 |
| Credit: BBC |
Russia's invasion of Ukraine has pushed up food prices. Wheat and corn prices have reached record highs. Developing countries are already feeling the pinch. Global food security is at stake. Russia's war against Ukraine has raised fears of a global food crisis. Both countries supply one-third of the world's wheat, and major exporters, corn and sunflower oil. War has affected exports, leading to record prices in international markets. Wheat prices are at a 14-year high. Corn is at a nine-year high. This means that grain stocks from both countries are not reaching their key markets in the Middle East and Africa. Economists say, consumers, especially in low- and middle-income countries will have to pay higher prices.
Let's
take a look at how much some countries depend on wheat from Russia and Ukraine.
Many of them are already struggling with malnutrition. Egypt is the largest
importer of wheat in the world. Eighty-five percent of that comes from Russia
and Ukraine. The two countries also provide 40 percent of war-torn Yemen, and
Ukraine's wheat meets half of Lebanon's needs. Lebanon is still recovering from
an explosion at the Beirut port in 2020 that destroyed its main grain silo. If
the situation worsens and the wheat market stops, it has the capacity to store
wheat in the mills for about a month, but after that, it has no storage
capacity. The crisis caused by the war between Russia and Ukraine will affect
Lebanon and they will suffer from a shortage of wheat.
Lebanon Case:
Lebanon imports most of its wheat from Ukraine. The disruption in the Sea of Azov and the Black Sea is in fact affecting the delivery of pre-purchased food. There are supply chain problems. Ships are being delayed and orders are now looking for alternatives from Argentina, the United States, and possibly Canada if there is a long war and more obstacles. Basically, if they are going to import from alternative places, the prices will be higher as they will have to be taken long and more expensive routes. The cost of transportation will be even higher due to rising fuel prices around the world. The economy minister has said there's a month's worth of wheat reserves left. The main wheat silo in Beirut was destroyed in the blast. They now rely on small storage facilities in small mills across Lebanon that can last only a month. The Lebanese people are already facing severe economic issues. Lebanon is going through the worst crisis ever. It drastically reduced the value of the currency, shrinking the purchasing power of the population. Now they can afford to buy at a lower price. An increase in the price of wheat will increase poverty. 80% to 85% of the population is expected to fall below the poverty line. These expectations will be higher if we have a shortage of wheat or higher prices. The other side is that the bank subsidizes it and it is losing dollar reserves. (Mardini, P.)
There is a high risk of unrest, especially since we have been in a high inflation framework for some time. We need to differentiate between oil-exporting countries and oil-importing countries in the Middle East. I do not think that the oil and gas exporting nation will face any problem. The problem belongs to other countries where there may be some social unrest over higher prices. We are already in a high price environment and this shock will push up prices in Lebanon. In the last two years it has had massive demonstrations. People have been protesting against corruption. They are going to the polls in a few months. Therefore, it is the worst time for the political class to participate in elections. (Mardini, P.)
Vulnerable regions and growing wheat price:
Even
before the crisis, the prices of all these items were very high. So it is not
as if we have already grown 50% from the low level. Before the crisis, the US
was already in a very potentially depressing situation with some bad harvest
crops coming from Latin America. As a result, the markets were tense and
volatile. Now, of course, a third or more of the wheat that is traded globally
is basically at stake. The only good news is that the US is dealing with the
last harvest. Only a third of the rest of the crop was to be shipped from Russia
and Ukraine. But certainly, some countries, such as Lebanon, Egypt, and Yemen,
which also import wheat through the WFP are highly vulnerable. Pakistan and
Tunisia or this region are dependent on this supply on a permanent basis. We
have to keep in mind that all countries are planting new crops, they
need fertilizer and here too we have a fertilizer problem that can put pressure
on the next crop. (Labord D.)
Disrupting port facilities:
This is going to be very bad at the moment. What we are seeing is that Russian forces have taken over a large part of the southern coast of Ukraine. This is where their advance is most successful. And Even if we get to the point that most of Ukraine's Black Sea ports are effectively under government occupation and even if it can get grain up to these facilities, there is a question of whether it can be exported from there? Further, the war itself is destroying Ukraine's ability to produce grain this season due to direct damage and the diversion of manpower.
Sanctions on Russia and other states’ vulnerability:
The
question is what Russia decides to export. The Kremlin is well aware that
inflation can be a powerful political tool to put pressure on pro-Ukraine
countries. We have already seen Joseph-Biden, and most of his letters have made
it a point to talk about inflation and the prevention of inflation due to
restrictions on American consumers. When it comes to food, even before the war,
Russia had reduced its export quota for next year fearing a possible rise in
domestic prices. We have also seen that Russia has leverage on fertilizers.
Russia produces a large amount of potash from around the world, and they are
already talking about restrictions on that.
Similarly, natural gas is one of the precursors of many chemical fertilizers.
