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Remzi AKÇİN
Chairman of UGM Board of Directors
The Covid-19 epidemic, which broke out in China in the last months of 2019 and quickly spread throughout the world, turning into a pandemic, and the subsequent Russia-Ukraine war announced to us the "footsteps of cracking globalism". As you know, globalism; It is an ideology that “claims that bringing people closer together, opening borders, liberalizing trade, and getting countries to work together to ensure global security will make the world a better place.” Globalism, which reached its peak between 1990 and 2007, is about to succumb to security of supply.
The theory of "free competition environment and mutual advantages" lies at the basis of globalism. If tax and non-tax barriers to international trade are removed and each country puts the product it produces at the lowest cost on the market, the trade volume will increase and, in parallel, world welfare will increase.
THE PANDEMIC AND THE WAR SHOWED THAT MINIMUM SECURITY IS ESSENTIAL…
Almost all classical economic theories are based on the fact that the price will be determined according to supply and demand in a perfect competition environment. It is based on the assumption that there is perfect competition and that all conditions except supply and demand are constant (ceteris paribus). However, just as no factor is continuous in the real world, we also experience that a fully competitive environment is a dream. Just as the pandemic and war prove to us that the factors that create supply, demand, and price are not fixed, It has shown that the main issue is not the balance of supply and demand but the security of supply. Because although there is a lot of demand, there are problems both in production and in the delivery of the product to the consumer, in other words, in the security of supply. Therefore, the main issue is not the balance of supply and demand but the fact that factors other than the balance of supply and demand are critical.
THE FAMOUS "CETERIS PARIBUS" IDEA…
There is a famous joke about "ceteris paribus." This anecdote reminds us to question the realism of economic theories. A physicist, a chemist, and an economist are stranded on a deserted island. They find a can on the beach while searching for something to eat on the island. But they don't have a can opener. Everyone gives their opinion on how to open the can:
-Physicist: "Let's open the can by hitting it with a stone."
Chemist: "Let's put it on the fire. It will cook, and the box will open."
-Economist: "Suppose we have a can opener…"
WEIGHT OF WARRING COUNTRIES IN FOOD PRODUCTION
The most crucial essential food products in human nutrition It is possible to list them as wheat, rice, vegetable oil, and corn. There is no need to mention the weight of grain in this ranking. From this perspective, it is evident from statistical data how important Russia and Ukraine, known as the "breadbasket of Europe" with their fertile lands, are in the world food supply.
THE PANDEMIC AND THE WAR SHOWED THAT MINIMUM SECURITY IS ESSENTIAL…
Almost all classical economic theories are based on the fact that the price will be determined according to supply and demand in a perfect competition environment. It is based on the assumption that there is perfect competition and that all conditions except supply and demand are constant (ceteris paribus). However, just as no factor is continuous in the real world, we also experience that a fully competitive environment is a dream. Just as the pandemic and war prove to us that the factors that create supply, demand, and price are not fixed, It has shown that the main issue is not the balance of supply and demand but the security of supply. Because although there is a lot of demand, there are problems both in production and in the delivery of the product to the consumer, in other words, in the security of supply. Therefore, the main issue is not the balance of supply and demand but the fact that factors other than the balance of supply and demand are critical.
THE FAMOUS "CETERIS PARIBUS" IDEA…
There is a famous joke about "ceteris paribus." This anecdote reminds us to question the realism of economic theories. A physicist, a chemist, and an economist are stranded on a deserted island. They find a can on the beach while searching for something to eat on the island. But they don't have a can opener. Everyone gives their opinion on how to open the can:
-Physicist: "Let's open the can by hitting it with a stone."
-Chemist: "Let's put it on the fire; it will cook, and the box will open."
-Economist: "Suppose we have a can opener…"
WEIGHT OF WARRING COUNTRIES IN FOOD PRODUCTION
The most crucial essential food products in human nutrition It is possible to list them as wheat, rice, vegetable oil, and corn. There is no need to mention the weight of grain in this ranking. From this perspective, it is evident from statistical data how important Russia and Ukraine, known as the "breadbasket of Europe" with their fertile lands, are in the world food supply.
These two countries have a 15 percent share in world agricultural production. Russia's average wheat production is 77 million tons, and its exports are 35 million tons. Ukraine's wheat production is 33 million tons, and its export is 24 million tons. Again, these two countries produce 80 percent of the world's sunflower oil. According to United Nations (UN) data, 20 percent of the world's wheat and barley needs are met by Russia and 10 percent by Ukraine. Again, these two countries meet one-fifth of the world's corn and 78 percent of its sunflower oil needs. These figures show the importance of the two warring countries for global food needs.
THE DESTRUCTIVE EFFECT OF THE WAR IS ALSO FELT IN THE FERTILIZER SUPPLY…
The issue is not limited to food items such as wheat, barley, corn, and sunflower seeds. At the same time, we see the devastating effect of the war on the supply of fertilizers, which are necessary for food production. Russia meets 15 percent of the world's nitrogen fertilizer needs and 17 percent of potassium fertilizers. At the same time, Belarus is one of the largest suppliers of nitrogen and potassium fertilizers. Belarus meets 16 percent of global fertilizer needs. Although Belarus is not a party to the war, it has been the target of sanctions from some Western countries due to the actions taken by the country's authorities against a commercial airline.
