Ukraine War Pushing Food Prices Even Higher
The world is feeling the effects of the war in Ukraine from the gas pump all the way to the dinner table.
Food prices are climbing just about everywhere, raising the risk of civil unrest, especially in countries dependent on imported wheat from Russia and Ukraine. That includes much of the Middle East and North Africa.
Experts say the food price increases are happening at an especially bad time.
“It’s kind of a perfect storm,” said Cornell University economics professor Chris Barrett. “It’s not just a matter of, food prices are going high. It’s food prices are going high at a moment when many places are already crippled by the challenges posed by COVID, by political disruptions elsewhere, by droughts and floods and other natural disasters.”
“And there’s only so much that people can take before they grow displeased with their political leadership if it’s failing to take care of them,” he added. “So, unrest is, unfortunately, increasingly likely right now.”
Conflict worsens inflation
Russia is the world’s leading wheat exporter. Ukraine is number five. Together, they grow up to a third of the world’s wheat exports.
But when war broke out, the Black Sea became a combat zone. Some cargo ships took fire. It didn’t take sanctions to cut off exports.
“There wasn’t a ban on grain trade, but in effect the ports were closed. And so shipment has stopped,” said Texas A&M University economist Mark Welch.
“Countries that import from Ukraine and Russia have suddenly found their contracts canceled and they’re not getting food shipments they were expecting, which forces them into the market to pay a premium to replace food shipments that just aren’t going to arrive,” Barrett said. “And that bids up the price of food around the world.”
But food prices have been rising for almost two years.
Bad weather cut harvests in some of the world’s breadbaskets. Reserves are low.
That’s helped push prices to record highs even before the conflict started.
“We’ve tipped over that edge where every change, every little thing, has a very large impact,” University of Illinois economist Joe Janzen said.
More problems coming
Now, Ukraine’s next harvest is in doubt. Farmers should be getting ready for the next growing season. But that’s hard to do right now.
“Logistical lines are obviously heavily disrupted right now,” Barrett said. “Seeds aren’t arriving. Fuel isn’t arriving. Fertilizer isn’t arriving.”
Russia’s farmers are getting hit, too. They’re not under sanctions. But Russia’s banks are. That basically shuts Russian farmers out of the financial system.
“We’re not going to say, ‘You can’t ship grain,'” Welch said. “But will they ship it if they can’t get paid?”
Then there’s the sharp increase in energy prices that makes shipping everything more expensive.
Also, natural gas is a main ingredient in fertilizers commonly used to boost grain yields. So fertilizer costs more to make.
“Fertilizer prices last year were already quite high. They had come down somewhat in the last few months and now are very high again,” Janzen said, “in part because Russia and its ally Belarus are major fertilizer exporters.”
And Russia and Belarus are both under sanctions for the Ukraine invasion.
But those are problems for the next crop. People in parts of the Middle East and North Africa are feeling the effects now.
“Yemen is a good case in point,” Barrett said. “There’s not a lot of wheat being grown in Yemen. They depend entirely upon wheat imports, and that requires transportation to get there.”
“The spike in global wheat prices plus the spike in global oil prices mean that prices for flour and for bread products in Yemen are already increasing significantly in a place where people really can’t afford to face an even higher cost of feeding their family basic daily rations,” he added.
In 2011, rising bread prices were one of the factors that set off the Arab Spring protests. When people already have grievances with their government, food inflation can tip them over the edge. A lot of places fit that description, according to U.N. World Food Program Chief Economist Arif Husain.
“If you look at Yemen, if you look at Lebanon, if you look at Syria, if you look at South Sudan, if you look at Ethiopia, and I can keep going,” Husain said in an interview with The Associated Press. “These countries are already in trouble because of conflicts.”
On the plus side, spring planting hasn’t started yet in some big wheat-growing countries. Farmers will probably switch some land where they planned to grow corn or soybeans to planting wheat. That should eventually bring the price down.
“That seems to be the main way that these crises are inevitably resolved is by production somewhere else in the world responding,” Janzen said. “We are fortunate that we have a global food system. We have the ability to produce and consume commodities like wheat all around the world.”
It will be months before the markets have a sense of how big the new crop will be, however. Those will be nail-biting months of watching the weather. Experts say, be ready for a wild ride.