It is also limiting the number of fertilizers that other countries need to grow
food. This creates a very strong inflationary pressure in the economic
situation where we are already seeing very high levels of global inflation due
to the emergence of pandemic diseases. It also puts pressure on political
leaders who are currently supporting Ukraine. (Dow
D.)
Read more: Sanctions regime of the West
Fertilizers disruption:
There are different types of fertilizers. Some can be produced from natural gas or
coal. And since the supply of natural gas and coal is an issue, the price can
be an issue. Then there are some fertilizers like potash and phosphate which
are extracted from one reservoir and these deposits are not available
everywhere on earth. So, we're going to look at a product that can grow
steadily from a place like Canada. But we are still going to see a very high
price, which means that rich farmers, and mainly farmers in the United States
and Europe, will be able to afford it, even if the cost of production
increases. Therefore, the price of grain produced by them will increase. In
other parts of the world, where we can really see a decline, we have some
government subsidizing fertilizer. (Labord
D.)
Subsidization of food: A way out
Last
time, there was a big increase in food prices, especially the price of bread.
It went hand in hand with the Arab Spring. With current unrest, there is a
constant fear that the price of bread has to go up mainly because the price of
wheat has gone up. And there are chances of similar social tensions. Egypt is trying
to work with its international partners, the United States, the IMF, and
possibly the GCC countries, to maintain the high cost of subsidies, mainly
because of the higher price of wheat. They are also accumulating good foreign
exchange reserves which will give them a higher margin of money. Lebanon, on
the other hand, has one of the biggest problems, the catastrophic situation. The
central bank has been drastically reducing its foreign exchange reserves for
the past two years. (Mardini, P.)
Read more: Yemen war translates into Gulf war?
Historical
perspective:
Pressure
on the food supply in the past has led to protests and political turmoil. In Egypt,
for example, rising food prices and shortages led to bread riots in 1977 and a
protest movement that toppled President Hosni Mubarak in 2011. More than 100
people have been killed in Tunisia's bread riots since the 1980s. Against bread
and fuel prices, Sudan finally ousted long-serving President Omar al-Bashir in
2019. Again fears of a resurgence have erupted.
However, this is unlikely in Russia because it is producing so much of this grain and the state has so much direct and indirect control over the economy. So, it can subsidize these prices and keep prices at a certain low level if it wants to. I would expect the Kremlin to do so if it sees a rise in prices as a threat. Vladimir Putin has been talking a lot about the Bolsheviks recently, and it was the Bread riots of 1917 that overthrew the Tsar and helped bring the house to power. Interestingly, Russia could use its export reserves as a tool of influence. We have seen during this crisis that Russia has faced not only a Western alliance in support of Ukraine, but it has also faced many countries that are generally its allies. Some will be more sympathetic to its position either abstaining or voting against it in an international forum like the United Nations. So providing food to countries that are under pressure or where government growth could be destabilized would probably be a way for Russia to make friends and influence the people. (Dow D.)
Read more: Energy crisis and Energy Politics: Russia's monopoly
Some of the oil exporting countries can actually mobilize some of their financial resources to support some governments that will have to implement social protection networks to protect their populations, at least in the midst of this crisis and support also the WFP-World Food Program. When the price of food doubles, their budget does not automatically double. We need to help them. Here are some additional steps you can take to begin the process of preparation. We should let the export restriction or the export ban that may create a domino effect that will only aggravate the problem. The thing the world needs to know that India says it is also limiting its exports to fight inflation, Argentina is also a key player that in many cases due to social unrest at home and food inflation tend to put this export limit. It just makes the world market smaller and smaller and people start panicking and buying more and more. So, this is really a parallel situation as we saw in 2007-2008. Thus, try to show solidarity not only in terms of money but also in terms of commodities. (Labord D.)
It
is not clear what the importing countries can do to get food to the people at
reasonable prices without the cooperation and collaboration
of exporters and with international financial assistance. The European Union and the United States are already busy
dealing with the Ukraine crisis. The
United States will probably still keep a close eye on its Indo-Pacific strategy
and China's potential challenges. The measures David mentioned above would
require a pretty global multilateral response
to ensure that fertilizer is shipped around the world at a reasonable price. So, this is a coordination issue and something the
world has not been good at doing in the past, but we will see what happens when
this conflict goes on. Even if we get to the point where the real conflict in
Ukraine is about to end too quickly and move toward reducing its impact,
including on world markets, I would say for now that it is difficult to see
that happening. (Dow D.)
Patrick Mardini, the
President of the Lebanese Institute for Market Studies
David Labord, a Senior Research Fellow at the International Food Policy Research Institute, IFRI
Darma Dow, a Geopolitical Risk Consultant Specializing in Russia
Subscribe to our website and allow notifications for more in-depth articles.
0 Comments