How will Russia’s invasion of Ukraine, US sanctions affect Iowa’s global companies?
With a presence in more than 140 countries worldwide, Corteva Agriscience’s operations span the globe from Argentina to Zimbabwe, and its international operations include locations in Ukraine as well as Russia.
The global agriculture company is among a number of companies in Iowa that are holding their collective breath as Russia’s invasion of Ukraine unfolds. Hundreds of civilians have been injured and Ukrainian infrastructure is being destroyed. The fast-evolving situation also points to further significant economic disruptions ahead for international trade.
“Corteva continues to closely monitor the evolving situation in Ukraine,” a company spokesperson said in an emailed statement. “We are deeply concerned by the ongoing escalation, and our priority remains on the health and safety of our employees.”
The company further said it has taken steps to protect its research, commercial and production facilities in Ukraine, without providing specifics.
“We remain focused on continuing to protect business continuity and employee safety, while addressing customer needs and minimizing negative impacts to food security,” Corteva officials said. “It is still too early to understand how this complex and dynamic situation will evolve and to determine any near-term impacts on our business. We remain focused on doing all we can to protect our employees, our customers and the communities in which we operate during this difficult time.”
As the New York Times recently reported, the Russian invasion has set off a scramble among global companies, which are cutting off trade with Russia to comply with far-reaching economic and financial sanctions. That’s creating uncertainty for global supplies of products like platinum, aluminum, sunflower oil and steel, and causing factory shutdowns in Europe, Ukraine and Russia. Additionally, it’s causing energy costs to spike, which further raises shipping costs.
Trade in the agriculture and manufacturing industries will be some of the most heavily affected, as Russia and Ukraine are both vast agricultural markets. Chicago-based Archer Daniels Midland Co. closed its oilseed and grain processing facilities in Ukraine recently, and Deere & Co. also closed its offices in Ukraine, according to a report on Feb. 25 by WQAD in Davenport. “We are closely monitoring the developments in these countries and are actively assessing the potential impact to our people,” Deere officials told WQAD.
Kemin Industries, a global Des Moines-based ingredients company that does business in 120 countries, in 2017 opened a brand-new manufacturing and laboratory facility in Lipetsk, Russia, in a move to serve the demand for the rapidly growing Russian animal protein industry.
Russia is one of the largest animal feed markets in Europe, Kemin’s president and CEO, Chris Nelson, said when the facility was announced. Lipetsk is less than 300 miles from Kharkiv in Ukraine, about the same distance as between Omaha and Davenport. Kemin officials declined to comment on any actions the company is taking, citing the “very fluid situation with Russia/Ukraine right now,” a spokeswoman emailed.
Projected exports by Iowa companies to Russia in 2021 totaled about $111 million, which by dollar value placed Russia at No. 31 in the state’s total exports, which last year totaled $23.28 billion to 229 countries. Exports from Iowa companies to Russia have seesawed over the past decade, according to data provided by the Iowa Economic Development Authority. In 2012, the state’s exports to Russia topped $326 million, but they dipped to under $64 million in 2015, the year following Russia’s annexation of Crimea.
Exports to Ukraine by Iowa companies, projected at about $73.5 million for 2021, are dominated by the heavy tractor category, which makes up more than $56 million of that figure. By comparison, a decade ago, Iowa exported more than $133 million in goods to Ukraine.
Current political tensions aside, Russia is “definitely not a market for newer exporters,” said Peggy Kerr, the leader of the IEDA’s international trade team. The team’s mission is to facilitate international trade by Iowa-based companies.
Kerr said that many companies likely slowed exports to Russia following its annexation of Crimea in 2014. “Even beyond the tensions issue, Russia has a lot of import regulations that are very onerous for companies to comply with,” she said. “So in a lot of cases, that may be possibly more the reason that companies have avoided Russia.”
The recent U.S. economic and financial sanctions have added multiple layers of uncertainty for companies, she said. “The sanctions are very, very complex, and with Russia it’s very difficult sometimes to determine who has ownership of those entities, and whether or not you’re allowed to do business with them. So I know some of the smaller companies did shy away from the market for those various reasons, and now it’s just become even more complex.
“The other thing with the new banking and SWIFT restrictions that have been put into place, there is a question of whether you can even get paid or send payment, depending on if you’re exporting or importing.”
Ryan Carroll, international trade manager with the Greater Des Moines Partnership, outlined the same concerns as Kerr in a separate interview. In addition to the uncertainties created by the sanctions, exporters are also facing a great deal of pressure to cut any business ties they may have with Russia. “I think what businesses are trying to navigate is really unprecedented,” he said. “I don’t know if anybody really anticipated it would go as far as it has.”
“In the near term, anyone expecting to export or do business there, it’s going to be difficult,” he said. “The timing on this couldn’t be worse. Oil and gas prices are going to go up, on top of the supply chain issues.”
There’s a possibility that because supply chains are so disrupted, it could create some new opportunities for Iowa companies, Kerr said.
“It’s sad to say, but Ukraine is a large exporter of corn to certain parts of the world, and if they’re not able to physically export, that would create some opportunities for Iowa exporters. So the supply chain does go both ways, but the overall impacts I would say are more negative, because shipping costs are going to increase and shipping routes are going to have to change in certain parts of the world.”
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