Intro/Outro (00:01):
Welcome to dial P for procurement, a show focused on today’s biggest spin supplier and contract management related business opportunities. Dial P investigates, the nuanced and constantly evolving boundary of the procurement supply chain divide with a broadcast of engaged executives, providers, and thought leaders give us an hour and we’ll provide you with a new perspective on supply chain value. And now it’s time to dial P for procurement
Kelly Barner (00:32):
By now. I think most of the world is familiar with the Ukrainian flag. When displayed correctly is a thick, horizontal band of blue over an equally sized band of gold. It represents the bright blue skies of Ukraine over its wide open fields of grain. Now, Ukraine, depending on the source that you look at is either the fourth or fifth largest exporter of grain in the world behind Russia, Canada, the United States and France. When you combine Ukraine’s exports with Russia’s, you get about 30% of the world’s wheat. One quarter of the world’s barley and three quarters of the world’s sunflower oil. Now this grain primarily goes to north Africa, the middle east and Asia, and it ends up in countries like Bangladesh, Egypt, Israel, Turkey, and Lebanon. They are still producing grain despite the ongoing war. And in fact, they had a better recent growing season than many of the other regions in the world.
Kelly Barner (01:46):
The problem is they can’t get it out of their country. I’m Kelly Barner, the owner of buyer’s meeting point a partner at art of procurement and your host for dial P here on supply chain. Now I’m constantly scanning the news for interesting complex articles to discuss. And of course, I read all of this to figure out what we can learn. I have a quick favor to ask we’re building out dial P for procurements independent following. So if you listen to today’s podcast and you like what you hear, I’m gonna ask you for a review, maybe a few stars alike, a share. I’m always grateful for your interest and attention. Thank you so much for listening in all right now, where was I before the war? 90% of Ukraine’s exports left their country via deep ports on the black sea. This included their grain. Now, however Russia is blockading their ports, although they’re denying it and blaming sanctions on behalf of the west.
Kelly Barner (03:00):
So the big question that we’re faced with is how do we get all of this grain out of the Ukraine? Many of the people in this listing audience are procurement or supply chain professionals. This feels like the perfect problem for us to try and solve, but it’s unbelievably complicated as I’m gonna take you through today. Now the Ukrainians themselves are very realistic about this. The government currently estimates that they expect less than half of the current harvest to actually make it out of the country. There have already been some reports contested naturally that Russia has stolen some of the grain being stored in Ukraine, creating the temptation for desperate nations to do business with Russia, undermining the west sanctions in order to feed hungry populations. Now like this point, there are a number of very delicate trade offs and difficult decisions that we’re gonna talk through today.
Kelly Barner (04:05):
And I’m gonna walk you through three specific, but interrelated challenges. We’re going to talk about desperate food insecurity. We’re going to talk about complex logistics challenges. And lastly, we’re going to talk about the pressure of time. There really is no luxury to stop and think here. So let’s start with the food insecurity piece. This is a supply chain problem of the highest order and potentially a humanitarian crisis. Global food insecurity was already high because of the pandemic and unrelated weather events. Now the inability to get all of this grain out of Ukraine is exacerbating that situation and actually making it quite dire. According to the United nations world food program, they estimate that at any given time, the world has a 10 week wheat supply on hand. That’s where we are today. 10 weeks, nothing more. Historically the world food program has gotten 40% of its wheat from Ukraine alone.
Kelly Barner (05:20):
So this is a problem that they are monitoring very closely and are very familiar with in January of 2022, a full month before Russia invaded Ukraine. The United nations warned that 41 million people in 43 countries were teetering on the very edge of famine. That number is up from 27 million just two years ago. Add to that the fact that global food prices are surging and you have a real problem on your hands. In fact, in March of 2022 global food prices hit an all time high. Now the United nations is looking at this problem across countries, but individual countries are dealing with it as well in mid-May India took the step of banning exports of wheat because they are having shortages within their own borders. They’re not really a big exporter of wheat traditionally, but that’s one more thing. Putting additional pressure on an already taxed system.
Kelly Barner (06:37):
Today, there are between 20 and 30 million metric, tons of grain sitting in Ukraine and a number of different groups are trying to figure out how they can get a corridor cleared to export that grain out to the world. Now we talk about grain and we’ve talked about sunflower oil, but wheat is a very unique crop. And we talked about the fact that just under a third of the world, supply comes from Russia and Ukraine alone. There was recently an interesting article about this in the wall street journal, it was titled a solution to the wheat shortage, genetically modified crops, and it was written by a North Dakota state Senator and actually a former wheat farmer named Terry WOSK. He pointed out that wheat farming is a laggard process compared to other crops. Genetic modification has made it possible for crops like soybeans and corn to significantly increase their yield by land use.
