Russia’s Invasion of Ukraine Threatens Further Hikes in Food Prices

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Even before Russia invaded Ukraine, food prices were spiking around the world because of supply chain disruptions. A combination of always unpredictable nature, bad policy, and busted supply chains (also largely from policy decisions) hiked the cost of fertilizer for farmers. That threatened agricultural output even as pandemic-era economic disruptions impoverished many people. Now, war further threatens the cultivation of grain and the ability to put affordable meals on many tables. A year that already looked hungry may prove grimmer than expected.

“In a year when the world is already facing an unprecedented level of hunger, it’s just tragic to see hunger raising its head in what has long been the breadbasket of Europe,” David Beasley, executive director of the United Nations World Food Programme, commented last week. “The bullets and bombs in Ukraine could take the global hunger crisis to levels beyond anything we’ve seen before.”

The immediate crisis is for the residents of Ukraine, whose lives have been disrupted or destroyed by the invasion of their country. As of March 8, an estimated 2 million refugees had sought refuge in neighboring nations. The millions remaining face combat, privation, and the suspension of normal life. For the world beyond, one important concern is that normal life in Ukraine includes growing massive quantities of grain eaten or fed to livestock elsewhere.

Ukraine exports roughly 7 percent of the world’s wheat, according to MIT’s Observatory of Economic Complexity (other sources have slightly different percentages). The country’s farmers also produce 13 percent of all exported corn. Neighboring Russia, which invaded Ukraine and is now subject to economic sanctions as a result, exports 18 percent of the world’s wheat and about 2 percent of corn. Some grain might make it to the global marketplace despite the war, but sanctions, ruined crops, and threats to shipping will dramatically reduce the supply. 

Months before the war began, prices for chemicals needed for producing fertilizer had already soared, increasing the cost of raising crops. That was, in part, a result of international demand for natural gas, from which ammonia is sourced to produce nitrogen-rich urea. Disputes over trade policy helped create shortages of other fertilizer inputs.

“In addition to being one of the largest producers of wheat, Russia has enormous resources in terms of nutrients,” warns Svein Tore Holsether, president and CEO of fertilizer giant Yara International. “Plants need nitrogen, phosphate, and potash to grow.…In total, 25% of European supply of these three nutrients come from Russia.”

Russia recently cut the export of those nutrients to guarantee domestic supply and, probably, to retaliate against nations imposing economic sanctions. That means more trouble for fertilizer production and higher costs for farmers as well as the people they feed. Holsether had predicted a looming “food crisis” long before Russian tanks crossed Ukraine’s borders as result of fertilizer costs. Now, he adds that “a world with unstable food supply is a world with famine in parts of the world, increased mortality, armed conflict, migration, riots, and destabilized societies which can further accelerate geopolitical tensions.”

Once again, the world was already in bad shape when it came to affordable meals. The food price index, calculated from a basket of commodities by the U.N.’s Food and Agriculture Organization, was up in February by “24.1 points (20.7 percent) above its level a year ago. This represents a new all-time high.” Continued conflict can only hike prices further for fuel, grain, and the overall cost of keeping people fed. That’s certainly reflected in the commodities markets. Before Russia invaded Ukraine, wheat was priced between $8 and $9 per bushel; it’s currently close to $13 per bushel. Corn has seen a similar price jump.

This is all without even getting into the rising cost of energy as a result of the war and international sanctions on Russia, a major exporter of oil and natural gas. The Biden administration has now banned the import of Russian petroleum, though shippers and refiners were already shunning the stuff for fear of reputational risk and restrictions to come. Now we’re in for higher prices at the pump, but also for increases in the cost of food production and transport.

“Crude prices shot close to $140 a barrel, grain prices leapt and industrial metals rallied Monday as war in Ukraine and the West’s response threatened to hit supplies of commodities that underpin much of the world economy,” according to The Wall Street Journal. “The surge builds on weeks of gains for raw materials and stands to add to inflationary pressures ripping through the world economy.”

Unfortunately, this all comes after restrictive economic interventions intended to fight the pandemic reversed decades of declining poverty that resulted from free markets and open societies. “In 2021, the average incomes of people in the bottom 40 percent of the global income distribution are 6.7 percent lower than pre-pandemic projections, while those of people in the top 40 percent are down 2.8 percent,” the World Bank noted in October 2021. “Globally, three to four years of progress toward ending extreme poverty are estimated to have been lost” and lower-income people are especially vulnerable to rising food costs. Government actions are making the world poorer and hungrier, and there is no more destructive policy than war.

For prosperous countries, expensive food is worrisome and painful. But for developing countries, it can be absolutely catastrophic. “Concerns are growing across the Middle East and north Africa that the war in Ukraine will send prices of staple foods soaring as wheat supplies are hit, potentially fuelling unrest,” reports The Guardian. Many countries in that region rely heavily on supplies from Russia and Ukraine. They’ll turn to sellers in other agricultural countries, including the United States. But that means more buyers chasing reduced supply.

And, as the war drags on, Ukrainians may not even be able to plant the next year’s crop, extending disruptions into the future. Eventually, farmers elsewhere will adjust to meet demand, but that takes time since plants need to grow before they can be harvested.

There’s no easy solution to rising food prices and the hunger that will result, because there’s no easy solution to Russia’s invasion of Ukraine. Russian dictator Vladimir Putin found a very effective way of increasing the suffering of an already-troubled world, and seems to have left himself little in the way of an off-ramp (at least, one that he would consider acceptable). The world will eventually recover from this moment and, hopefully, return to its old path of growing prosperity. But the hunger and pain people endure between now and then will have been worsened by the ambitions of a brutal autocrat.

The post Russia's Invasion of Ukraine Threatens Further Hikes in Food Prices appeared first on Reason.com.

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