Loaves and Fishes: How the War in Ukraine is Sending Shockwaves Through the Food Industry

Last week, Boston hosted Seafood Expo North America, the first major trade show for the U.S. food industry since COVID forced the cancellation of meetings and gatherings across the globe. Drawing about 10,000 people —or about half the normal crowd — the show was a long-awaited chance to come together and transact the business of food, which is best done in person. Zoom (ZM) kept us connected and talking during the pandemic but hasn’t perfected letting us taste via the internet.

Despite the excitement for gathering together, the mood at Seafood Expo was somber as the Russian invasion of Ukraine looms large in the U.S. food industry. Ukraine is rightly called the breadbasket of Europe, with its flag depicting a field of wheat under a blue sky. About 9% of the world’s wheat exports come from Ukraine along with a substantial share of corn, barley, and other grains.

In addition to concerns about disruptions to planting and harvest in Ukraine, the port of Odessa is both a key part of the food supply chain and is important militarily. Russian control of the port would allow for military equipment to enter Ukraine more easily. Should the fight for Odessa continue to intensify, damage to the port could further impact global grain supplies and markets.

The risk that the war will affect wheat supplies sent futures up between 50-70% for U.S. soft and hard red winter wheat before settling at about 40% above prices before the invasion. Russia understood the disruption Ukraine would cause to grain markets and made the move before the invasion to suspend exports of wheat even to ex-Soviet countries including Belarus. The 2021 harvest in the U.S. also was 28% below average, leaving fewer stores to tap.

The impact of volatile wheat prices and lower supplies may show up in the next few weeks as companies like Krispy Kreme (DNUT) and Mondelez (MDLZ) report earnings. While no food company may be fully insulated, some may have done better at working directly with farmers to lock in long term, dependable supplies, and not rely on commodity markets, a move that also helps insulate against price volatility driven by climate change.

Closer to home, at the Seafood Expo, the disruption to wheat supplies meant manufacturers of fish sticks and fish fillets were unsure if they could fill orders for school cafeterias and grocery stores as they looked to buy flour at somewhat reasonable prices.

War’s impact on seafood

The war in Ukraine doesn’t just have food industry focused on loaves, but also on fish. Russia isn’t just a supplier of caviar. They’re also a supplier of much of the low cost pollock, a white fish used in America to make those fish sticks and fillets, as well as surimi. As the expo began, Russian artillery destroyed a warehouse owned by Universal Fish Company, Ukraine’s largest salmon processor, along with 4,000 tons of frozen fish.

Most seafood companies have worked quickly after the invasion to exclude Russian fish from their supply chains. But there aren’t more fish in the sea. The sales floor at the Expo was muted for pollock companies who had nothing more to sell to interested buyers.

The war in Ukraine is just the latest shock to seafood companies that are also wrestling with the impacts of overfishing, as well as climate change. The latter is causing fish to change their migration patterns, grow to smaller sizes and deal with new diseases and competitors as water temperatures change along with their diets.

Conventional aquaculture is also susceptible to these same risks and is now following the same path as land-based livestock, relying on feed made with wheat, soy, and other crops used to feed land-based livestock. This exposes the industry to price volatility from climate change and the Ukraine war, among other risks, as well as often relying on pesticides and antibiotics to fend off parasites and infections, something the U.S. poultry industry has largely abandoned due to consumer concern.

In a recent study presented at the Seafood Expo, Changing Tastes found that antibiotic use among other ocean health issues – such as pollution from plastic waste, mercury, and industrial chemicals — all are top concerns among American consumers when deciding whether to eat fish and seafood rather than poultry, beef, or pork. Consumers now recognize that their health is connected to ocean health by eating fish and seafood. They’re concerned about what the world is putting into our oceans, and in turn, what we are putting into our bodies when we eat fish and seafood.

Crises as a forcing function to innovate

Two companies I met at the expo are using innovative new approaches to avoid both supply risks of unpredictable catches and harvests, as well as ocean contamination.

Blue Star Foods Corp (BSFC), recently listed on Nasdaq, began as a processor and seller of wild blue crab. The company is now bypassing the ocean by moving to land-based, recirculating aquaculture systems (RAS) to produce salmon and crab, and eyeing similar acquisitions to further expand their offerings. These RAS systems raise fish and shellfish in contained and controlled environments, and done well, they avoid the need for pesticides and antibiotics while excluding ocean pollutants.

BlueNalu, a venture back firmed, isn’t just skipping the ocean, but also the fish. They are working to manufacture cell-cultured fish and seafood products grown from the cells of high quality fish and seafood. BlueNalu is still working through technical hurdles and is building a pilot production facility in San Diego with a promise of a consistent, year-round supply of high quality, fresh fish and seafood.

Both Blue Star and BlueNalu are also using approaches that allow them to move production closer to the consumer, further avoiding the challenges of shipping perishable fish and seafood back and forth across the oceans.

With the first major in-person food industry trade show behind us, it finally feels like “back to work” for many. But going forward, the pandemic, along with other global risks like war and climate change, are overwhelming older business models. Innovating and adopting new approaches to sourcing and production may be the keys to success in an era of unpredictable and unprecedented challenge.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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