“The world has realized that food can be a weapon and it is being currently used,” Svein Tore Holsether, CEO of Yara International, one of the world’s largest suppliers of plant nutrients, told Reuters on the sidelines of the World Economic Forum in Davos.

He said the direct impact of Russian sanctions has removed at least 15 per cent of global fertilizer supply and the indirect impact was even more severe due to disruptions of supply chains and the impact of gas price rises.

“We need to work on an emergency response for the most vulnerable. For that we urgently need to unlock funds of the world food programme (WFP), which has a $10 billion funding gap,” he said (all figures US$).

David Beasley, the executive director of the United Nations’ World Food Programme, said this month even before the war in Ukraine some 276 million people were hungry globally.

WFP is believed to face a $10 billion fund shortage as food prices, fuel and shipping costs are skyrocketing while donors such as oil-rich Gulf countries are not contributing agreed funds.

Some 25 million tonnes of corn and grains are stuck in Black Sea ports because of the war in Ukraine and Russian grains and fertilizers exports are also disrupted by sanctions.

“Currently, we have an extreme combination of events when food supplies are going down, fertilizers supplies are doing down, gas supplies are going down and prices for gas and fertilizers are rising,” said Holsether.

Global fertilizer production depends heavily on natural gas and the EU receives 40 per cent of its gas from Russia.

In March, Yara curtailed its ammonia and urea output due to the surge in gas prices but has fully restored production since.

“We need to build a system that is less reliant on Russia and is more green including by using renewable energy for fertilizer production,” Holsether said.

The UN classifies over half a million people in Ethiopia, southern Madagascar, South Sudan and Yemen in the most severe phase of acute food insecurity.

Africa generally features among the most severely hit regions. Yara has donated 18,000 tonnes of fertilizers to Ghana and agreed another 40,000 tonnes of delivery, expecting that with the donated part the average price will come down.

— Reporting for Reuters by Dmitry Zhdannikov.

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Analysts said the results beat expectations, driving the share price nearly two per cent higher, building on gains of nearly 20 per cent this year, while the wider sector fell by nearly two per cent.

Companies across the mining industry, which was pounded by the commodities market rout of 2015, have exceeded expectations after a recovery in the price of raw materials such as iron ore and coal last year.

Glencore’s 2016 earnings before interest, tax, depreciation and amortization (EBITDA) were up 18 percent year on year at $10.3 billion (all figures US$).

Its trading arm achieved adjusted earnings before interest and tax (EBIT) of $2.8 billion, up 14 per cent and above previous guidance of $2.5 billion to $2.7 billion.

The division is expected to deliver profit between $2.2 billion and $2.5 billion this year, the company said, adding that the lower range reflects the sale of 50 per cent of Glencore Agriculture in December.

Like other miners, Glencore embarked on asset sales to drive down debt and has said it will maintain a lower net debt to EBITDA ratio, a crucial measure of available cash in capital-intensive mining.

CEO Ivan Glasenberg said the ratio could drop below 1:1 this year if no further acquisitions are made, compared with its goal of 2:1 and the 3:1 ratio it favoured previously.

By the end of 2016, net debt had fallen to $15.5 billion, down $14.1 billion from 18 months ago.

Investor cheer

“Since our IPO in 2011 and subsequent acquisition and integration of Xstrata, Glencore has never been so well positioned as it is today,” Glasenberg said.

The results, which analysts said were above consensus, offered some welcome cheer for Glencore investors.

“It’s another stellar quarter that shows how they’re rebounding from the depths of the crisis. The market likes the story,” said David Neuhauser, managing director at U.S. hedge fund Livermore Partners, which owns Glencore shares.

Glasenberg told reporters that shareholders might also benefit from rising dividends and that surplus cash could be used for small deals or “bolt-ons” on the edge of existing assets rather than huge acquisitions.

“We could do many things. We could give our long-suffering shareholders a generous gift of a special dividend,” he said. “To ourselves as shareholders, that would not be a bad thing to do.”

Having promised late last year that payouts would be reinstated, Glencore said on Thursday that its board had recommended a dividend of seven cents per share.

On the negative side, the decision to hedge 55 million tonnes of coal in a rising market led to what Glencore labelled an “opportunity cost” of $980 million, though Glasenberg said the company would continue hedging as appropriate and was locking in coal prices with Japan over a year-long contract.

He remained bullish on commodity prices, predicting good demand from China — buyer of about half of the world’s raw materials — and said that new supply would be offset by lower production from ageing assets as miners invest conservatively.

“What started the negative vibe was increased supply,” he said. “The industry has changed.”

— Reporting for Reuters by Barbara Lewis and Dmitry Zhdannikov. Additional reporting for Reuters by Sanjeeban Sarkar in Bangalore and John Tilak in Toronto.

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The sale values the agricultural unit as a whole at close to the initially expected $10 billion, including $600 million in debt and $2.5 billion in inventories, and comes after Glencore said last month it was stepping up its debt reduction plan by unloading more assets (all figures US$).

The group said it aimed to cut net debt to between $17 billion and $18 billion by the end of 2016, $1 billion more than previously planned and down from a peak of $30 billion last year.

