How the war in Ukraine shatters the global food system

The global food system is under threat as Russia’s invasion of Ukraine puts one of the world’s greatest breadbaskets in jeopardy. Here are the latest developments and their far-reaching impacts:

food inflation

The war in Ukraine threatens staple crops in Europe’s main grain-producing regions, meaning the escalating food prices that have already been hitting consumers around the world could worsen, raising the threat of a food shortage crisis.

The United Nations has warned that already record global food costs could rise another 22% as the war stifles trade and cuts future harvests.

Cereals are the staple foods for the world, with wheat, maize and rice accounting for more than 40% of all calories consumed. Higher shipping costs, energy inflation, extreme weather and labor shortages have made food production more difficult. And supply is shrinking: Grain stocks are about to suffer a fifth straight annual decline, according to the International Grains Council. The war in Ukraine will only drive prices higher, driving hunger to unprecedented levels.

World food prices are at record highs, with a UN benchmark index soaring more than 40% in the last two years. Food insecurity has doubled in that period and an estimated 45 million people are on the brink of famine. Agricultural markets are also soaring. Wheat hit an all-time high in Chicago on Tuesday. Corn and soybeans are trading near multi-year highs.

food protectionism

Governments are taking steps to keep food supplies closer to home, a move that is likely to prolong food inflation. Hungary, Indonesia and Argentina are among a group of countries that have imposed trade barriers on agricultural exports ranging from wheat to cooking oil in a bid to contain domestic prices and safeguard local food supplies after the invasion. of Russia would provoke a widespread panic over shortages.

Russia joined this wave of protectionism when it signaled plans to restrict trade in some raw materials. A major Ukrainian food exporter, MHP SE, focused on supplying the Ukrainian military and civilians in bombed cities.

Trade restrictions could push international prices higher due to tighter global supplies, according to Steve Mathews, chief strategy officer at Gro Intelligence. “Adds a lot to inflation concerns“, said.

Other global providers may take steps to cover booking shortfalls. India, for example, has increased wheat shipments in recent years and could boost exports to a record 7 million tonnes if the conflict drags on. But many nations that could normally make up for shortages are facing production problems. In Brazil, a major supplier of corn and soybeans, crippling drought has dried up 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 in the coming weeks, but it will be months before those acres are harvested.

Agricultural supplies

Everything that goes into growing food is getting more expensive. Russia, a major supplier of all major types of crop nutrients, urged domestic fertilizer producers to cut exports earlier this month, stoking fears of shortages of vital crop inputs for growers.

Russia’s move adds uncertainty to the global market at a time when farmers in Brazil, the world’s largest fertilizer importer, are already struggling to get nutrients for crops. Russian President Vladimir Putin said that his country will supply fertilizers to nations that have “Friendly relationships” with Russia, although it must first guarantee the supply of fertilizers for the domestic market.

Fertilizer prices have soared around the world amid supply problems and production problems. In Europe, rising prices for natural gas, a key input for the production of nitrogenous fertilizers, have already forced some facilities to cut production.

The price of fuel, which farmers use to heat barns and run equipment used to produce food, is also skyrocketing. Adding to the tension are sanctions against Russia, a major world energy supplier, and the US and UK are taking steps to ban imports of Russian crude and other petroleum products.

Black Sea Supplies

Grain-carrying ships appear to be once again leaving the Sea of ​​Azov, the waterway that straddles Russia and Ukraine and connects to the Black Sea. Russia’s attack had initially thrown global supplies of wheat and vegetable oil into chaos as shipping traffic ground to a halt in the region. The Black Sea is also an export market for the main fertilizers. Together, Ukraine and Russia account for more than a quarter of the world’s wheat trade, as well as a fifth of corn sales.

shopping spree

Dealing with the dizzying rebound in agricultural markets is no easy task, especially for countries dependent on foreign supply. Shock waves are spreading to store shelves, with concerns that sunflower oil prices will rise and trigger heavy buying in Turkey. Even Indonesia, the world’s biggest exporter of edible oils, is feeling the pressure: Supermarkets have restricted purchases of cooking oil to one per shopper, and families are lining up with their young children to buy more.

Food supply concerns are also rising in the world’s two most populous nations: China and India. Chinese buyers are buying US corn and soybeans to secure supplies as Beijing steps up its emphasis on food security. In India, vegetable oil’s breakneck rally is driving away buyers in a sign of demand destruction that some banks and analysts have warned about. The nation is the largest importer of edible oils and consumers are extremely price sensitive.

If grain supplies from the Black Sea remain disrupted, an even more significant diversion of global agricultural trade will be required, said Gro Intelligence’s Mathews.