Russia’s invasion of Ukraine means that the food inflation plaguing global consumers is now tipping into a full-fledged crisis, potentially outpacing even the pandemic’s blow and pushing millions further into hunger.
Together, Russia and Ukraine account for a huge share of global agricultural supplies, exporting so much wheat, corn, sunflower oil and other foods that they account for more than a tenth of all calories traded in the world. Now, shipments from both countries have all but dried up.
Commodity markets are soaring – wheat is up around 50% in two weeks and corn just hit a decade high. Soaring costs could end up weighing on currencies in emerging markets, where food accounts for a larger share of consumer price baskets. And analysts predict that export flows will continue to be disrupted for months, even if the war were to end tomorrow.
The crisis extends beyond the sole impact of grain exports (as critical as they are). Russia is also a key fertilizer supplier. Virtually every major crop in the world depends on inputs such as potash and nitrogen. Without a steady flow, farmers will find it harder to grow everything from coffee to rice and soybeans.
Clearly, there are few other places on the planet where a conflict like this could deal such a devastating blow to ensuring that food supplies remain plentiful and affordable. This is why Russia and Ukraine are known as the breadbaskets of the world.
“It’s an incredible food shock,” said Abdolreza Abbassian, an independent market analyst and former senior economist at the UN’s Food and Agriculture Organization. “I’m not aware of a situation like this in the 30 years I’ve been involved in this industry.”
The shock is already reverberating around the world. In Brazil, another agricultural powerhouse, farmers cannot get the fertilizers they need because retailers are reluctant to provide quotes.
In China, one of the world’s biggest food importers, buyers are buying American corn and soybeans, fearing lower crop shipments from Russia and Ukraine could trigger a global grain rush.
In Egypt, people fear the prices of the subsidized loaves of bread they depend on could rise for the first time in four decades, while images of Turkish citizens trying to grab boxes of cheaper oil have gone viral. And in Ukraine itself, food is lacking in some big cities.
“The damage is done,” Abbassian said. “We will have months before we return to what is called normalcy.”
The timing couldn’t be worse. When the pandemic first hit in 2020, images of queues snaking around food banks and empty grocery shelves shocked the world as nearly a tenth of the world’s population went hungry. But at the time, food stocks were still plentiful.
This is no longer the case. Grains are the staple food that feeds the world, with wheat, corn and rice accounting for over 40% of all calories consumed.
But grain stocks are poised for a fifth straight annual decline. A combination of higher shipping costs, energy inflation, extreme weather conditions and labor shortages have made it more difficult to produce food.
As a result, global food prices have already reached record highs, with the UN benchmark rising by more than 40% in the past two years.
The rise in power had overwhelming consequences. Food insecurity has doubled in the past two years and the World Food Program estimates that 45 million people are on the brink of starvation.
The current crisis will make matters worse, likely sending hunger to unprecedented levels as conflict turns millions into refugees and drives up food prices even further.
“Bullets and bombs in Ukraine could take the global hunger crisis to levels beyond anything we’ve seen before,” David Beasley, the UN agency’s executive director, said in a statement.
The world has become hugely dependent on Ukraine and Russia for their wheat, a crop used in everything from bread to couscous and noodles. Nations account for a quarter of world trade.
They are also cheap suppliers, making their exports a favorite of importers in the Middle East and North Africa, including Egypt, the world’s biggest wheat buyer. Benchmark wheat futures traded in Chicago hit a record high on Tuesday.
“You’re going to see a spike in famine around the world,” Eurasia Group Chairman Ian Bremmer told Bloomberg TV Watch.
Wheat is a key commodity to watch as bread prices have a long history of triggering turmoil. Since the days of the French Revolution, food insecurity has sent people to the streets demanding better conditions.
Supplies from Russia were already part of this big picture. In 2010, the country experienced a record heat wave that devastated crops and the government banned exports. Wheat prices on international markets have doubled in a few months, increasing the cost of bread for millions of people. The price spike simmered as part of the combination of factors that sparked the Arab Spring uprisings.
Although Russian wheat was not directly sanctioned, the country’s trade was severely disrupted. Some Russian grain moves overland, while ship transit is virtually halted due to military action in the Black Sea.
Meanwhile, in Ukraine, where agriculture is so central to national identity that its flag depicts blue skies covering yellow fields, growers find work in the fields perilous, while some have joined the military a few weeks before the start of spring sowing. Analysts warn many acres could be bare this year.
“The potential is there for a serious hole in the global grain supply in 2022,” said Scott Irwin, an agricultural economist at the University of Illinois.
International Food Network
Food moves around the world in a complex web of imports and exports.
Many countries have oriented their agricultural production towards the export of a few key products, rather than towards food self-sufficiency. So countries like Ghana and Cameroon can be big global players in the cocoa market, but are still hugely dependent on wheat shipments.
Meanwhile, grain-exporting countries can see what’s happening in Russia and Ukraine and decide that the world won’t have enough wheat or barley – so instead of shipping, they move to keep the supplies at home. This can lead to a dangerous domino effect of growing protectionism that harms the world’s poorest and most import-dependent countries.
There are some early signs of protectionism brewing. Hungary is banning grain exports and the Serbian president said on Monday the country would soon limit wheat shipments.
Argentina and Turkey took steps last week to increase their control over local produce. And Moldova, though a small shipper, has temporarily halted wheat, corn and sugar exports from this month.
In Cameroon, which imports all of its wheat supplies, prices for grain shipments jumped 70%. On top of that, soaring oil prices are causing freight rates to skyrocket, so transport costs for wheat have also increased by around 70%, according to Jean Marie Kakdeu, president of the Cameroon Coalition for promotion of national production. “The country could experience famine if nothing is done to address” the rising prices, Kakdeu said.
Others might see an opening with what is happening in Russia and Ukraine and decide to fill the hole. India, for example, has increased its wheat shipments in recent years. Vijay Iyengar, chairman and chief executive of Singapore-based Agrocorp International Pte., predicts the South Asian country’s exports will exceed a record 7 million tonnes in the current season if the dispute continues.
But many of the countries that typically could help fill supply gaps are experiencing production problems themselves.
In Brazil, a major supplier of corn and soybeans, a crippling drought is ruining crops. Dry weather also withered fields in Canada and parts of the United States last year. North American farmers may see current prices as a reason to plant more this spring, but it will be months before those acres are harvested.
“It’s a global commodity shortage right now,” said Andy Soo, commodity broker at Advanced Research Commodities in Singapore.
The Hunger Scorecard
Nate Mook has been on the ground in western Ukraine, serving meals to families who wait up to 30-40 hours in line to cross the border into Poland. It becomes difficult to find certain types of food where he works in Lviv, as he hears from his colleagues at World Central Kitchen in Kyiv that they are in short supply.
Supply chains are collapsing – in just one example, truck drivers who would typically be deployed for mass distribution of things like rice or potatoes are afraid to go out for fear of being mistaken for a military vehicle and be attacked.
“I imagine in the days and weeks ahead things are going to get more difficult,” said Mook, chief executive of the food aid group.
In Russia too, hunger is likely to increase as the sanctions hurt the country’s economy. In the 1990s, economic sanctions against Iraq were linked to the death of half a million children as malnutrition increased.
Since the start of the pandemic, hunger has increased in almost every corner of the world, with the highest number of victims in parts of Africa and Asia.
“The last thing the world needed at this point was another conflict, because conflict fuels hunger around the world,” said Deepmala Mahla, vice president of humanitarian affairs at CARE. “I just find it unacceptable on a level of disbelief that in our time people go to sleep hungry when the world has the capacity – and produces more than enough food – to feed everyone.”
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