IN October 1914 The Ottoman Empire, having just joined World War I, besieged the Dardanelles Strait, the only route for Russian wheat to Britain and France. The world went into conflict with 12% more wheat stocks than the five-year average, but the loss of 20% of the global trade supply of grain overnight has set the food market on fire. By one-fifth since June 1914, by international standards, wheat prices in Chicago rose another 45% in the following quarter.
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Today Russia and Ukraine, the largest and fifth largest wheat exporters, respectively, together account for 29% of international annual sales. And after several bad harvests, frantic purchases during epidemics and supply-chain problems, global stocks are 31% lower than the five-year average. But this time the fire is burning because of the threat of Western sanctions — and the flames are even greater than during the Great War. Wheat prices, which were already 49% higher than their 2017-21 average in mid-February, have risen another 30% since the Ukraine invasion began on 24 February. Uncertainty is skyrocketing: compiled by price volatility indicators IFPRIThere is a thought-tank, flashing bright red.
Rabobank, a Dutch lender, thinks wheat prices could rise another third. But the loss of global food supplies will extend beyond grain এবং and will be more lasting than war. Together Russia and Ukraine export 12% of the calories traded worldwide. They rank among the top five exporters of many oilseeds and food grains, from barley and corn to sunflowers, which are eaten by humans and animals. Russia alone is the largest supplier of essential fertilizers, without which the crop is wasted or loses nutrients.
In February, before the war began, the food-price index was compiled A Food and Agriculture Organization reached all-time highs; The number of people considered food-insecure, 800m, was the highest for a decade. Many more may join them soon. Higher food prices will also push up inflation, creating price pressures by more expensive energy.
The consequences of the war will be felt in three ways: disruption of current crop shipments, low or inaccessible future crops in Ukraine and Russia, and drying up of production in other parts of the world. Start with the invoice. Wheat and barley grains are normally harvested in summer and exported in autumn; Most of the ships are gone by February. But these are not normal times: with global stocks low, major importers of Black Sea wheat, mainly in the Middle East and North Africa, are anxious to secure more supplies. They are not getting them. Ports in Ukraine closed. Some have bombed. The internal route, north of Ukraine and then through Poland, is a very large diversion to be practical. Ships trying to collect grain from Russia after being hit by a missile in the Black Sea. Most cannot get insurance.
Alternative sources are impossible. Last week, Egypt canceled its second consecutive wheat tender after receiving only three offers – at a chilling price – less than 20 a fortnight ago. More to the point, corn exports, of which Ukraine accounts for about 13% of worldwide exports, usually occur through the spring to early summer. Most of this is usually shipped from the port of Odessa, which is ready for Russian attack.
Future harvest is a bigger concern. The war in Ukraine could result in lower yields and less land planting. Winter crops like wheat and barley, which are sown in October, may be small due to lack of fertilizers and pesticides. Spring crops such as maize and sunflower, which usually start planting too early, cannot be sown at all. Leonid Sentillo, whose farm in central Ukraine produces 7,000 tons of wheat a year, says local prices for diesel and plant-protection products have risen 50% in two weeks. Some of his workers have been sent to war.
The risk in Russia is not to reduce production but to block exports. Although food sales are still not banned, Western banks are reluctant to lend to traders. Fear of being fined by Western governments or embarrassed by its press is keeping traders away. Rabobank’s Michael Magdovitz says Ukraine is “invincible” but Russia is “untouchable”.
The most worrying will be the impact of the conflict on agriculture worldwide. The region is a major supplier of important fertilizers, including natural gas and potash. Due to rising fuel and transportation costs in 2021 and cracking down on opponents in 2021, due to sanctions imposed on Belarus, the world’s potash producer, fertilizer prices have already doubled or tripled, depending on the type. Since Russia, which accounts for 20% of global production, finds it difficult to export its own potash, prices are sure to rise further. As four-fifths of the world’s potash is traded internationally, the effects of rising prices will be felt in every agricultural region of the world, warns Humphrey Knight. CRUA suggestion.
As a result, much of the income will soon be spent on food (see chart). It will be felt most intensely in parts of the Middle East, Africa and Asia, where about 800 million people rely heavily on Black Sea wheat. This includes Turkey, which supplies flour to most of the southern Mediterranean. Egypt typically buys 70% of its wheat from Russia and Ukraine. Lebanon alone is responsible for half of wheat imports. With the exception of Ukrainian corn, soybeans and vegetable oils, many others can do very little.
Already higher fertilizer and energy costs will shrink farmers’ margins everywhere. Brazil, a huge meat and agricultural products producer, imports 46% of its potash from Russia or Belarus, says Cristiano Veloso of Brazilian startup Verde Agritech. Eventually some costs will go to consumers.
Protectionism can add fuel to the fire. Last year the national restrictions on fertilizer exports increased and that could be accelerated. Restrictions on food exports, or panic-buying by importers, could lead to price increases that led to riots in dozens of countries in 2007-08. On March 8 and 9, Russia and Ukraine banned wheat exports, respectively. Argentina, Hungary, Indonesia and Turkey have recently announced food-export bans.
There is no easy fix. Some 160 million tons of wheat used as animal feed each year could be removed for human consumption, but replacement could export inflation to other major components. Increased production in Europe and America and India’s huge strategic reserves could yield 10-15 million tons – a substantial amount, but less than one-third of the combined annual exports of Ukraine and Russia. Some may come from afar but there are obstacles: Australia’s bumper winter-wheat export efforts have blocked the supply chain between its farms and ports. With corn, governments could allocate 148 million tons of bioethanol feed used to fill a potential 35 million tons deficit this year. Fertilizer deficiencies are more difficult to fill: new potash mines take 5-10 years to build.
The war in Ukraine is already a tragedy. It comes down to a catastrophe as it destroys the world’s bread basket. 3
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This article is published in the Finance and Economics section of the print edition under the title “Grain Storm”