RUSSIA MAKES 20 PERCENT OF GLOBAL NATURAL GAS EXPORTS
Meanwhile, natural gas should not be overlooked. Russia's natural gas exports account for approximately 20 percent of global natural gas trade. Russia provides roughly 40 percent of natural gas imports from European Union countries. It should not be forgotten that natural gas is also an essential raw material for producing nitrogenous fertilizers such as ammonia and urea. Russia and Belarus meet 33.5 percent of the fertilizer needs of European Union countries in nitrogen and 60.6 percent in potassium. On average, nitrogen and potassium imports are from Kazakhstan 64.7 percent, China 22.4 percent, India 15.6 percent, the USA 16.9 percent, Brazil 32.6 percent, the Central African Republic 94.5 percent and Nigeria 65.1 percent. It works in these two countries. In other words, for many countries, including Ukraine, the dependence on supply from these two countries is more than 60 percent. This shows that war not only endangers the food supply but also the food production of other countries other than the warring countries.
NEGATIVE EFFECT OF WAR ON FOOD SUPPLY…
Due to the ongoing war between Ukraine and Russia, some agricultural areas, especially in Ukraine, are not cultivated, and some crops and cultivated areas are destroyed. The press reports that 30 percent of farm areas in Ukraine are not grown due to the war. This means that there is at least a 30 percent decrease in the food supply for the Ukrainian front. From the Russian perspective, the sanctions countries impose against Russia indirectly affect the food supply negatively.
Apart from apparent deficiencies, the inability to deliver food products to consumers due to war leads to the same result. Due to the naval mines laid by Ukraine and Russia's failure to guarantee safe navigation on the route, ships loaded with food in Ukrainian ports cannot leave the port, and new cargo cannot be loaded anyway. Therefore, global food needs cannot be met not only because of the decrease in production but also because the products in stock cannot be supplied to the market due to the war.
POOR COUNTRIES WERE MOST AFFECTED
The decrease in food supply due to the start of war between Ukraine and Russia, on top of the pandemic, drought, hurricanes, inflation, and foreign exchange shortage, caused an excessive increase in food prices. The countries most affected by this situation are poor. Because food production is very limited in these countries, they must feed on grain. At the same time, grain is the cheapest nutritional ingredient. Therefore, with both the decrease in supply and the increase in prices, it has become even more difficult for these people who are already chronically hungry to access food. The African continent was most affected by this process. Zimbabwe took the most significant blow.
According to the United Nations World Food Program (WFP), 5.3 million people, or one-third of the population, are food insecure. Two-thirds of people living in sub-Saharan Africa are food insecure.
According to the report published by the "Global Network Against Food Crises," established with the initiative of the United Nations and the European Union, approximately two-thirds of those in Sub-Saharan Africa, where 193 million people live, are acutely food insecure. Again, it is reported by the Food and Agriculture Organization of the United Nations (FAO) that 40 million more people will fall below the hunger line in 2021. It is inevitable that this figure will increase in 2022 due to the decrease in food supply caused by the war.
TURKİYE'S SITUATION...
When we look at the share of countries fighting the supply of food products in Türkiye's imports, we see that we are also dependent on these countries. "Cereals" in the 10th chapter of the Turkish Customs Tariff Schedule; "oilseeds and fruits" in the 12th chapter; various grains, seeds, and fruits; Plants used in industry and medicine; "hay and forage" and "animal, vegetable or microbial fats and oils and their breakdown products" in chapter 15; ready-made cooking fats; Imports of "animal and vegetable waxes" clearly show this dependence. According to the data of the Turkish Statistical Institute (TUIK), the import trends of these product groups in the last ten years are as follows:
10 chapters: Cereals
SOURCE: TURKSTAT
12 chapters: Oilseeds and fruits; various grains, seeds, and fruits; Plants used in industry and medicine; hay and forage
SOURCE: TURKSTAT
15 chapters: Animal, vegetable, or microbial fats and oils and their degradation products; ready-made cooking fats; animal and vegetable waxes
SOURCE: TURKSTAT
As can be seen from these statistics, during this period, Turkey periodically supplied 80 percent of its grain imports, 68 percent of its oilseed imports, and more than 53 percent of its oils used as food from Russia and Ukraine. This situation shows us how dominant the warring countries are in our country's food supply. However, looking at these figures, it would be unfair to say that our country's food needs can be met mainly through imports and that we are highly dependent on imports in these areas. The wheat-based industrial capacity in our country is much higher than Turkey's needs. For this reason, imports of raw materials used in food industry production exports, rather than food needs, increase these figures.
In a nutshell, the Russia-Ukraine war has a detrimental effect on global agriculture and food. However, Turkey is particularly vulnerable, with Russia and Ukraine being its top agricultural product importers. If we were to shift our imports to other countries due to the war, we would face higher prices and increased foreign currency expenditure.
THE DETERMINANT ELEMENT IN THE FORMATION OF THE ECONOMY IS SUPPLY
Classical economic theories assume that "the product is produced to meet the existing demand and the price is formed at the point where demand and production quantity meet." Demand is the determining factor in the formation of the economy. However, supply economics, which emerged later, refuted these theories and proved correct. The determining factor in the formation of the economy is supply, not demand. Every supply creates its demand. In the modern world, we also witness types of goods that have been eliminated from the market and that create significant economic value. Going back 30 years, you will not find mobile phones or digital games that constitute today's most crucial economic volume.
SUPPLY SECURITY IS AS IMPORTANT AS SUPPLY…
The pandemic and the subsequent war between Ukraine and Russia Have underscored the importance of supply security. We've seen the consequences of over-reliance on products from a single geography, with the 'chip crisis' and 'food supply security' being the most glaring examples. This highlights the pressing need for strategic planning and diversification in our supply chains.
