3 Mar 2022

Ukraine invasion: NZ economy feeling flow-on effects of sanctions against Russia

5:17 pm on 3 March 2022

It might be happening on the other side of the world but the economic shockwaves of the Russian invasion of Ukraine are reaching New Zealand consumers.

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Photo: RNZ / Dan Cook

The president of the Customs Brokers and Freight Forwarders Federation Chris Edwards said the flow on effects from rising fuel costs for companies and in turn - their customers - was certain.

"It's almost immediate, so the bunker adjustment factor [BAF] which is basically a fuel surcharge that the shipping lines charge... I'd expect fairly soon if it hasn't happened already in some markets, a thing called an emergency BAF being introduced by shipping lines to cover the rapidly rising price of oil."

The price of Brent Crude has risen 20 percent since the beginning of February.

Russia is the second largest crude oil producer in the world and the second largest oil exporter. It has withheld oil and gas supplies to Europe in the months prior to the invasion contributing to rising oil and gas prices.

Countries around the world are now working together to release 60 million barrels of oil from emergency reserve stocks in an effort to stymie the volatility.

But Edwards said it would not just be fuel prices putting pressure on the cost of doing business - there was also congestion and the inability to access some ports in the region.

There was also the looming prospect of cyber crime.

"Maersk, one of the world's biggest shipping lines were attacked themselves back in 2017 - rumoured from Russia actually, and it shut their whole shipping system down around the world.

"It caused carnage to the supply chain and that was pre-Covid. I think one of the concerns we have in the supply chain is if that happens again."

ASB chief economist Nick Tuffley said other commodity prices were also on the rise.

"We are starting to see some impacts on food prices. So we've seen a bit of upward pressure on wheat prices this year and we've also seen the dairy trade auction has firmed as well.

"Part of that could well be driven by the perception that it will become more expensive to feed livestock in those parts of the world that rely on grain."

George Weston Foods which produces bread brands including Tip Top, Burgen and Ploughman's said the wheat price rise was not having an immediate impact on production, because they mostly sourced from Australia and New Zealand.

However Rabobank senior analyst Michael Harvey said price pressures would likely hit eventually.

"We've already seen benchmark pricing for some some grains and obviously markets move higher and there is risk of that starting to drag higher wheat prices in the in the local market in Australia.

"So that can be good news for croppers in this part of the world, but for buyers of grain that can be problematic."

He added the upward cost of grains used heavily for livestock feed in other parts of the world, but not New Zealand, could give farmers here an international edge.

"That's good news in terms of the milk price that farmers will get and they're not as exposed to supplementary feeding markets as in other parts of the world so that's certainly a positive picture around all this."

Russia is the world's largest exporter of wheat, with Ukraine the fourth biggest. Ukraine is also the world's third largest exporter of corn. Together they export 28.6 percent of the world's wheat and 19.6 percent of corn.

Russia is a big producer of urea and potash, important ingredients for fertilizers used in the production of these crops.

Russia is New Zealand's 27th largest export partner and in the year to June 2021 exports totalled $293 million.

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