed back again, the Suez crisis will exacerbate further food fraud.
The Putin show
The laughable Tucker Carlson-Putin interview was in the end a non-event. Who will Putin interview next? Carlson, an entertainer not a journalist, had the air of a nervous rabbit in thrall to a cobra.
So the same old demonstrable lies for both a domestic and international audience – no challenge. Poland to blame for Germany invading it in the Second World War was a pearler from Putin. I recall the Soviets were allied with Germany at that time.
It is great news that both EU and US support for Ukraine is firmer now than a month ago and that finally Republican grandstanding over the Border is reducing.
However, Trump’s latest Nato comments are alarming.
On our domestic front, homeopathic ‘Richi Soonout’ is increasingly wearing the twisted smile of duper’s delight, while sporting the air of a man unwisely doing the job for a bet.
Planting plans
I recall vividly two years ago our shocked brief discussion as a management team and founders immediately after the Russian invasion. To misquote the great Clash song: “Should we plant or should we no.”
One thousand hectares of potatoes is a huge investment, and we didn’t know whether it would be Ukrainian or Russian hands manning the harvester a few short months later.
As we briefly debated, we were already supplying tractors and our digger to help build civil and anti-saboteur defences around our beloved Lviv. Our farm digger is now working hard in Kherson with troops there.
The debate over planting was indeed a short one, as Ukraine’s second-largest potato grower. Our loyalty to the food and job security of our staff and the beleaguered citizens of Ukraine was paramount in our thought process.
In an act of faith and defiance, we planted in this good land we have called a second home for nearly 20 years. That loyalty has been repaid in full and beyond by our local team.
They have now gathered in two wartime harvests in the most challenging of circumstances. They have built and commissioned a world-class potato starch factory facility, producing some of the best quality starch in Europe.
We now export to over 20 nations, from China to Peru, aiding Ukraine’s exports and balance of payments. Interestingly, both the Ukrainian government and the United States Agency for International Development see starch production as strategic in the rebuilding of Ukrainian economy.
Rise of drones
I have commented before on the bizarre juxtaposition in this war between First World War trench warfare à la Somme and 21st-century FPV (first person view) drone technology on the Eastern Front. In the First World War, the RAF developed, only a decade or so after the Wright brothers’ initial flight, on a similar trajectory to drone warfare in Ukraine.
In that war, the first aircraft sorties were for observation and reconnaissance. Then someone had the bright idea that hand grenades could be dropped from observing planes, and bombing sorties and bombers evolved. The third step was fighter planes to attack bombers and reconnaissance aircraft, and then to protect bombers from enemy fighter attack.
Drones are much cheaper and more versatile than artillery shells and have a tactical and psychological advantage by loitering long after an artillery barrage would have finished. Currently each drone requires an operator, though some are ‘tethered’ in pairs.
In Ukraine, the drone warfare trajectory has mirrored that of aircraft over a century earlier. First used for peaceful purposes for crop scouting, we it pioneered in Ukraine, from observation not of green leaf area and yield potential, but of artillery and troop forward positions.
We supplied Mavic drones with infrared night sights to help protect Ukrainian troops from night attacks. This merely observational role was succeeded fairly rapidly by ‘homemade’ grenade or mortar bomb harnesses to spot, then target. Now we are into a third phase of fighter drones to protect ground attack ‘bomber’ drones and working in highly co-ordinated swarms to spot, attack and protect.
Camouflage has had to evolve, too, against infrared and overhead armageddon. The next step talking to my drone operator contacts is swarms of autonomous drones working via AI to self-select targets with lethal autonomy at scale. The first to secure this will have a battlefield advantage, at least for a time. Zelenskyy announced a new branch of the army earlier this month, the Unmanned Systems Forces.
This is a long way from the 80,000ha which we drone-scouted seven years ago when training drone operators to spot weedy and wet, or acid, patches from above on our 200,000ha, using the same GPS tech as now in Bakmhut or Ardviika.
Now a massive widespread cottage industry has developed in Ukraine to produce homemade drones by the thousands. A £13,000 drone can take out a £13m tank if correctly deployed. Real tragic bangs for bucks, it is ploughshares into swords once more.
We were separated from war then by over a decade and geography. Sadly, Ukrainian children are living this dystopian dreadful reality daily in real time.
