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Russia-Ukraine crisis ‘is likely to hit food supply chains hard’: Keelvar CEO

Keelvar CEO Alan Holland joins Yahoo Finance Live to discuss how the Russia-Ukraine conflict will impact wheat supplies and food supply chains for products ranging from beer to bread.

Video transcript

- I want to bring in our next guest. And let's talk about the potential impact of Moscow's assault on Ukraine on global food prices. Russia is the world's largest exporter of wheat. And here to help us weigh in, let's bring in Alan Holland from Keelvar, the CEO there. Alan, thank you so much for your time there. So wheat prices surged today, spiked 5% in Europe on this latest aggression. How critical are Russia and Ukraine to the global wheat supply? And who are the biggest recipients of their wheat?

ALAN HOLLAND: So our-- combined, Ukraine and Russia supply 30% of global wheat production. So they are very large players. So with the sanctions that have just been recently announced, there will be a scramble for alternative supplies, particularly in markets near to Russia and Ukraine. So the European market will be very anxious about this.

- So we are waiting to hear what sort of sanctions will be imposed, the president set to speak shortly. But he did send out a tweet earlier saying, they will be devastating. So I'm wondering, how could Russia react to this escalation in sanctions if you will? Would they halt wheat exports, do you think, to Europe at all? Is that something that you think they might do?

ALAN HOLLAND: There's likely to be a severe deterioration in the volume of wheat supplied into Europe. And that will lead to significant inflation in wheat prices and wheat futures as well.

- So what would a prolonged conflict do, if you will? What would happen to the supply in prices, particularly come harvest time? US companies like Kellogg's have already complained that wheat inflation is weighing on it.

ALAN HOLLAND: Yes. So I suppose many of the world's largest companies that depend on wheat supplied from Ukraine or Russia may have stores. So what will happen over time is that the volume in storage will be decreasing. And as it comes to the harvest time when stores should be replenished, that would be a critical time to see if that wheat can be harvested and whether it can be exported or not. So there's huge uncertainty presently over what will happen in wheat markets, but also barley, and rye, and other commodities.

- And inflation is at a 40 year high in this country, flour based goods up 10% just last month. What strain does that put on the consumer? And then what do you think happens to overall demand, not just for wheat but for grains in general?

ALAN HOLLAND: So yeah, I suppose the food supply chain wasn't as badly impacted as the supply chains for durable goods, or semiconductors, or automotive during the pandemic. But this crisis is likely to hit food supply chains hard. So what we will see is quite extreme inflation in any goods that depend on these raw materials and of these commodities. So everything from bread to beer is likely to see price increases throughout the year and into next year and beyond.

- The president has said that the USDA might have to step in and help produce more wheat to export. How likely do you think that is to happen? And how is the US positioned as far as their own wheat production? Do they have ample supply? Are they able to do that?

ALAN HOLLAND: There is a strong supply in the US. So it depends on this with the level of solidarity shown with the European market. And I think European politicians will be seeking assistance in whatever means that may be available from the US here.

- And Alan, tell me. The cost of fertilizers have also skyrocketed due to higher crude prices also needed for food production. So how does that sort of put further pressure on the price of supplies and food chain?

ALAN HOLLAND: Yes. The natural gas is intrinsically connected to food prices because the fertilizers are produced using natural gas. And that-- so many different crops are heavily dependent upon these fertilizers so that I suppose the rapid inflation we've seen in natural gas prices in the last 12 months, that has already been leading to inflation and food prices.

- And Alan, so I'm wondering. What are you watching most closely now as to what next steps happen and how that affects production for wheat? So I think that the [INAUDIBLE] the sanctions and how that will constrain Russia's ability to export their goods is the key next step to watch. Because Russia in itself is a huge exporter of a variety of commodities, from food grains, but also metals, and natural gas, amongst others.

So I suppose the degree to which those sanctions constrain Russia's ability to export will serve to increase inflationary pressure in Europe, and America, and other countries. So that's the next thing to watch out for.

- OK, we will have to leave it there. Alan Holland, Keelvar CEO, thank you so much for your perspective today.