Washington: Russia’s war with Ukraine means the food inflation that’s been plaguing global consumers is now tipping into a full-blown crisis, potentially outstripping even the pandemic’s blow and pushing millions more into hunger.
Together, Russia and Ukraine account for a whopping portion of the world’s agricultural supplies, exporting so much wheat, corn, sunflower oil and other foods that it adds up to more than a tenth of all calories traded globally. Now, shipments from both countries have virtually dried up.
Commodity markets are soaring “- wheat is up about 50 per cent in two weeks and corn just touched a decade high. The surging costs could end up weighing on currencies in emerging markets, where food represents a bigger share of consumer-price baskets. And analysts are predicting export flows will continue to be disrupted for months even if the war were to end tomorrow.
The crisis extends beyond just the impact of grain exports (critical as they are). Russia is also a key supplier for fertilizers. Virtually every major crop in the world depends on inputs like potash and nitrogen, and without a steady stream, farmers will have a harder time growing everything from coffee to rice and soybeans.
Plainly speaking, there are few other places on the planet where a conflict like this could create such a devastating blow to ensuring that food supplies stay plentiful and affordable. It’s why Russia and Ukraine are known as the breadbaskets to the world.
“It’s an amazing food shock,” said Abdolreza Abbassian, an independent market analyst and a former senior economist at the United Nations’ Food and Agriculture Organization. “I don’t know of a situation like this in the 30 years I was involved in this sector.”
The shock is already reverberating across the world.
In Brazil, another agricultural powerhouse, farmers can’t get the fertilizers they need because retailers are reluctant to provide price quotes. In China, one of the world’s biggest food importers, buyers are snapping up purchases of US corn and soybean supplies amid concerns that fewer crop shipments from Russia and Ukraine could set off a global scramble for grains. In Egypt, people are worried that prices for the subsidized loaves of bread they depend on could rise for the first time in four decades, while footage of citizens in Turkey trying to grab tins of cheaper oil went viral. And within Ukraine itself, food is running short in some major cities.
“The damage is done,” Abbassian said. “We’ll have months before we return to anything called normality.”
Record high prices
The timing couldn’t be worse. When the pandemic first hit in 2020, images of lines snaking around food banks and empty grocery shelves shocked the world as nearly a tenth of the global population went hungry. But at the time, food inventories were still abundant.
That’s no longer the case. Grains are the staples that keep the world fed, with wheat, corn and rice accounting for more than 40 per cent of all calories consumed. But grain stockpiles are poised for a fifth straight annual decline. A combination of higher shipping costs, energy inflation, extreme weather and labor shortages have made it harder to produce food.
As a result, global food prices are already at record highs, with the benchmark UN index increasing more than 40 per cent over the past two years. The surge has had crushing consequences. Food insecurity has doubled in the past two years, and the World Food Programme estimates 45 million people are on the brink of famine.
The current crisis is going to make things worse, likely sending hunger to unprecedented levels as the conflict turns millions of people into refugees and sends food prices even higher.
“The bullets and bombs in Ukraine could take the global hunger crisis to levels beyond anything we’ve seen before,” David Beasley, executive director of the U.N. agency, said in a statement.
Why wheat matters
The world has grown hugely dependent on Ukraine and Russia for their wheat, a crop used in everything from bread to couscous and noodles. The nations account for a quarter of global trade. They are also cheap suppliers, which makes their exports favorites for importers in the Middle East and North Africa, including in Egypt, the world’s biggest wheat buyer.
Benchmark wheat futures traded in Chicago reached a record-high price Tuesday.
“You’re going to see a spike of starvation around the world,” Eurasia Group President Ian Bremmer told Bloomberg TV’s Surveillance.
Wheat is a key commodity to watch because bread prices have a long history of kickstarting unrest. Going back to the days of the French Revolution, food insecurity has sent people into the streets demanding better conditions. Supplies from Russia have been part of this bigger picture before. In 2010, the country experienced a record heat wave that devastated crops, and the government banned exports. Wheat prices in international markets doubled in a matter of months, raising the cost of bread for millions of people. The price run-up simmered as part of the mix of factors that sparked uprisings in the Arab Spring.
While Russia’s wheat hasn’t come directly under sanction, trade from the country has been severely disrupted. Some Russian grain is flowing by land, while vessel transit is near a standstill due to the military action in the Black Sea.
Meanwhile in Ukraine, where farming is so core to the national identity that its flag depicts blue skies blanketing yellow fields, growers are finding fieldwork perilous, while some have joined the military just weeks before spring planting begins. Analysts are warning that lots of acres could go bare this year.
“The potential is here for a serious hole in world grain supplies in 2022,” said Scott Irwin, an agricultural economist at the University of Illinois.