The global food and energy markets are so closely intertwined that decisions made in Washington or fluctuations in diesel prices in North America have an immediate impact on Ukrainian farmers. The recent surge in fuel prices—driven by the US administration’s domestic policy and energy-related moves—has created a severe “pincer” effect for the Ukrainian agricultural sector: production and logistics costs are skyrocketing, while global grain prices remain low.

Why does the high cost of fuel make exporting Ukrainian grain and oilseeds unprofitable?

1. Rising Production Costs (The Agricultural Cycle)

Fuel—primarily diesel—is one of the major expense items during land cultivation, sowing, fertilizer application, and harvesting.

Higher Fertilizer Costs: The production of nitrogen-based fertilizers is directly dependent on energy prices (gas and oil). Rising fuel costs lead to an increase in the price of mineral fertilizers.

Field Operations: Higher costs for refueling tractors and combine harvesters drive up the initial production cost of grain long before it even reaches the grain elevator.

2. Expensive Logistics to Ports and Borders

Given the blockades or risks associated with maritime routes, Ukrainian exports rely heavily on road and rail transport.

Road Transport: Grain-hauling trucks consume vast quantities of diesel fuel. Rising diesel prices are immediately factored into the rate per tonne-kilometer.

In rail logistics, traction and terminal cargo handling costs are also rising, following the general inflationary trend in energy prices.

As a result, transporting grain from Ukraine’s central or eastern regions to ports in Odesa or along the Danube can sometimes “eat up” 30% to 50% of the product’s final value.

3. The “Freight Trap” Effect: Ukraine’s Geographical Discount

While selling grain directly to an end-buyer in Asia or Africa at a higher price might seem like a way to protect farmers, the global market operates differently:

Global prices for wheat or corn are determined on international exchanges (such as those in Chicago or Euronext).

A buyer in Egypt or Spain pays a global market price that includes the cost of ocean freight.

As ocean freight costs (for tankers and dry-bulk carriers) rise—driven by high prices for marine fuel (bunker fuel)—traders lower their purchase prices within Ukraine (at the grain elevator, or on FCA/CPT terms) to offset their own transportation expenses.

Consequently, the entire burden of rising logistics costs falls squarely on the shoulders of Ukrainian agricultural producers.

4. Market Distortion and Competition with Subsidized Players

When the United States or other developed nations face rising fuel costs, their governments often implement direct subsidy programs for their own farmers. Ukrainian farmers operate amidst war, limited access to subsidized credit, and a lack of large-scale fuel subsidies.

Competitors—such as the United States, Brazil, and EU nations—can withstand rising fuel costs thanks to state support or greater accumulated domestic capital; in contrast, Ukrainian agricultural producers find themselves pushed below the threshold of profitability.

Conclusion

High fuel prices create a “price scissors” effect for Ukraine: the cost of producing and transporting grain rises, while the price that traders are willing to pay Ukrainian farmers locally falls. Under these conditions, the export of raw commodities (wheat, corn, sunflower seeds) ceases to be profitable—and can even result in direct losses for farms. This compels the agricultural sector to either shift toward deep domestic processing or reduce sown areas.

Therefore, Ukraine must expand the deep processing of agricultural raw materials domestically and export processed agricultural products instead. This would address a long-standing strategic challenge: overcoming the low relative profitability inherent in Ukraine’s primary agricultural sector.