Russia-Ukraine, the war frightens the world and makes Italian food and wine tremble

The first concern, of course, is for the umpteenth great loss of life that is being perpetrated in these hours. But while Russia is advancing militarily in Ukraine and the news follows one another by the hour, and while Italy and the NATO bloc are firmly condemning what is considered to all intents and purposes an invasion by Putin, with economic sanctions that are now inevitable and will be decided by EU summits in the coming hours, the economies of the world are shaking, including the Italian economy, which is closely linked to Russia, especially on the energy front. However, Italy sees in both the Kremlin and Kiev two partners of primary importance on the agri-food front. While world stock exchanges obviously collapsed, the tension was being felt in the growth of (already high) oil prices (this morning European Brent was already at $103 a barrel, up 7% on yesterday’s values, while the Texas Wti was at $98, up 6%), and above all gas prices: in Amsterdam futures reached a maximum increase of 41%, at €125 a megawatt-hour, before returning to €113 (+27%). This is a huge problem for Italy, since, as the Minister for Ecological Transition, Roberto Cingolani, pointed out, Italy buys over 40% of the gas it imports from Russia. And with prices already skyrocketing, the economic fallout will be heavy on all sectors. Then comes the agricultural and agri-food aspect. According to ISTAT data (summing up the voices of producers of agriculture, forestry and fishing, and of food, beverages and tobacco, ed.), Italy, in the first 11 months of 2021, exported more than 613 million Euros of agri-food products to Russia, while importing 229 million Euros. Looking at Ukraine, on the other hand, Italian exports to the country amount to 325 million euros, while imports are close to 525 million euros. In particular, the concern is on the wheat front, with which Russia and Ukraine are the main exporters in the world, with Italy importing 100,000 tonnes in the first case and 120,000 tonnes in the second (source: Ismea).
It should also be noted that Italy buys mainly crude sunflower oil, maize and soft wheat from Ukraine. For maize, Ukraine is our second largest supplier after Hungary, with a share of just over 20%, both in volume and value. This is a situation that raises some concern given the significant reduction in domestic maize production (-30% in the last 10 years) and the now structural dependence on foreign production, with an Italian self-supply rate of 53%, compared to 79% in 2011.
Obviously, this is a huge alarm for the Italian agri-food chain because, as Coldiretti points out, “under the pressure of Russia’s attack on Ukraine, wheat prices jumped by 5.7% in just one day, reaching the highest value in nine years at $9.34 per bushel, the same levels reached in the years of the dramatic bread riots that involved many countries, starting from North Africa, such as Tunisia, Algeria and Egypt, which is the world's largest importer of wheat and depends mainly on Russia and Ukraine”.
And the increase in raw material quotations - Coldiretti underlines - has also affected basic products for animal feed on farms, such as soybeans, which reached the highest level since 2012, and maize, which has been at the highest level for eight months. “Ukraine - continues Coldiretti - also plays an important role on the agricultural front with the production of 36 million tonnes of maize for animal feed (fifth place in the world) and 25 million tonnes of soft wheat for bread production (seventh place in the world) while Russia is the main wheat exporting country in the world. The markets are concerned that tensions between the two countries could halt shipments from Russia and block Ukrainian shipments from the Black Sea ports, causing a collapse in availability on world markets with the risk of inflation of primary consumer goods, famine and social tensions.
A global emergency that directly affects Italy, which is a deficit country and imports 64% of its wheat requirements for the production of bread and biscuits and 53% of the maize it needs to feed livestock, according to Coldiretti analysis, which also shows that Ukraine is our second largest supplier of maize with a share of just over 20%, but also guarantees 5% of the national import of wheat”. Coldiretti also stresses that “the tsunami of high energy prices fuelled by the Russian invasion in Ukraine, with record prices for gas and oil, is sweeping away the cultivation of plants and flowers made in Italy, with one out of three floricultural companies (31.2%) being forced to reduce production and the explosion of bill costs. For a greenhouse of one thousand meters - Coldiretti points out - the net loss is of 1,250 euros and who is not able to cope with the increases is forced to close or to reconvert the activity”. Not to mention the direct damage, since for the Italian floriculture industry, recalls Coldiretti Pistoia, the territory of one of the most important districts in the sector, the ongoing conflict puts at risk an export to the former Soviet Republics and, more generally, to Asia, which for live plants alone is worth 13.5 million euros.
Reasoning that, unfortunately, applies to the entire Italian agri-food production system, as Confagricoltura underlines. “A new phase full of risks has opened up that requires all representatives of the production sectors and workers to make the maximum contribution to social cohesion. We must prepare ourselves to face a situation of profound instability. Moscow’s response to the EU sanctions may push up gas and oil prices again, as we are already seeing in these hours. The increase in the cost of energy also has an impact on all means of production and transport”, said Confagricoltura president Massimiliano Giansanti. “A further tightening by Moscow of agri-food imports from EU member states, which are set to reach €7 billion in 2020, cannot be ruled out. We risk not having the necessary quantities of fertilizers available for the next harvests. And the blockade of activity in the port of Odessa could cause the international grain market to collapse. Farmers will continue to do their utmost to ensure the continuity of production cycles and the regularity of deliveries”, assured the president of Confagricoltura. “However, we are asking EU institutions and our government for extraordinary support measures that are appropriate to the gravity of the situation. We expect a clear indication from today’s extraordinary European Council meeting”.
