The era of the resourceful baker: Assessing the impact of Russia - Ukraine war on the baking industry

April 2022

The last two to three years have been some of the most turbulent in a baker's life. COVID-19 turned traditional consumer habits on their head, first by irrational stock up and later with shifting consumption patterns and a dual focus on health and indulgence, much more than ever before. As the baking community learned to cope and, later, thrive with COVID-19, supply chain challenges disrupted the global ingredient value chains. Again, the baker and their community persevered and worked together to change formulations to match availability and cost considerations.

Now, as international conflicts ensue, the supply chains are taking an even bigger hit. As responsible participants of the global Baking value chain, we believe the most impactful role we can play is to help the industry build resilience where possible.

In this article, we put on a baking hat and try to predict and prepare the industry for what is to come.

Wheat 

Wheat and flour are at the core of our industry. Russia and Ukraine are major exporting countries for wheat and provide more than a quarter of the globally traded wheat. They primarily export economic wheat, imported by African, Middle Eastern, and Asian countries.

While many scenarios are possible, current estimates indicate that 50-70% of the wheat will be harvested in 2022. After accounting for domestic consumption, this points to a shortfall of 1-2% of global wheat production or roughly 8-15 MMT.

We expect this shortfall to be met by wheat from, among others, India, Australia, Europe, the US, and Canada. But this will not be an easy task as the industry will have to work to correct these different sources to fit the specific application requirements.

There is also a worst-case scenario where there is a higher shortfall which cannot be met from other sources, where all of us, with our different hats, including as consumers, need to find ways to reduce wasteful consumption.

Wheat availability also directly impacts availability and prices of vital wheat gluten (VWG), an important ingredient in many recipes. In the past couple of years, VWG has faced higher prices and shortages in some regions driven by supply challenges. We expect this to get further exuberated.

Sunflower Oil and its derivatives 

Ukraine is the largest producer of sunflower seeds. All of us in the baking community know that oil prices are highly co-related due to substitution, and shortage in one of the sources of the oils, directly and immediately affects all the others.

Overall, this is expected to create supply challenges for oil and its derivates, such as emulsifiers used in Baking. This value chain was already under pressure the last couple of years from COVID-19 related disruptions but was normalizing. The war has increased this pressure and extended the high price period. We expect this to drive demand for solutions that eliminate emulsifiers or reduce/substitute oil and fat from recipes.

Other ingredients

The ripples of the war will be felt in many more ingredients that play various kinds of roles in the baking industry, including but not limited to dextrose, poultry, sugar, starch etc. While it is hard to predict the exact impact today, it suffices to say that the baker will have to keep their recipe tools handy to meet and overcome shortages and high prices.

What can we do? 

Beyond the specific baking ingredients, we face an overall high-cost world environment for the coming year. With bread as a staple commodity that fills stomachs globally, this price pressure has economic, social, and political implications. As a key player in the baking community, we see it as both our duty and our privilege to work together with our partners, to help build more robust and cost-effective solutions to deliver tasty and healthy baked goods to people all across the globe.