Kelly Barner (07:46):
And so economics are directing farmers away from wheat to other more profitable crops because the wheat industry won’t commercialize genetic modification. There are less sources of wheat and less abundant sources of wheat worldwide, which in its own way, creates more of a dependency on areas like Russia and Ukraine, where is farmed plentifully. Now logistics plays a huge part in this challenge, and we’re not just talking about one channel, both land and sea are ways that we can potentially get this grain out of Ukraine. The roads are largely jammed up. And even if they weren’t the volume that we’re talking about 20 to 30 million metric tons, this isn’t something that you’re taking out via OTR freight, right? We’re talking about enormous quantities that need to travel predominantly via train or cargo vessels. Now, one of the land routes that has been proposed is to go via Poland or Romania to reach port cities.
Kelly Barner (09:02):
If Romania is chosen, the wheat would be taken via rail to ports on the Danu river, and then it would be loaded onto barges to go to Stan, to the black sea. Now it could also go Overland through Poland, but here’s one of the interesting things. And this is where we start to run into really interesting supply chain quirks Poland’s rail gauge is not the same as what they use in Ukraine. Ukraine uses a wider gauge of rail. So there is a 16 to 30 day wait time for moving the grain from one container to another at the Polish border. Even if that weren’t an issue and they were somehow able to make all of these transfers and get across land and load it into barges and get it to port cities, Romania and Poland’s ports are not truly equipped to export the large volumes of grain that need to be moved very quickly out of the Ukraine.
Kelly Barner (10:07):
And yet, despite the challenges, there are some positives and reasons that these options are still being discussed. Both Romania and Poland are countries that are friendly to the west. Sounds simple, but it’s incredibly important as you’ll see, as we start to talk about some of the other alternatives and while they do have this non-compatible rail issue, that’s not the only challenge. It’s also slow and costly and the ports may not work out. So basically what these countries have going for them is that they’re friendly to us. And they’re there now from there, believe it or not, the options actually kind of go downhill. The next land option that’s been discussed is via Belarus to Lithuania. It’s been discussed to come up with a northward grain quarter through Belarus, to Lithuanian ports out on the Baltic sea. But like with Poland and Romania, there are both positive and negatives to this option on the positive side, Belarus and Lithuania both use the same wider gauge rail that Ukraine uses.
Kelly Barner (11:17):
So that cuts down significantly on the delays because you don’t have to transition the wheat from one type of vehicle to another. But then we come to the negatives Belarusian president Alexander Lucas Shanko is allied with Putin. In fact, he allowed the Russian military to cross through his country to get to Ukraine. Some in the Biden administration are actually proposing a six month waiver of sanctions on Belarus, potash fertilizer industry in exchange for a rail corridor. So that should be a second red flag. If the United States already has sanctions against Belarus, they’ve clearly done something that we need to be concerned about in addition to their president, just plain being friendly with Putin. Now, potash is a key ingredient in fertilizer and Belarus is one of the main sources of this worldwide in December of 2021, relatively fr frequently sanctions were imposed by the United States for quote blatant disregard for international norms and the wellbeing of its own citizens among Belarus leadership.
Kelly Barner (12:36):
At that same time, Lithuania that we would need to partner with Belarus to make this route possible, cut off belarus’s access to their ports. This is sort of like making a deal with the devil. Russia has beaten the only place for Belarus to sell their potash since the sanctions were put in place. And so even if it was an uneasy friendship, it was sort of the only option that they had now, ironically, the fact that these sanctions are in place preventing Belarus from exporting, their potash has actually been contributing to the food insecurity troubles. We just talked about by creating fertilizer shortages that are very disconcerting. So what we have is a big messy circle. Now water is also an option. What if there were a way to reopen Ukraine’s ports? Now Ukraine themselves has deliberately sunk ships and put mines in the water. So there would be some safety related cleanup that would need to be done, but Russia is also blockading those ports.
