Impact Of Increased Energy Prices On Agricultural Markets In Ukraine

Energy, and fossil fuels in particular, play an important role in agricultural production. It is consumed either directly through combustion of fossil fuels or indirectly through the use of fertilizer or crop protection measures, production of which relies heavily on the natural gas. According to the State Statistics Service of Ukraine (SSSU) 2019 data1 , shares of costs related to direct use of diesel and gasoline varied from 9% to 15% for production of different crops. The shares of inorganic fertilizer costs varied from 26% to 35%. Therefore, agricultural production could be sensitive to changes in energy prices. On February 24th, Russia conducted a full-scale military invasion to Ukraine, which led to the increase in prices of gasoline, diesel, liquefied petroleum gas, natural gas and inorganic fertilizers on both local Ukrainian and global markets. According to data from the A-95 Consulting Group2 , in December 2022, as compared to the December 2021, prices for gasoline, diesel and liquefied petroleum gas (LPG) have grown by 65%, 120% and 50%, respectively. Natural gas prices have been increasing since the beginning of 2020, and peaked at June 2022. At the same time, export complications led to the significant decrease in corn and wheat farm-gate prices. These combined effects have resulted in profit losses for agricultural producers. As a consequence, producers needed to adapt, choosing between crops substitution, adoption of new production approaches or technologies, exiting the market or incurring the losses.