El Niño
Further afield, major weather events are impacting. The current El Niño is now one of the strongest on record – rocketing it into a super El Niño realms in 2024. This is an existing climate cycle, not climate change, to be clear.
How does this affect growers and markets? El Niño influences weather globally. Its impact is measured on a seasonal timescale, not in terms of individual weather events. A warmer winter, with less snow across the northern US states, is a sign.
El Niño gives a wetter winter for the southern US. Serious drought in parts of the South has largely been wiped out this winter by repeated bouts of rain from storm systems, including California’s atmospheric river-fuelled storms.
Drier weather in Mato Grosso in Brazil initially hit soya yield potential moderately with a cut of 15%, but now high rains have hit soya harvest and caused minor quality issues. El Niño also left its footprints in South America, Africa, Australia and parts of Asia like India, increasing yield variability. Watch this space. Volatility will be evident.
Border shenanigans
There are still challenges with grain exports, especially Poland and Hungary. Latvia is finally banning imports from Belarus and Russia. The EU is preparing ‘specific restrictions’ for import of Ukrainian products. At the same time, the introduction of quotas for Ukrainian poultry, sugar and eggs is currently being considered. Meanwhile, there are egg shortages in Russia.
The second stage of Ukrainian land reform has had the opposite of the intended effect – businesses are not buying but selling. This offers opportunities. As the banker Rothschild once memorably put it: “The time to invest is when there is blood on the streets, even when some of it is your own.”
Land in Ukraine is rented in small parcels from villagers and consolidated into manageable units. We pioneered this almost two decades ago. Cashflow, lack of supplier credit, and bank liquidity are still major problems here. Logistical difficulties meant companies had to sell the grain harvested in 2022 throughout 2023 later than usual.
Crop margins
A recent benchmarking study including two million ha made sobering reading. Ebitda (earnings before interest, taxes, depreciation, and amortisation) for the 2022 season for the main crops was only $47/ha. The forecast Ebitda in February 2023 was $206/ha, when agricultural producers had optimistic expectations for stable operation of the grain corridor.
ROWC, the actual rate of return on working capital of growing crops, was only 4%, while the forecast value was 19%. Our strategy, with potatoes as the bedrock of the business with advanced storage and vertically integrated starch production, gives us returns far above these figures, fortunately.
Certain crops are unprofitable due to low prices and logistics, especially maize (Ebitda -227 $/ha), the main crop last year. Winter wheat is also unprofitable (Ebitda -$19/ha). In contrast, oilseed crops remain profitable. The biggest is rape, Ebitda $676ha and ROWC 61%. In second place is soybeans, $225ha, ROWC 27%, and in third place sunflower, $175/ha, ROWC 20%.
Produce prices have decreased, the most being for corn by 19% ($187/t – at the beginning of 2023, $152/t – on average for the season), as well as for sunflower by 11% ($448/t and $397/t) . Oilseed rape and soya prices did not change significantly.
Ukranian grain growers will need to be very careful with crop selection and rotation this year just to survive. Margin for error is small and this will affect planted areas this spring. Regenerative extra costs are a luxury when survival and food security is on a knife-edge.
Spring will soon be upon us. Our SSCR spring meetings for potatoes and soft fruit are on March 8 and February 23 respectively with a great range of speakers. Our first PickupsforPeace Convoy of 2024 sets off at the end of the month.
The big news throughout Europe this month is the widespread rebellion against the ‘War on Farming’, the misguided EU Green new deal policies and lower food standards for imports over homegrown.
Thousands of farmers in tractors and trucks protested from Sweden to Portugal. French farmers held Paris to ransom, blocking roads, spreading manure, and leaving supermarket shelves bare.
After winning concessions on fert, fuel and pesticides from a spooked President Macron, they kept on driving to Brussels and did it all again. Public support for farmers is high with EU elections in June.
A demand to reduce nitrogen, methane and other emissions linked to farming by almost a third was removed from a Brussels net-zero plan to cut emissions by 90% by 2040. This looks like a major victory. The EU also backtracked on the halving of pesticides. Crop protection is often overlooked as an important tool for food security.
We live in changing turbulent times so stay awake and play your part. It’s no longer a spectator sport. We all need to be on the pitch.
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