Update on CRP and the Economics of the Russian Invasion of Ukraine
As many of us are aware, in February and March of 2022 Russia launched a full-scale invasion of Ukraine. The invasion not only has devastating and heartbreaking effects on the lives of millions of Ukrainian citizens, but it also has the potential to drastically affect the world’s food supply.
Ukraine’s agriculture industry is a multibillion-dollar industry, and they are a significant exporter of cereal grains. According to the American Farm Bureau Federation (AFBF), corn is Ukraine’s top agriculture export, with an export value of $5.8 billion and supplies the European Union with 63% of its corn imports. Also indicated from AFBF’s market data, Ukraine is the world’s seventh-largest corn producer and the fourth largest exporter of corn, responsible for 13% of the world’s corn exports.
However, Ukraine’s corn export season falls between November and May, meaning that much of the nation’s corn harvest has been interrupted due to military action. Moreover, an estimated $2.4 billion worth of corn from the 2021/2022 trade year will be stuck in the country because it cannot be shipped out of the Black Sea ports. As the Crisis in Ukraine continues, there is a higher chance that more of Ukraine’s exports will be unable to be shipped to the rest of the world or have their crops be planted for next year’s growing season, causing a severe agriculture supply issue.
On the other side of the coin, Russia is a large exporter of fertilizer chemical components, and with sanctions being enforced against Russia, fertilizer availability will continue to dwindle. According to the University of California-Davis, Russia supplies 9% of the global nitrogen fertilizer, 10% of the global phosphate fertilizer, and 20% of the global potash fertilizer. Along with a multitude of other demand and supply constraints, Russia’s invasion and the subsequent sanctions on Russia’s assets have left fertilizer prices to skyrocket (almost tripling in price). Rising input prices for price-taking commodities puts a severe economic strain on agriculture producers that will extend throughout the supply chain.
Background on CRP
USDA’s Conservation Reserve Program (or CRP) is a land conservation program that gives yearly rental payments to farmers and ranchers in exchange for the retirement of their land. CRP contracts are typically 10 to 15 years with the long-term goal to re-establish valuable land cover which in turn improves water quality, prevents soil erosion, and reduces loss of wildlife habitat.
It should be noted that there are very few CRP acres in Arizona since the program rental rates are too low to be useful in our state, however, there is a total of 2 million CRP acres across the United States.
What does the devastating Crisis in Ukraine have to do with USDA’s Conservation Reserve Program?
The Crisis in Ukraine drastically affects the amount of useable agricultural land in Eastern Ukraine and creates exportation issues with the blockade of Ukraine’s seaports. The current and expected lack of agriculture supply has American farmers and policymakers asking an interesting question: can the U.S. use land currently under CRP contracts to help supplement the loss in cereal grain production from Ukraine? With the USDA announcing they are offering 2 million acres under the Conservation Reserve Program in 2022, it does not seem likely they will shy away from the program’s intent to conserve land and will allow agriculture production on CRP land to supplement the lost agriculture supply.
However, Washington continues to show signs that it is looking for ways to increase American production in response to decreased European production. For example, on April 28th, 2022, the White House released a statement granting $500 million dollars in support to help United States farmers supplement the agriculture supply shortage from Ukraine. Some of this money will be used to increase the number of counties that will grant crop insurance for double cropping in the Eastern United States (from 681 counties to 1,935 counties), indicating that the USDA is looking for ways to incentivize additional production on existing farmland. The expansion of double-cropping-covered counties should be chosen to maximize efficiency, taking into consideration growing seasons, weather patterns, and the ability to produce a double-crop on the newly covered farmland. Without these considerations, there will be minimal effect in adding supplemental cereal grains into the global supply chain.
While this announcement and funding from Washington is a step in the right direction in helping to secure a strong agriculture supply chain amidst the Crisis in Ukraine, there is more to be done and considered.
As the Crisis in Ukraine continues, the Arizona Farm Bureau will continue to update its members on the agriculture issues as they arise.
Editor’s Note: The links below provide further information for your use:
- Click here to learn more about CRP: Conservation Reserve Program (usda.gov)
- Click here to read AFBF’s Market Intel on the Ukraine crisis: Ukraine, Russia, Volatile Ag Markets (fb.org)
- UC-Davis article on fertilizer: The Story of Rising Fertilizer Prices | Aaron Smith (ucdavis.edu)
- Click here to read the White House press release about aid and resource allocation to Ukraine and to food supply: FACT SHEET: White House Calls on Congress to Provide Additional Support for Ukraine | The White House
- Click here for the map showing the expansion of double cropping insurance for soybeans: Soybeans Double Cropping Potential Expansion.pdf