Bayer is assessing the repercussions from the Russia-Ukraine conflict on the company's prospects and its threat to global food security, with chief executive officer Werner Baumann noting that the firm is working to mitigate business risks arising from the situation. He estimates the contribution of Ukraine and Russia to Bayer's consolidated revenues at less than one percent, and around two percent, respectively.

Mr Baumann highlights that over half of the company's 700 employees in Ukraine belong to its Crop Science division comprising crop protection and seeds, which has "largely completed" seed production and distribution for the March-April planting season. However, he rates the situation on the ground as "dramatic", with "import bottlenecks" being created by a lack of transport and logistics capacities. Furthermore, he observes that an ongoing grain crisis set afoot by the Covid-19 pandemic, inclement weather, and weak harvests in Africa and Latin America has been "dramatically exacerbated" by Russia's invasion of Ukraine.

The executive feels that the crisis has been worsened by some countries deciding to retain their grain reserves, "rather than efficiently managing it through international co-operation at a global level". He anticipates the situation worsening if governments and companies fail to undertake "co-ordinated and concerted efforts" to address the challenges.

Mr Baumann also augurs the trend leading to surging grain prices in Europe, North Africa, and the Middle East, noting that the phenomenon is a "social time bomb" that could affect peace in the absence of guaranteed food security. While he expects the company to tide over the risks posed by the conflict, he is apprehensive about the business being affected by secondary and tertiary factors such as energy supply and energy prices.

Non-essential services suspended

Following the Russian offensive, Bayer has suspended "non-essential" services in Russia and Belarus, including the suspension of all spending in these markets that is not related to supplying essential products in health and agriculture. Those include: suspending all advertising and other promotional activities; halting capital investment projects indefinitely; and not pursuing any new business opportunities. The company adds that withholding crucial health and agriculture products from the civilian populations including seeds to grow food would "only multiply the war's ongoing toll on human life". Furthermore, Bayer says that it will monitor the situation and that any developments could lead it to change its response.

Some other agribusiness companies, including agriculture businesses, have since suspended operations in the belligerent countries.

Bayer notes that it has already provided essential agricultural inputs to farmers in Russia to alleviate additional pressure on the global food system. "We will closely monitor the political situation and decide about supplies for 2023 and beyond at a later stage, depending on Russia stopping its unprovoked attacks on Ukraine and returning to a path of international diplomacy and peace," it says.

The company cites a recent G7 Agriculture Ministers' statement on the invasion of Ukraine. The Ministers made clear that any increase in food price levels and volatility in international markets could threaten food security and nutrition at a global scale and would especially affect the most vulnerable, the company notes. By supplying farmers around the globe, Bayer wants to protect food supply chains from further disruption and help prevent what could become an unprecedented food crisis, it adds.

Aid for staff

Bayer is providing its staff in Ukraine with financial aid, shelter, and evacuation assistance. It has also established a €3 million ($3.4 million) "disaster relief fund" and other healthcare product dona1tions for up to 27,000 Ukrainian patients.

Akashpratim Mukhopadhyay - Specialist Reporter | Crop Science

Posted 05 April 2022 by Robert Birkett, News Reporter, Agribusiness

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.