First, congratulations on your book. It’s short, to the point and thought-provoking. You mentioned reading over 3,000 newspaper articles to research the book. Where did you source them?
There is an online newspaper database in Australia called TROVE. I searched for two keywords, war and wheat, from the beginning of World War One to the end of World War Two. By the end of it, I had to start wearing glasses.
How long did it take to write the book, and how did you do it with a full-time job?
It’s hard to say when I started writing the book. I didn’t start with the intention of writing a book. I started with the intention of understanding the real drivers of markets. I began looking at the most significant price drivers over history and noticed that the hefty price moves happened when governments got involved, especially when there was a military conflict. That’s how I got to look at the two world wars.
I did a little bit every day, in the early mornings and sometimes late evenings. There were times when I stopped for a month or so and lost track of where I was heading.
Are you Ukrainian by origin?
When the Soviet Union collapsed in the early 1990s, my folks moved from Russia to Australia, where I was born. One granddad was born in Ukraine, and the other in Russia. Their situation was part of my interest, whether at the front or the back of my mind.
Did you enjoy writing the book – and what was the part you enjoyed the least?
What I loved most was going through the old newspaper articles and discovering things we weren’t taught in school and university.
For example, before joining World War One, the Americans supplied the British and the French with weapons and food. There was a large warehouse in New York harbour full of weapons that the US planned to ship to the Allies. The Germans sent their secret service to blow it up, and the explosion was so large it partially blackened the Statue of Liberty.
I also enjoyed learning about the shifting relationships and alliances between countries during the wars.
At the same time, there were a lot of dreary articles. Ironically, reading the articles was the most enjoyable and, at times, least enjoyable part of writing the book.
What’s your target audience for the book?
My target audience starts with farmers; they need to know what happened during past conflicts and how a future one could impact their businesses. The same goes for flour millers, grain traders, and the government.
My book has a clear message: Australia produces massive grain surpluses, but it may be unable to export them during a conflict.
Are you planning a follow-up book?
I’ll take a breather and assess the world. I will think about it later.
As I mentioned, I found your book thought-provoking. I have three historical questions. The first is, did Churchill launch the Dardanelles campaign in WWI to reopen the route to Russian grain exports? Did 8,700 Australians lose their lives at Gallipoli for wheat?
In 1914, Russia accounted for around 20-30 per cent of global wheat exports, about the same percentage as now. While access to Russian wheat was a significant factor, it does not appear to have been Churchill’s primary motivation. Churchill’s main reason for authorising the Dardanelles campaign seems to have been primarily strategic and military, but food played a role.
UK food prices were running rampant in the months prior. At the time, Argentina was a significant source of wheat for the British. However, their stocks started running low due to strong exports and poor production. Meanwhile, Australia’s last crop was drought-stricken.
There is a debate among historians as to why Nazi Germany invaded Russia. Goebbels, Hitler’s Minister of Propaganda, wrote that the Nazis opened the Russian front for ‘grain and bread’ to capture ‘the vast fields of the east (which) sway with golden wheat, enough to nourish our people and all of Europe’.
The invasion had catastrophic consequences for both sides. Over 2 million German soldiers and 24 million Soviet soldiers and civilians died. Soviet agriculture was severely disrupted, with grain production falling from 95 million tons in 1940 to 29 million in 1942.
If the Nazis had never made that dash for Russian wheat—if they had never invaded the Soviet Union—they may have won the Second World War. Is it possible that we all owe our freedom to wheat?
While there were ideological reasons for the Nazi invasion of Russia, there were also significant logistical reasons. Before Germany invaded, Russia supplied Germany with substantial volumes of commodities, including food. Before and in the early stages of the war, Germany paid Russia for its resources with hard currency. Eventually, when Germany’s financial resources started to wear thin, Germany could only offer German Marks in exchange for commodities. At this point, the trade in commodities between Germany and Russia began to dry up. Before Germany’s invasion, journalists were writing that Germany was stationing troops on Russia’s border to bend it into sending it more resources.
Ukraine, known as the “breadbasket of Europe,” was a primary target.
Germany didn’t have many options. Where else were they going to get food? When they invaded France and Poland, they confiscated their grain reserves. Farmers had no incentive to plant a new crop as they knew the Nazis would confiscate their harvests.
I read with interest how the Australian government had to nationalise the grains industry in the second year of World War One. They had a considerable surplus of grain that they couldn’t ship. Do you think that the Australian government intervention was successful during the wars?
Their first goal was to ensure that the agricultural industry survived. Prices would have collapsed if the government had allowed the free market to function. Following the harvest, grain would have made its way to the port, piled up, and started to rot. Shipping availability had fallen substantially. Farmers would not have been able to repay their bank loans, and many would have gone bankrupt. The country had substantially more grain in both world wars than it could consume.
The Australian farming sector had a critical role to play. Australia supported and maintained its farming sector to support the Allies when shipping became available and to feed the millions of starving Europeans when the war ended.
If you let an industry like farming fall apart, it takes a long time to rebuild.
The world of wheat has had two major crises in the last five years: COVID-19 and the Ukraine war. Which caused the most disruption in supply chains?
The global grains industry handled COVID-19 well compared to other industries. Grain continued to flow. Governments considered agriculture a critical sector, and farmers kept farming. Apart from a few minor hiccups, exports continued.
Some countries implemented export bans to ensure sufficient food for their populations, but in most cases, these were quite limited and didn’t last long.
The war in Ukraine was more disruptive. Russia’s invasion caught a complacent world off guard regarding how significantly supply chains rely on everything working perfectly.
The conventional wisdom is that the supply chains worked well during COVID-19 and the Ukraine invasion. The markets solved the problem, while government interventions such as export bans were harmful. Do you agree with that conventional wisdom?
