War on Ukraine How Switzerland is instrumentalising the looming food crisis
Silvie Lang, 24. March 2022
With 15% of the world’s corn and 10% of the world’s wheat exports coming from Ukraine, the country is truly the breadbasket of Europe. In addition to that, Ukraine supplies nearly 50% of the sunflower oil traded worldwide. Russia is another important player in global agricultural trade, and its market share of 20% makes it the largest wheat exporter. Together, the two countries account for close to a third of wheat exports. While this concentration is huge, it’s not an anomaly. Production and exports of other commodities are similarly concentrated in a handful of countries. For corn, the four largest exporters –the USA, Argentina, Brazil, and Ukraine – have a combined market share of almost 80%. This kind of concentration can have drastic consequences when production or export shortfalls occur.
While last year’s harvest is currently still stored in Ukraine’s grain silos, supply chains have been disrupted because the war has paralysed domestic transport and exports from the ports. In addition, the country has imposed export bans or restrictions to secure its own supplies. Future harvests are also at risk. Spring is the time for sowing, but there isn’t enough labour. Countless Ukrainians, mostly men, have become fighters overnight, and many fields cannot be cultivated because they have been destroyed by Russian tanks or are mined. Moreover, the winter wheat harvest should take place in summer, but is currently also under threat.
Food security at risk for years to come
A rapid recovery of global food security is not likely, even if the war were to end immediately, especially since Russian grain exports have also collapsed. Financial institutions are reluctant to finance agricultural trade with Russia and the security situation means that logistics companies are unwilling to export from Russian ports. In addition, Russia itself has imposed export restrictions on agricultural products to secure its own supplies. Russia might also be able and willing to go without the 8 billion US dollars it averages for its wheat exports every year to be more self-sufficient. However, approximately 200 billion US dollars in annual revenue for oil and gas exports, on the other hand, are indispensable for Russia’s war chest.
Calls for global solidarity and support
Since the dramatic consequences for import-dependent countries have already become a reality, Switzerland’s excuse is simply unacceptable. On the contrary: as the largest trading hub for Russian oil and gas, the country has a special responsibility.
Switzerland absolutely has to advocate for the EU to sanction the oil and gas trade as quickly as possible – and then adopt these sanctions immediately.
At the same time, Switzerland needs to work with the sanctioning countries to ensure that the states that are most threatened by food insecurity receive both logistical and financial support to secure their supplies. In mid-March, UN Secretary General António Guterres announced the creation of a “Global Crisis Response Group on Food, Energy and Finance”. Switzerland must declare its solidarity immediately and contribute significantly to the initiative.
As the world’s leading commodity trading hub and as a refuge for Russian oligarchs and their fortunes, Switzerland certainly owes it to the affected countries. After all, the much vaunted “globality of the markets” is of little use to countries that depend on imports since such a view completely ignores differences in term of bargaining and purchasing power. While countries that are financially powerful can simply switch to grain from other regions, those with less purchasing power cannot easily replace the quantities they need. Many countries are forced to use up their grain reserves, while food is heavily subsidised. Unless prices recover soon, food security will be severely compromised in many countries.
The world’s largest trading hub for grain from the Black Sea region
As the most important trading hub for grain, Switzerland has another central role to play. The world’s largest agricultural traders Cargill, ADM, Bunge, and Louis Dreyfus all have their trading offices in Switzerland. Together, they control an estimated 70 to 90% of the global grain trade – exact figures are not available. Above all, it is the trade in grain from the Black Sea region that runs through their Swiss offices and therefore makes Switzerland the biggest trading hub for Ukrainian and Russian grain. The traders do not only trade in Russian grain, however, they also operate processing plants, warehouses, and port terminals in Russia – sometimes jointly with Russian companies. Viterra, the former agricultural division of Glencore, in which the latter still holds a 49.9% stake, is said to be the trader with the largest assets in Russia. It runs the grain terminal in the port of Taman together with the sanctioned Russian bank VTB.
Swiss traders: hesitant and lacking transparency
Details about the Swiss agricultural trader’s investments and sales in Russia are unknown. According to news agency Reuters, Cargill, for example, removed details of its business in Russia and Ukraine from its website in mid-March. Some of the traders still haven’t issued official statements condemning the Russian invasion of Ukraine. The Russian market’s relevance for their business and the lack of public pressure on the traders – who tend to operate in the background – are probably the reasons for their reluctance. It was not until mid-March that some decided to partially suspend their business activities in Russia, which was likely attributable to the conditions being very difficult rather than something they did on their own accord.
Like Switzerland, the traders are also citing the looming hunger crisis as the reason for their inaction.
Cargill announced via Reuters that “food is a human right and should never be used as a weapon”. While certainly true, you cannot help but question the good intentions behind such statements coming from the world’s largest agricultural trader. Cargill recorded the largest profit in its 156-year history during the COVID-19 pandemic, while the number of those suffering from hunger increased by 100 million. The 5 million US dollars that Cargill promised to donate to organisations such as the World Food Programme, which receives 70% of the grain it distributes from Ukraine, also seems rather insufficient. Compared to the nearly 5 billion US dollars in net profit recorded in 2021, the donation is trivia.
Given the pivotal position of Swiss traders in our global agro-food system, their hesitation and silence are untenable. Agricultural traders should long since have been transparent about the extent to which they are still operating in Russia and with Russian companies and should have taken a clear position against the Russian invasion. When operating in and with countries that are engaged in armed conflict, traders also urgently need to carry out enhanced due diligence. They need to establish clear and transparent processes to continuously analyse the human rights impacts of their business activities. For the current conflict, this should in most cases lead to drastically reducing business activities or even a total withdrawal, all while ensuring that they do not violate their employee’s labour rights. At the same time, they must avoid playing into the hands of the war-mongering regime, both economically and politically and undermining the effects of the sanctions.
Finally, agricultural traders also have to play their part in ensuring global food security, e.g., by not exploiting price volatility through speculation and driving food prices even higher.
The next few months will show whether Switzerland as a commodity trading hub and its traders will back up their (meagre) words with actions and whether they place global food security above their immediate business interests. The past offers little reason for hope.