The purchase is by the pension fund’s investment unit, the Canada Pension Plan Investment Board (CPPIB), which seeks long-term low-risk investments.

“Glencore Agri complements our existing portfolio of agriculture assets, bringing global exposure, scale and diversification,” CPPIB’s global head of private investments, Mark Jenkins, said in a statement

Glencore’s stock had collapsed to below 70 pence (C$1.30) at the end of last year, a fraction of its peak of 556 pence following its 2011 flotation, due to investor worries over its heavy debts coupled with slumping copper and coal prices.

Investment grade

The stock has, however, doubled in value since then, after the company took steps to cut debt and protect its investment- grade credit rating, by raising money via a share issue, reducing inventories, suspending dividends and selling assets.

“Management continue to be proactive and delivering on the stated objective of reducing debt,” said Charl Malan, portfolio manager at investor and Glencore shareholder Van Eck Associates.

Malan said that he expects Glencore to continue to drive debt lower via asset sales, metal streaming deals and improved operating efficiencies.

Glencore expects the agriculture deal to complete in the second half of 2016.

Major Canadian grain handler Viterra is part of Glencore’s ag business, includes more than 200 storage facilities globally, 31 processing facilities and 23 ports, allowing Glencore to trade grains, oilseeds, rice, sugar and cotton.

It generated core earnings of $524 million in 2015 and had gross assets of more than $10 billion.

Under the agreement, Glencore has the right to sell up to a further 20 per cent stake. Glencore and CPPIB may also call for an initial public offering of Glencore Agri after eight years from the date of completion, the companies said.

Glencore Agri would be run by current chief Chris Mahoney and a board to which CPPIB and Glencore would each appoint two directors.

Shares of Glencore rose as much as 2.2 per cent on the announcement of the disposal, before retreating to trade 4.5 per cent down by 12:36 GMT. The FTSE was up 0.6 per cent.

“The more assets Glencore disposes of, the more shareholders will begin to weigh up the benefits to the balance sheet versus the negatives of lost future revenue,” said Jasper Lawler, market analyst at CMC Markets.

Barclays, Citi and Credit Suisse were Glencore’s joint financial advisers and Linklaters LLP provided legal advice. Deutsche Bank was sole financial advisor to CPPIB.

— Dmitry Zhdannikov is a Reuters editor based in London, England. Additional reporting Reuters by Sarah McFarlane and Alistair Smout in London and Noor Zainab Hussain and Vidya L. Nathan in Bangalore.

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In December, Reuters reported the trade house had been seeking buyers for its juice and fertilizer units for some months, as it focused on higher-margin activities.

“Ring-fencing” refers to a corporation removing or separating a specific set of assets from its accounts.

“The company is actually in the process of ring-fencing four areas: fertilizers and inputs, metals, juice and dairy. For a couple of them, options could range from JVs to the sale of assets,” the source said.

The source pointed to the desire for a strategic partnership in its juice business.

“In the juice business, the company is looking for a partner for distribution who would have scale and focus on markets such as Asia and China,” the source said.

The firm is one of the world’s biggest juice processors by volume, with assets including seven processing factories in Brazil, the U.S. and China, as well as orange groves in top grower Brazil and a global trading network.

Dreyfus had plans to grow its operations in China, along with Russia, the source said.

“In Russia, major infrastructure investments are required to facilitate grain exports.”

Like many of its peers, Dreyfus — one of the “ABCD” quartet of traders that dominate global agricultural trading, along with Archer Daniels Midland, Bunge and Cargill — has been hit by falling prices and weak demand.

Dreyfus’ profits for the six months to June 30 halved from the same period a year earlier in what the company described as a “challenging environment”.

The company appointed Gonzalo Ramirez Martiarena as chief executive last year, previously the group’s Asia chief, and has subsequently implemented wider management changes including replacing some heads of units.

— Reporting for Reuters by Dmitry Zhdannikov, writing by Sarah McFarlane.

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In eastern Ukraine, a Dutch recovery team called off its work at the site where Malaysian airliner MH 17 was shot down over rebel held territory last month, saying the frontline location had become too dangerous.

Ukraine said the halt to the recovery meant it would stop observing a ceasefire at the site, where it is battling rebels that the West says are armed and funded by Moscow.

Russian share prices fell after the announcement of Moscow’s one-year ban on all meat, fish, dairy, fruit and vegetables from the U.S., the 28 European Union countries, Canada, Australia and non-EU member Norway.

In a statement Thursday, Russia’s Prime Minister Dmitry Medvedev said the government has “completely banned the importation” of beef, pork, fruit and vegetables, poultry, fish, cheese, milk and dairy goods from the EU, U.S., Australia, Canada and Norway.

“Of course, this is a serious decision with regard to the distributors of these products from the above countries,” Medvedev said, noting the measures will not affect baby food imports.

“And, naturally, they don’t apply to products being purchased by individuals in these countries in line with our customs legislation,” he added.

Russia bought US$43 billion worth of food last year. It has become by far the biggest consumer of EU fruit and vegetables, the second biggest buyer of U.S. poultry and a major global consumer of fish, meat and dairy.

