How the Russia-Ukraine war is impacting global supply chains

The tragic turn of events in Ukraine is once again threatening the global economy, with devastating consequences on supply chains. 

As TV news brings back scenes that we hoped to never see again, the effects on the lives of people and businesses around the world are already evident: rising inflation, possible supply disruptions, and raw material shortages. 

Just think of the consequences on the food supply chain, particularly with regard to grains. According to the Food and Agriculture Organization of the United Nations, Russia and Ukraine account for more than 25% of the world trade in wheat and more than 60% of sunflower oil, as well as 30% of barley exports.

Russia is also a major fertilizer exporter, a fact that could impact crop yields globally. Over the past few years, Ukraine has steadily increased its exports, becoming a major supplier of raw materials, chemicals, and machinery. In each of these scenarios, rising prices and supply discontinuity are now a reality.

The impact of the Russian-Ukrainian conflict on the botanical extracts market

The botanical extracts market makes no exception. In particular, as Nutraingredients USA reports, at least two ingredients from Russia may be hard to source in the months ahead: Rhodiola (Rhodiola Rosea) and Eleuthero (Eleutherococcus senticosus), also known as Siberian Ginseng. 

Trade in these two botanical species occurs primarily in the North Asian regions on the border between Russia and China. Since China is among the few countries that have not yet imposed sanctions on imports from Russia and restrictions on payments, this type of trade could likely not be affected in the short term. 

Moreover, the supply of maltodextrin, fundamental in dry extracts, could be put at risk. This polymer derives from the hydrolysis process of corn starch, for which Ukraine is the second supplier in Italy after Hungary. Prices are growing fast: only in the last month, a rebound of 41% has been observed. This represents a considerable difficulty for companies, which must immediately establish agreements with new suppliers.

Towards a more ethical and local supply chain

One thing is clear: to face challenges such as the pandemic and the Russian-Ukrainian war, companies must adopt more flexible and resilient organizational approaches that can mitigate the consequences on the production and distribution of goods. First and foremost, a strategic rethinking of the supply chain is needed. According to Deloitte analysts, two actions can be vital:

1. Activate alternative sources of supply. Companies with multiple suppliers should move quickly to establish relationships with secondary suppliers and secure additional stock. At the same time, companies must be careful when choosing alternative sourcing locations for key raw materials. 
2. Consider more ethical and local supply chains. If the pandemic provided an initial impulse to reshape global supply chains with a more local structure, the conflict in Ukraine and its consequences on raw materials will accelerate this trend.

Localizing supply chains can give governments and companies more control and decrease dependence on foreign countries. What if onshoring is not possible, such as in the case of raw materials that are not available in the country? In this case, “friend-shoring” strategies are possible, i.e., reorganizing critical supply chains by replacing risky foreign suppliers with close allies and partners. 

Our action for business continuity

In the context of the Russian-Ukrainian conflict, EPO is also taking action to ensure continuity of supply for our customers. Specifically:

• We buy drugs from different qualified suppliers, including plants traditionally originating from Ukraine, Belarus, or Moldova, such as Icelandic Moss thallus, bearberry leaves, valerian root, and arnica montana flowers;
• The strategy to select different sources of supply for the same raw material over the years allows us, in these hard times, to guarantee production continuity and consequently the continuous supply to our customers.

However, it must be considered that the Russian-Ukrainian crisis may affect the availability of the same raw materials in other countries as well. Therefore, despite all efforts, the supply of some raw materials could become critical.

We would like to express our solidarity with suppliers, customers, and all Ukrainian people in these dark times. We will never stop dreaming of a world where peace between people and nature is the foundation for building fair and equal relations at all levels.