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ECONOMY | 08-03-2022 20:50

War in Ukraine compounds global food inflation, hunger crisis

The world's next food emergency is here as war compounds hunger crisis.

Russia's invasion of 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 percent 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 fertilisers. 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 Organisation. “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 fertilisers 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 subsidised 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.”

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 10th 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 percent 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 percent 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 UN agency, said in a statement.


Wheat: why It 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 favourites 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 ground to a near standstill. Meanwhile in Ukraine, where farming is so core to the national identity that its flag depicts blue skies blanketing yellow farm fields, growers are finding fieldwork perilous, while some have joined the military just weeks before spring planting begins. Analysts are warning that lots of fields 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.


International food web 

Food moves through the world in a complex web of imports and exports.

Many countries have positioned agricultural production toward exporting a few key products, rather than for food sufficiency. So nations like Ghana and Cameroon can be big global players in the cocoa market, but are still hugely dependent on shipments for wheat. 

Meanwhile, grain-exporting nations 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 supplies at home. That can lead to a dangerous domino effect of increasing protectionism that hurts the world’s poorest and the countries most-dependent on imports.

There are some early signs of protectionism brewing. Hungary is banning grain exports, and Serbia’s president said Monday the country will soon curb wheat shipments. Argentina and Turkey made moves last week to increase their control over local products. And Moldova, albeit a small shipper, temporarily halted exports of wheat, corn and sugar from this month.

In Cameroon, which imports all of its wheat supplies, prices for grain shipments have jumped 70 percent. On top of that, the surging price of oil is sending freight rates soaring, so transportation costs for wheat have climbed by some 70 percent as well, according to Jean Marie Kakdeu, president of the Cameroon Coalition for the Promotion of National Production.

“The country could experience famine if nothing is done to resolve” the increase in prices, Kakdeu said. 

Other players could see an opening with what’s happening in Russia and Ukraine and decide to fill the hole. India, for example, has increased wheat shipments in recent years. Vijay Iyengar, chairman and managing director of Singapore-based Agrocorp International Pte, predicts the South Asian country will see exports exceed a record 7 million tons in the current season if the conflict drags on. 

But many of the nations that could typically help fill supply deficits are themselves seeing production problems. In Brazil, a major supplier of corn and soybeans, a crippling drought is ruining crops. Dry weather also wilted fields in Canada and parts of the United States last year.  Farmers in North America could see the current prices as a reason to plant more this spring, but it will be months before those acres get harvested.

“It’s a global commodity squeeze at the moment,” said Andy Soo, commodities broker at Advanced Research Commodities in Singapore.


Hunger’s toll

Nate Mook has been on the ground in western Ukraine, serving meals to families who are waiting as many as 30 to 40 hours in line to cross the border in Poland. It's becoming hard to source some kinds of food where he’s been working in Lviv, while he hears from his World Central Kitchen colleagues in Kyiv that they're running into shortages. Supply chains are crumbling — as just one example, truck drivers that would 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 getting attacked. 

“I imagine in the days and weeks ahead things are going to get harder,” said Mook, chief executive officer of the food-relief group. 

In Russia, too, hunger will likely be on the rise as sanctions hurt the nation’s economy. In the 1990s, economic sanctions against Iraq were linked to the death of half a million children as malnutrition rose.

Since the start of the pandemic, hunger has been increasing in almost every corner of the world, with the biggest toll coming in parts of Africa and Asia.

“The last thing the world needed at this point was another conflict, because conflict is driving hunger in the world,” said Deepmala Mahla, vice-president for humanitarian affairs at CARE. “I just find it unacceptable to a level of disbelief that in this day and age, people are sleeping hungry when the world has the ability and is producing more than the food required to feed everyone.”

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by Megan Durisin, Elizabeth Elkin & Pratik Parija, Bloomberg


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