According to Agriculture and Agri-Food Canada, Russia’s total imports of meat and offal from other countries were worth C$7.02 billion in 2012, while its imports of fruit and nuts that year were valued at C$6.19 billion.

Statistics Canada pegged the value of Russia’s 2012 imports of Canadian agrifood at C$563.04 million, up from $447.69 million in 2011. Of the 2012 total, $469.17 million came from Russia’s imports of frozen Canadian pork, hams and pork offal.

Since then, however, Russia has moved to block imports of meat from animals fed the growth promotant ractopamine, which is approved for use in Canadian livestock.

Up until Thursday, just 11 Canadian facilities — one of which is now in receivership — had Russia’s approval to export pork. Only four Canadian plants were approved to ship beef.

Short-term inflation

President Vladimir Putin ordered his government to adopt the measures to retaliate against Western countries who imposed sanctions on Russia’s defence, oil and financial sectors over its support for rebels waging an insurrection in east Ukraine.

He had promised to ensure that the measures would not hurt Russian consumers, which suggested he might exclude some popular products. But in the end, the bans announced by Medvedev mentioned no exceptions.

The announcement saw Russian bond yields rise to their highest levels in years and Moscow’s already reeling share prices extend a sell-off.

Agriculture Minister Nikolai Fyodorov acknowledged that the measures would cause a short-term spike in inflation, but said he did not see a danger in the medium or long term. He said Russia would compensate with more imports of products from other suppliers such as Brazilian meat and New Zealand cheese.

The EU’s executive Commission said it reserved the right to take action to retaliate against the Russian ban.

Farmers in specific sectors in Western producing countries are likely to suffer, but much of the pain will be borne by Russians, who will face higher prices and shortages of some goods, with inflation already rising, the rouble falling and the economy hurt by capital flight.

“The first casualties would be the domestic market. However it will have some implications for the farmers in the producing countries,” Abdolreza Abbassian, a senior economist with the United Nations Food and Agriculture Organization, said.

Russians have relished imported food since the fall of the Soviet Union, when year-round supplies of fresh fruit and vegetables arrived and ubiquitous cheap American frozen chicken quarters became known as “Bush’s legs” after the then-president.

The nascent middle class in Moscow, which buys Italian cheese and U.S. beef at supermarkets, will take a hit, but so will ordinary people who buy Polish apples and Greek cucumbers in street markets. Russia bought 28 per cent of EU fruit exports and 21.5 per cent of its vegetables in 2011. It bought eight per cent of U.S. chicken meat exports last year.

Tit-for-tat

Moscow may also ban Western airlines from flying transit routes over its air space, a measure that would cost European airlines money burning extra fuel to avoid Russia on flights to Asia, but would also deprive Moscow of hundreds of millions of dollars in overflight fees.

Western countries imposed initially mild sanctions on Russia after it annexed Ukraine’s Crimea peninsula in March, but tightened them after a Malaysian airliner was shot down over pro-Russian rebel-held territory in east Ukraine on July 17.

The latest Western measures limit access by Russian state banks to global capital markets and also block imports of defence and oil industry equipment.

Washington and Brussels say the Malaysian airliner was almost certainly shot down by an advanced anti-aircraft missile system supplied to the rebels by Russia. Moscow denies this.

The disaster galvanized politicians, particularly in Europe, who had previously been reluctant to take strong action against a big trading partner.

Dutch inspectors are trying to examine the site to investigate the cause of the disaster and recover any remains of the personal effects and bodies of the 298 victims of the crash. Their visit has been hampered by fighting in the area, which is near the road linking the two main rebel bastions Donetsk and Luhansk near the Russian frontier.

Kiev said it would lift a ceasefire imposed in the area as long as the Dutch had halted their work. Ukrainian military spokesman Andriy Lysenko said seven more Ukrainian service members had been killed in the past day of fighting.

The rebels are led almost exclusively by Russian citizens and are armed with tanks, artillery and other heavy weapons that Kiev and its Western allies say can only have come from the Russian side of the border.

They have declared independent “people’s republics” in two industrial provinces of eastern Ukraine which they call “New Russia” — a term Putin applied to all of Ukraine’s south and east, where most of the population, though identifying themselves as Ukrainians, speak Russian as a native language.

Despite their advanced weapons, the rebels have steadily lost ground since June, leaving them mainly besieged inside two provincial capitals, along with hundreds of thousands of civilians who fear a full-scale government assault.

Russia has announced military exercises near the border this week. On Wednesday, NATO said Moscow had amassed 20,000 troops near the frontier and could be planning a ground invasion under the pretext of launching a humanitarian mission.

Putin has rallied Russians with relentless nationalist campaigns in state media against Ukraine and in support of the rebel cause, and Western officials fear he might invade to prevent a humiliating rebel defeat.

— Dmitry Zhdannikov and Natalia Zinets write for Reuters from Moscow and Kiev respectively. Additional reporting by Reuters Moscow, Richard Balmforth in Kiev, Maria Tsvetkova in Donetsk, Barbara Lewis in Brussels and Isla Binnie in Rome. Includes files from AGCanada.com Network staff.

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