“No company can withstand the increase in costs already acquired and the further upward race that could be triggered in the coming weeks, if diplomatic negotiations for a solution to the crisis do not quickly restart”, Giansanti further pointed out. According to the latest data, released by the European Commission at the meeting of the Agriculture Council (February 21), natural gas prices have increased by 379% over the level in the last quarter of 2020. On the fertilizer side, the price of urea rose 245% over the same period.
And then, there is also wine. According to ISTAT data, processed by Federvini, Russia, Italy’s tenth largest wine market, saw imports of Italian wines, in the first 11 months of 2021, at 152.3 million euros, +20.7% compared to 2020. And Ukraine, in the same period, recorded imports of 57.4 million Euros. These are important numbers, bearing in mind that December is missing, which on average, due to the end-of-year holidays, is worth almost twice as much as other months. And the concern of the sector is high, as Vittorio Cino, general manager of Federvini, explained to WineNews: “these are important markets, especially Russia, which have grown in recent years. At the end of the year there will have been an exchange, in terms of exports of Italian wines, of 250 million euros, two thirds from Russia and a third from Ukraine. Significant markets, especially for sparkling wines, which in Russia is one of the most successful products”. What is worrying, of course, is the economic situation in the two countries, which will obviously be complex, but also the sanctions by the European Union that, as announced by all the leaders of the EU countries and the President of the Commission, Ursula Von Der Leyen, will be very harsh, and followed, as has always happened in recent years, by counter-sanctions by Putin. “I won’t go into the reasons, of course, but that there will be sanctions and counter-sanctions is practically certain. And they certainly don’t favor exporting countries and an export-dominated sector like Italian wine. Obviously, we expect repercussions, and then energy and transport costs will also have an impact, which will affect everyone. So there will be a double disadvantage, which will affect above all the sectors with the highest rate of imports”. Obviously, in such gigantic dynamics, a single sector can do very little.
“It is still difficult to make precise estimates on the impact of sanctions and counter-sanctions, but in Russia, they are nothing new, it was only in July 2021 that there were rules on labeling, for example, which have made life much more difficult for imported wine products. What we are already experiencing is the increase in the cost of raw materials and energy, of which Ukraine and above all Russia, including its “satellite states” from Kazakhstan to Belarus, are an important reservoir for Italy. As Confindustria (the “parent company” of Federvini, ed), we have been asking the government for some time for compensatory measures for price increases, which were already heavy before the conflict. Today we are even more concerned, of course, and this request remains on the table”.
And so, while the whole world is looking with great concern at the conflict between Russia and Ukraine - which many hope will soon be resolved, but many fear will become more complicated and spread - the world of Italian wine is also looking eastwards. Although it exports a lot of wine to Russia, over the years it has also seen many Russians invest in Italian wine, especially in Piedmont and Tuscany. From Roustam Tariko, owner of the Roust Group, which has controlled the historic Piedmontese sparkling wine producer Gancia since 2011, to Spi-Group, whose headquarters are now in Luxembourg and is owned by Yuri Shefler (Russian by birth, but a British citizen for years), who through his subsidiary “Tenute del Mondo Group” (the same one that recently bought the shares of Angelina Jolie’s Chateaux Miraval in Provence, (the same that recently bought out Angelina Jolie’s shares in Chateaux Miraval in Provence, a sale opposed by her partner and ex-husband Brad Pitt, editor's note), is a minority shareholder in Tenute di Toscana, the holding company 73.6% controlled by the Frescobaldi group, under whose umbrella are top Italian wine brands such as Masseto and Ornellaia in Bolgheri, and Luce della Vite and Castelgiocondo in Montalcino. There are also many Russian investments in vineyards and estates ranging from the Tuscan Maremma to Umbria, passing through Franciacorta, to name but a few. While one of Russia's most important wineries, Usadba Divnomorskoye, on the Black Sea, has an all-Italian heart, as described in a video from a few years ago - but between the pandemic and the war, it seems to belong to another era - with an agronomic and oenological approach that is entirely Made in Italy, thanks in part to the consultancy (one of many around the world, from Palestine to Japan, from France to the United States, passing through Romania, among others) of one of the most famous oenologists in Italy and the world, Riccardo Cotarella (who is also the Italian and world president of oenologists, ed).
Developments on the diplomatic, sanctioning and, unfortunately, also military front, will come in the next few hours. But the whole world, and also the Italian agri-food sector, are watching this affair carefully, and it is hoped that it will be closed as soon as possible and with the least possible damage, especially, but not only, in terms of loss of human life.