Export bans were not a positive, but the number one priority of any government is to feed its population. Countries may cooperate during peacetime but compete for scarce resources during famine or plague. We saw how countries outbid each other for masks and vaccines during COVID-19.
Large importing countries will pay any price during a crisis to keep their populations fed.
We’ve discussed the market impact of wars and government intervention, but what about the weather? Isn’t the weather more important than anything else?
Unless there is a hurricane or flood, weather impacts prices, at least initially, quite gradually. Prices gradually increase as market participants learn about an adverse weather event and understand its impact. Government intervention is often abrupt and can catch the market off guard. So, it probably depends on the timeframe. During a crisis, government intervention can impact markets much more than weather.
Let’s move to the current situation. Russia appears to be reestablishing government control over wheat exports. How is that affecting world markets?
People are questioning to what extent governments can influence prices. Before and during WWII, the International Wheat Agreement attempted to balance supply and demand through export quotas and planted areas. It appears the BRICS may now be trying to do something similar. They’re trying to influence the market by changing the supply of grain. People are concerned.
However, it hasn’t worked in the past except for short periods. In the medium term, other exporters will increase production if prices rise. So, prices may initially rise if Russia and Brazil get together to reduce planted areas. However, everyone else will grow more the following year, and Russia and Brazil will lose market share.
But, yes, it impacts when negotiating with one government seller rather than multiple private sellers. Buyers will have less bargaining power if the Russian government monopolises exports.
There was talk in the past of having an OPEC for wheat.
Even OPEC is struggling as there are more oil-producing countries, including the US, than in the past. Many countries grow wheat, and its production is less concentrated than oil. If Russia and a handful of other countries try to reduce area, other countries will increase production.
Oil production depends less on the weather than wheat does. You may reduce the area to support prices, but your production may collapse if there is a drought. The primary beneficiaries of an OPEC for wheat would be the countries that stayed out of it.
Trying to manipulate price by manipulating supply rarely goes well.
We saw Russia donating cargoes of wheat to some developing countries, effectively using food for political ends. Wheat is weather-sensitive, particularly as you head into harvest. Would you say wheat is the most politically sensitive and weather-sensitive of all commodities?
Politically sensitive, yes. Weather sensitive, probably not. Wheat is produced over a wider geographical area than some other commodities. I think that commodities like coffee and cocoa may be more weather-sensitive. A frost in Brazil can skyrocket prices. Disease in West Africa will send cocoa prices soaring.
But yes, wheat is politically sensitive. It is what goes into many people’s daily bread. Didn’t the Romans coin the phrase “bread and circuses”?
You state in the book that the objective of a domestic wheat industry isn’t simply to make money. It also exists for the national survival during times of crisis. Isn’t there a contradiction, as farmers’ interests may not always align with the national interest?
Following WWI—and even now—many countries produce agricultural goods with government support, without which they would be unviable. Governments were so scarred by the food shortages during both world wars that they realised it’s not simply a question of agricultural economics and making money; it’s about food security.
For example, economically, it doesn’t make sense for some European countries to produce as much food as they do, but from a food security point of view, it does.
What are the things you learned that surprised you when researching this book?
My biggest takeaway is how little the Australian sector has changed since the two world wars. We’re just as dependent on ocean freight as we were back then. If there were to be another crisis, the government wouldn’t have any other option but to do what it did in the two world wars. Yes, we have better farming practices and faster ships, but the fundamental structure of our industry hasn’t changed much. That was an eye-opener for me. Fundamentally, the international market still relies on the Black Sea, and Australia relies on ocean freight.
My second takeaway is that the biggest winners in a conflict – if there are any winners – are those who own the freight.
The biggest challenge for Australia in both world wars was that we didn’t have the shipping capacity to move our grains and oilseeds out of the country. Without government intervention, grain prices would have collapsed. It doesn’t matter how much you produce. Prices will decline if you can’t get your harvest out of the country.
A good example is 2021. Australia finally started to have good crop years after a three-year drought. I saw that we would produce a record crop, but our logistics system couldn’t handle it; we couldn’t export all the grain. When Russia invaded Ukraine a year later, global grain prices skyrocketed, but ours didn’t keep up. We fell to a substantial discount to international levels. Now imagine the extreme scenario where there is barely any freight available.
So, what is the solution?
A domestic biofuel industry would allow us to utilise some of the crops we produce and make us more fuel-secure. Over 95 per cent of our fuel comes from overseas. If we can’t get enough fuel, our whole economy grinds to a halt. A biofuels sector could help achieve our climate goals by reducing fossil fuel emissions while providing at least an element of energy security during a crisis.
Biofuels can act as a new source of demand for farmers to ensure that they keep producing. They can also act as a buffer, a reserve in times of crisis. You can switch the biofuels industry off, at least temporarily.
Building a biofuel industry during peacetime is easier and cheaper than during a war. The materials or workforce may not be available during a broader crisis or conflict.
If you look at the biofuel industries in North America and Europe, they wouldn’t have existed without government support, whether through subsidies, mandates, or both. I don’t think it will be any different in Australia. The government will support one if it decides it’s a national security issue.
There are other ways to increase domestic demand, too. If the Australian agricultural sector used more grain to produce meat, the country would need fewer ships for their exports during a broader conflict. It takes 12 kilos of grain to create one kilo of beef. Exporting 12 times less quantity is a lot easier. Admittedly, they would need refrigerated ships.
Is the Australian government ready to do that?
I ended my book with a quote in the Sydney Morning Herald from 1938:
“The curse of Australia is procrastination. We debate things in Parliament eternally, but we hardly ever do anything. I am afraid the awakening will be a rude one.”
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