In addition to the economic effects that the Ukrainian war in Europe and other neighboring countries, the conflict also leaves a trail of repercussions in Colombia and Latin America.
(In context: Ukraine: one year has passed since a relentless war with Russia)
Despite the fighting taking place thousands of kilometers away, sanctions against Moscow and the brake on some exports from that area of the planet pushed the price of some products on Colombian soil.
(See also: ‘I see no signs that the conflict in Ukraine could end anytime soon’)
Russia, for example, is one of the world’s largest products of urea, a key compound in the fertilizer production. This input, in turn, is used to grow food. In this sense, the blockades to Russian trade made this production chain more expensive.
“Although Russia and Ukraine do not represent more than 1.2% of the country’s total imports, there is a significant concentration in urea, where Russia is also the main exporter of urea worldwide with 12% of exports , which generated significant pressures from food inflation since urea is a fundamental fertilizer in the production of rice, corn, wheat, sugar cane, potatoes and other types of agricultural products,” he explained to this newspaper. Luis Fernando Mejía, Executive Director of Fedesarrollo.
Mejía also points out that the restrictions imposed in Russia generated an additional increase in the price of natural gas, a key element for the production of urea precisely.
“This has been a fairly important channel that has affected local food production and an increase in food inflation has materialized, which has been the main determinant of inflation throughout 2022,” Mejía said.
The restrictions placed on Russia derived from the invasion that began 365 days ago made the food production chain more expensive. In other words, Colombians had to put up more pesos to pay for the food in which these fertilizers are used.
“The situation altered the three large groups of nutrients used in agriculture, especially nitrogenous fertilizers, whose production depends on natural gas; in addition, nitrogen-based products such as urea and nitrates. These affectations produced a cascading effect on products such as phosphates and potassium bases such as potassium chloride, which are perhaps the ones that set the greatest trend,” Andrés Useche, Yara’s Regional Director for the Andean Region, explained to EL TIEMPO.
According to figures from Danein December 2022 imports from Russia were US$29.0 million CIF and presented a decrease of -60.2% in relation to the same month of 2021. This behavior was mainly due to the decrease in external purchases of mineral or chemical potassium fertilizers (-100.0%) and nitrogenous mineral or chemical fertilizers (-55.7%).
“To review the indirect effects, it must be taken into account that Ukraine and Russia mainly provided raw materials and hydrocarbons for energy generation (gas, oil and coal) to the industrial nations of Europe and Asia (Colombia’s trading partners), generating shortages. and, in turn, making final goods more expensive such as vehicles, machinery and equipment, and highly complex products such as medicines, household appliances and other high technology, on which Colombia depends for its supply,” added Piedad Urdinola, director of the Dane.
On the other hand, the war has also had an effect not only on the food market but also on energy. Oliver Wackmanager of Control Risks in Colombia and the Andean Region, mentioned that the scenario of high international prices in both markets had implications for public finances of this region.
“Many governments in the region continue to subsidize fuel, so when the price of oil rises, the cost to public coffers increases. This effect has been notorious in Colombia, where the national government spent more than 18 trillion pesos in 2022 (1.3% of GDP) in the Fuel Price Stabilization Fund (FEPC), a mechanism through which the price of fuel is subsidized. fuel consumer. Even so, the FEPC deficit reached 39 trillion pesos at the end of 2022, almost 3% of GDP,” Wack said.
When the world was barely getting off the ground after the chaos left behind by the coronavirus pandemic, the war in Ukraine It was an obstacle for countries. But now the question is what will happen in 2023, as the war enters its second year with no apparent way out in sight to end the conflict.
“Today it cannot be said that it has been solved (the increase in product prices), but the market has definitely made a correction for stabilization -especially in the price of gas- contributing to the fact that nitrogen-based fertilizers have decreased the price . However, that does not mean that it can be guaranteed that there will be no fluctuations in the short term. Today’s outlook regarding prices is like a reaction or downward correction effect, but even the market is volatile and has a high level of uncertainty,” added Useche.
CARLOS JOSE REYES GARCIA
INTERNATIONAL SUB-EDITOR
TIME
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