Kelly Barner (13:43):
So it’s not as if we can just clean out the waters and open these ports, Turkey and Russia have had discussions about reopening Ukraine’s ports on the black sea. And if you remember from our initial opening to this conversation, Turkey is one of the countries that is most dependent on Russian and Ukrainian agricultural exports. So they absolutely have skin in this game. So Turkey and Russia are discussing what they can read, what they can do to reopen Ukraine’s ports, to which Ukraine said, excuse me, was anyone going to invite us to this conversation, Turkey and Russia thought they were just gonna sort this out on their own without actually bringing Ukraine to the table. Both the Ukraine and the United States have agreed that Keve should be involved in any discussions involving reopening the Ukrainian ports because the United nations and their world food program is so dependent upon grain from this part of the world.
Kelly Barner (14:49):
They have also tried to broker negotiations to get odesa’s ports reopened, but every time they bring it up, Russia, of course insists on having sanctions lifted. So that’s been a no go so far. Now we’ve talked about food insecurity and we’ve talked about logistics, but if you remember, time is also not on the world’s side here. Ukrainian silos are largely already full with the grain. They have not been able to export. The next harvest is about to begin and there is nowhere to put it further complicating things is the fact that Ukrainian farmers typically count on the proceeds from this year’s full harvest to finance their next planting. So if that cash flow is interrupted because they an can’t export, what’s already in the silos and they can’t take the new harvest and put it into already full silos. They’re not going to have the resources to plant the next crop.
Kelly Barner (15:54):
If we thought we were facing a disruption. Now wait until next year rolls around. Now, when I think about this challenge in the big picture, one of the first stories we can relate to in the United States is the baby formula shortage. As of late may nationwide out of stock rates were over 70%. That is absolutely horrifying if you are a parent or certainly if you were an infant, but let’s put that in context. According to the most recent us census, 6% of the us population is age five and under if we assume a roughly even distribution, that means a little over 1% of the us population is a formula consuming age and therefore has been affected directly by the baby formula shortage. Now let’s give them credit. They may be the most sympathetic and the most adorable 1% in the country, but they are still 1%.
Kelly Barner (17:04):
Now compare that to the impact numbers based on Ukrainian grain, one example, Lebanon, they get 80% of their wheat from Ukraine, the entire country. That’s far more than 1% of the population. And of course we remember the United nations warning about 41 million people in 43 countries balanced on the edge of famine. There are no questions that there are diplomatic challenges here. We’re talking about weighing sanctions and bargaining against bad actors, abusing their people. We’re basically being forced to weigh the impact of potential famine and a multi-year food supply disruption to worldwide grain supplies against presumably justified sanctions being placed against Belarus and Russia, which is the worst evil. What do you change in exchange for what kind of return? And there are also logistical challenges. We have ports, we have barges, we have rail, there are friendly countries and unfriendly countries. The 20 metric tons currently stuck in Ukraine is enough to fill 400 massive cargo vessels.
Kelly Barner (18:31):
That’s where we get to this idea of over the road freight, simply not being enough. And even if it were somehow possible to magically open back up the ports in Odesa the ports in the Baltic, the ports and the black sea, and bring in those 400 massive ships. You can’t bring them in all at the same time and time here is the scariest resource of all. This brings me back to one of my central philosophies. When I look at supply chain or anything else, nothing that is simple is real and nothing that is real is simple. And boy is this situation real, and it is becoming more urgent by the day. This is an example of a situation where everyone world leaders, diplomats, supply chain, professionals, non-governmental organization, everyone needs to come together to try to figure out a solution fast. That’s my point of view.
Kelly Barner (19:38):
This is a very complex issue. Like all of the issues we cover here on dial P and I’m sure people listening in hold differing opinions or have additional facts to offer up, bring those into the conversation. I always ask as much as I’m grateful to you for listening to dial P or watching in on any of my video interviews or live streams. The biggest thing I want is for you to not just listen complex issues, require collaborative solutions, join the conversation and let me know what you think let’s work together to figure out the best solution. Because if there’s one thing we’re certain of, it’s going to take all of us until next time. I’m Kelly Barner. And I’m your host here on dial P for procurement on supply chain. Now, thank you so much for listening in and have a great rest of your day.
Intro/Outro (20:35):
Thank you for joining us for this episode of dial P for procurement and for being an active part of the supply chain. Now community, please check out all of our shows and events@supplychainnow.com. Make sure you follow dial P four procurement on LinkedIn, Twitter, and Facebook to catch all the latest programming details. We’ll see you soon for the next episode of dial P four procurement.
