Russia’s invasion of Ukraine last Thursday has set grain markets in a state of emergency and pushed grain and malt prices to new heights, not seen for years. Within one week, the price for malting barley has appreciated by nearly EUR 50 per ton. Also other key food commodity prices hit their highest point in nearly a decade. This added to the already elevated prices at a time when global markets remain extremely strained because of pandemic-related disruptions. (inside.beer, 2.2.2022)
Russia and Ukraine together represent 25 % of the world grain surplus. While farmers in Ukraine are currently unable to sow seeds and tractors are being confiscated for use in the war, not only a humanitarian but also an economic catastrophe is looming here.
In addition, all important export ports have already been occupied by the Russian army and will be out of action for the foreseeable future. It is not yet possible to say to what extent the necessary infrastructure has been destroyed.
The Russian economy itself is also affected by a strict export ban from Europe, the USA and many other countries worldwide, and Russian goods and raw materials will not be available on the international markets until further notice.
If there is not a complete turnaround within the next few weeks, which is currently not foreseeable, at least one complete crop from these important grain regions will fail and have a serious negative impact on the world grain balance.
In addition, it is not clear what will happen to the malting capacities in the Ukraine and if they will be able to export their excess production like in the past.
In the last twenty years, the malting capacity in the Ukraine has more than doubled. There are three major players in the market.
The first player is Malteurop owned by French agricultural groupVivescia with a combined yearly malting capacity of 160.000 t of malt. Malteurop started malt production in the Ukraine in 2001 when it signed a supply agreement with Sun-Interbrew (today AB InBev Efes) and took over a malting plant from the brewing group inChernihiv, 150 km north of the capital Kyiv. The initial capacity of 30,000 t was increased to 55,000 t. In addition, Malteurop built a new malting plant in Kharkiv (110,000 t) in the Northeast.
The second player is Souffletowned by French agricultural group InVivo with one malting plant in Slavuta in the West of the Ukraine. This malthouse originally belonged to Baltic Beverages Holding (BBH, Carlsberg Group) but was sold in 2004 to the French maltster. The capacity of originally 80,000 t was increased to 155,000 t today.
The third player in the market is Obolon, one of the largest brewing companies in Ukraine. The company was the first private enterprise of independent Ukraine in 1992 and belongs today to Ukrainian millionaire businessman and politician Oleksandr Slobodian who also acts as the company’s Honorary President. Obolon owns a malting plant in the Western city Khmelnytskyi which reached its full capacity of 120,000 t at the end of 2008.
In the past, the three malting groups in the Ukraine mainly served their respective brewing groups. However, Malteurope and Soufflet have built up a significant export business from Ukraine in recent years, estimated at around 200,000 t per year. This volume will no longer be available for the international markets for the foreseeable future and the two malting groups will have to replace the loss with production at their other plants worldwide.
The same applies to malt export from Russia which suffers from sanctions in response to the invasion of Ukraine. It remains to be seen how these supply interruptions can be remedied and how this shortfall will affect the worldwide supply-demand balance in the short and medium term.