Many businesses will be glad to close the book on 2021 as supply chain challenges, rising energy and commodity prices and global inflation all served to put increasing pressure on margins.

The farming sector largely escaped the worst effect of input price inflation due to timing, resulting in a profitable year for most.

However, 2022 will likely be different, with no relief in sight for the price of the main farm inputs.

In fact, political uncertainties and regional challenges suggest that there is greater upside risk, not less.

Closest to home, Brexit continues to generate uncertainty with the issue of the Northern Ireland Protocol yet to be resolved

Deep dissatisfaction with traditional political leadership has been growing since the global financial crises in 2008.

Added to that trend is growing political tensions globally, some of which have heated-up as we arrive into 2022.

Closest to home, Brexit continues to generate uncertainty with the issue of the Northern Ireland Protocol yet to be resolved.

Hope

The great hope is that with the appointment of Britain’s new Brexit chief agreement can be reached with the EU.

The changing of the guard in Germany appears to have come at a crucial time as Europe has to deal with growing political challenges in 2022.

Two of the world’s largest powerhouses, China and Russia, have engaged in regional tensions with Taiwan and Ukraine, respectively.

Both issues have the potential to escalate and, in doing so, would certainly impact global business and trade in the year ahead.

China flexes diplomatic muscle

In December, China launched a diplomatic offensive against Lithuania as tensions increased over the Baltic nation’s strengthening of trade ties with Taiwan.

China’s desire for reunification with Taiwan has raised concerns.

In mid-December, Lithuania recalled its embassy staff and China has moved to disrupt trade between both countries.

Imports from Lithuania have been denied entry and exports are also affected.

The EU now has to walk a tightrope

As a consequence, German businesses based in Lithuania have seen their trade blocked.

Both imports from China and exports that include Lithuanian components have been impacted.

The EU now has to walk a tightrope in determining how to support one of its own members without risking wider consequences for other member states.

Instability at Europe’s borders

This has come at an unfortunate time for the European Union, which is already navigating instability on its borders with both Russia and Belarus.

European leaders meeting in Brussels before Christmas warned of “massive consequences” and a “severe cost” to Russia in the event of further military aggression towards Ukraine.

Russia’s demands of NATO have increased as 100,000 troops have been deployed to the border with Ukraine.

As Belarus supplies almost 20% of global potash, supply is a concern as sanctions are being ratcheted up

The issue of increased sanctions against Belarus was also discussed by the EU council following its December meeting.

Belarus has been accused of orchestrating a migrant crisis at the EU border that exploits divisions among EU member states.

Condemning Belarus, the EU confirmed that its response would include “promptly implementing restrictive measures” which are in the process of being adopted and “being prepared to adopt further measures as necessary”.

As Belarus supplies almost 20% of global potash, supply is a concern as sanctions are being ratcheted up.

Potential for trade disruption

Increased political tensions will continue to be met with economic sanctions which would be highly disruptive to trade and business. Gas supply is unlikely to increase in any meaningful way in the near term. Russia is unlikely to increase supply and Germany unlikely to advance approval of the new gasline, Nord Stream 2, in the current environment.

With Russian fertiliser prices roughly 40% of EU prices, plantings and yield are unlikely to be down as they may be in other regions.

In the event of a reduced global harvest resulting from high fertiliser prices, Russia may hold key stocks needed by world markets.

The current tensions may pass

Meat and dairy commodity markets could be challenged should China increase aggression towards Taiwan to the extent that retaliatory sanctions are imposed.

Geo-political forces now have a significant influence on farming. While in the past it typically shaped trade and agricultural commodity prices, more recently it is impacting farm input prices.

The current tensions may pass, but geo-political risks will likely have a greater impact on commodity price volatility into the future.