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How the war in Ukraine affects Swedish food production

Global inflation, soaring energy prices and shattered supply chains following the coronavirus pandemic led to an increase in food costs. And now Russia’s invasion of Ukraine is compounding supply and demand pressure. How is this affecting Swedish food production?

How the war in Ukraine affects Swedish food production
Cissi Klasson, owner of the Annelövs pig farm, looks after her piglets at Vallåkra, outside Helsingborg in Sweden. Photo: Johan Nilsson/TT

Should consumers expect higher food prices to continue in 2022?

Yes – even goods that are abundant in Sweden will be affected by increased world market prices. 

Climate change, the pandemic, and subsequent supply chain issues have all significantly increased world food prices in the last few years. Russia’s invasion of Ukraine has and will continue to boost food prices. 

According to Statistics Sweden, we are experiencing the highest inflation rate since 1991, with the food industry taking a major hit. Fuel and electricity sectors, which are significantly linked to agriculture, are seeing increasing price hikes. 

Swedish grocery comparison company Matpriskollen predicts prices to rise by another 12 percent throughout 2022.

A weak Swedish krona has also dented the economic outlook. 

How is the food sector affected by the war?

Ultimately, the agricultural industry is affected by increasing energy prices and the availability of oil and gas, which in turn sets the pricing of most food and related raw material. Electricity, packaging, and transport costs will continue to rise in current circumstances. 

Complications are caused by global trade sanctions (Belarus and Russia), flight bans, and transport chaos – in many cases cargo containers, ships, and trucks carrying necessary materials have ended up blocked or diverted.  

Financial stability was strained before the war broke out and now the costs of raw materials are being propelled to levels not seen since the global financial crisis of 2008.

Swedish farmers face pressure due to rising fuel prices, scarcity of agricultural machinery and parts, and a decline in fertiliser availability.

Will there be a food shortage in Sweden?

Not in the foreseeable future.

With Ukraine a significant global grain exporter, the war has raised worries about shortages but a recent study from the Lund University School of Economics showed how the war may affect trade, prices, and global agricultural production, but came to the conclusion that although food prices might increase, there won’t be a shortage.

The Swedish National Food Administration (Livsmedelsverket) has also assessed that there remains no general risk of a food shortage in Sweden. So far food production has carried on as usual without any major hindrance.

At the moment, raw materials and ingredients such as sunflower oil, which is more difficult to obtain, are being substituted with, for instance, rapeseed oil, which is abundant in Sweden.

Livsmedelverket said that in the long term there won’t be a food scarcity as a result of the war, but the food sector will be affected by increased costs due to disruptions in deliveries, delayed production or producers going bankrupt – therefore there will be a moderate to a significant impact on food costs in the future.

What roles do gas and fertiliser play in rising food costs?

Swedish fertiliser production ceased in the early 2000s and Russia and Ukraine are significant exporters of agricultural fertilisers and natural gas (a key ingredient in processing fertilisers). Global fertiliser prices have risen 30 percent since the start of this year, following last year’s 80 percent surge – putting Sweden’s stock for 2023 in a precarious position.

Swedish farmers are dependent on fertiliser in order to cultivate crops and maintain food production. Sweden has been importing 15 – 20 percent of the annual demand from Russia, to a value of approximately SEK 3 billion. In the international market, Russia is a major producer together with, among others, Finland, Norway, and Canada. 

As gas is the most common and cheapest energy source in fertiliser production, the impact of Russia’s role as an exporter points to a situation where gas prices, which skyrocketed even before the invasion began, will make agricultural production extortionate.  Due to high prices, farmers’ fertiliser purchases had already fallen by 10 to 15 percent in 2022, which in turn will yield smaller crops in the coming year. 

What happens if Russia shuts down gas exports to Europe?

Russia’s main gas pipeline to Germany was shut down on Monday for supposed maintenance, there are concerns that the supply may not resume once repairs are finished, potentially causing shock waves to Europe’s largest economy. On the same day, there was a decrease in the amount of gas flowing from Russia to Italy, wrote FT.

In an emergency, governments would have to make sacrifices, turning off high gas-consuming businesses – chemical, paper, concrete, and metal manufacturers, for instance – to protect homes, hospitals and food stores.

Rationing would be detrimental to a European economy already suffering from the effects of the war, inflation, and high energy costs. Though presently, no state of emergency has been declared by the Swedish government.

Uncertain, perhaps tough years may be ahead but Sweden continues to use a growing percentage of renewable energy using wind, hydro, and bioengineering, currently leading the European Union in the percentage of energy produced from renewable sources, at around 60 percent, with the target of achieving 100 percent renewable electricity generation by 2040. 

A little further out, the Swedish agricultural cooperative Lantmännen is working with Yara, the Norwegian fertiliser company, to test green fertilizers, using ammonia made from green hydrogen produced with renewable electricity. The first green fertilizers will be marketed by Lantmännen in Sweden in 2023. 

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How Sweden has profited from selling Norwegian energy back to Norway

Sweden has turned a profit buying cheap Norwegian power from the country's north and then exporting it back to southern Norway where prices are higher. 

How Sweden has profited from selling Norwegian energy back to Norway

Sweden has profited from a large disparity in energy prices between the south and the north in Norway, Norwegian public broadcaster NRK reports. 

Energy in north Norway is considerably cheaper than in the south, where price records have been broken throughout the summer. Sweden imports cheap energy from north Norway into north Sweden before moving it south and exporting it to south Norway. 

“It is often the case that power is exported from northern Norway to northern Sweden and imported from southern Sweden to southern Norway, and lately it has at least been like that,” Ann Myhrer Østenby from the Norwegian Water Resources and Energy Directorate (NVE) told NRK. 

Around 80 percent of the energy exported from Norway is from the north, according to figures from the NVE. Power is much cheaper in north Norway because more is produced than can be used, while in the south, reservoirs used in hydroelectric production are extremely low.  

“People scream about exports from the south, but it is actually the northern Norwegian power that has been exported,” Tor Reier Lilleholt, energy analysis manager at Volue Insight, told NRK. 

Between January and July of this year, 4.51 Terawatt-hours (TWh), or 4.5 trillion watts, were sent from Norway to Sweden, while Sweden exported 3.67 TWh to Norway. Not all of the energy exported into Norway will have originated in the country’s north, though. 

Energy from the north is exported rather than directly transferred to parts of Norway where energy is the most expensive domestically because Norway does not have the infrastructure or capacity to move large quantities of electricity from north to south. 

Whereas Sweden has a much better energy transmission capacity than Norway, meaning it can import energy from its neighbours, transport it south and then export it back. 

Bank Nordea’s investment director Robert Næss told online publication Nettavisen earlier this year that Sweden has made billions of kroner by importing cheap electricity from north Norway and exporting it to the south.

“I arrive at a gross profit of just under 2.3 billion Norwegian kroner, and then they have to hand over around half a billion kroner of this profit to Statnett,” he estimated in May. 

If Norway were to build power lines to move power from the north to the south, rather than exporting it to Sweden, it could take up to ten years, and it isn’t clear whether it would equalise prices throughout Norway or stop its neighbours from profiting from price disparity anyway. 

“It would probably have a certain effect, but how much depends on many assumptions that are difficult to take into account. It is very complex,” Østenby said.