Let's start with a question: could the war in Ukraine cause a famine in Africa?
I know what many of you are thinking: Russia and Ukraine are over here on the eastern edge
of Europe while the countries of Africa are way down here on this large land mass.
But, the reality, VisualPolitik viewers, is that the war has turned the world upside down.
We have already told you in a lot of videos how it has caused chaos in the energy markets.
However, that is not the only consequence.
The war in Ukraine is also putting another very important market, the agricultural market,
on the ropes.
Think about it, it is very difficult to live without oil, without gas, or with the prices
of these hydrocarbons skyrocketing, but living without wheat or corn is not easier either.
In fact, for millions and millions of people, the lack of these foods could mean the difference
between eating or going hungry.
And you will probably say: OK, but... What do Russia and Ukraine have to do with all
this? Well, more than you might think. Basically, because we are talking about two of the largest
agricultural producers in the world.
I’m sure that many of you who are watching us from Europe, from the United States or
even from Latin America have noticed that food prices have gone up a lot during the
last year. Well, you already know what one of the main reasons is.
It's certainly been tough, but fortunately, in general, in most parts of the world we
are not starving. However, there is one part of the world where the same cannot be said:
sub-Saharan Africa.
We have told you many times here on VisualPolitik how in the world, and particularly in sub-Saharan
Africa, so much progress has been made in recent years that, for many people, famines
were doomed to be nothing more than bad chapters in the history books. And indeed, famine did
seem to be on the road to extinction.
The Russian and Ukrainian agricultural sectors have been key players in this. To give you
an idea, Ukraine produces enough food for 400 million people every year, many of them
in Sub-Saharan Africa.
But now the war has complicated everything. Grain exports from Ukraine and Russia are
no longer as large and frequent as they were before Putin launched his troops on his neighboring
country. And naturally, this has caused tension in agricultural markets to skyrocket.
And not just because Ukrainian Black Sea ports are constantly targeted by Russia or because
fighting has limited Ukraine's production, but because even sanctions on Russia now make
its exports much more difficult and more expensive.
The result? The likelihood of an uncontrolled food crisis has not been this high since the
1980s.
So, the question is: what initiatives are being promoted to avoid a catastrophic famine?
Why were Russia and Ukraine selling so much wheat to Africa?
And two other questions that may surprise you even more: What is Turkey's role in all
this story? Could Turkey succeed in preventing a worldwide famine? Today we are going to
answer these questions, but first let's look at a bit of history.
( TECHNOLOGY, PRODUCTION AND HARD WORK)
If you are faithful followers of VisualPolitik, you will remember that one of the things we
have repeated ad nauseam on this channel is that the number of people suffering from poverty
and going hungry has been plummeting around the world over the last few decades.
So far this century, extreme hunger has ceased to be commonplace. And that is mainly due
to one reason: technological advances.
And, remember that if I were to ask you which economic sector has developed the most in
recent decades, I’m pretty sure most of you would automatically think of industry,
IT or something like that. Am I wrong? I'm sure I'm not.
And in a way you are right... But do you know what? The evolution of the agricultural sector
is no less impressive. To give you an idea, at the beginning of the 20th century, in Europe
or in the United States, we could still find images like this one:
However, today the fields of the most developed countries increasingly resemble this:Exactly,
it is increasingly common to see how driverless tractors, irrigation robots, drones and many
other technological advances allow us to produce much more food every year. Not to mention
genetically modified foods. The truth is that, in the coming decades, we may see an enormous
growth in food production.
A leap that we already experienced a few decades ago. Between the 1960s and the 1980s, there
was a 180º turnaround in agricultural markets. Of course, I am talking about the so-called
Green Revolution.
The Green Revolution was nothing more than a gigantic increase in agricultural productivity
on a global scale. It began in Mexico and the United States at the end of the 1950s
with the wheat revolution, and gradually spread throughout the world. The increase in productivity
came about thanks to the use of new technologies, the planting of cereals resistant to the most
extreme climates and pests, and the use of synthetic fertilizers and pesticides. As a
result, countries in Latin America and throughout Asia, such as Mexico, Pakistan and India,
were able to multiply their production. Another well-known case was that of China,
a country where the green revolution, along with the pro-market reforms implemented by
Deng Xiaoping, succeeded in reducing famine levels to historic lows.
We could say that the Green Revolution left even the most faithful Malthusian trembling,
since it clearly proved that the increase in production is fully compatible with the
increase in population and that world hunger could be eradicated.
And not only that, it also confirmed another trend that is now more than evident: that
higher production does not mean more people working in agriculture.
In fact, as you can see, fewer and fewer people are working in the sector, and at the same
time, production is increasing.
However, wait a moment, because not all of the process was so successful.
Sub-Saharan Africa was the only region of the world that could not successfully join
the Green Revolution. Why? Well for several reasons.
The first and perhaps most important is that, while the rest of the countries were already
independent during the Green Revolution, many of the sub-Saharan African countries were
still struggling to free themselves.
And, when they did succeed, internal power struggles and corrupt governments began to
flourish, making it virtually impossible to develop infrastructure projects that would
allow production to be increased and then transported from one place to another. Of
course, investment and agricultural development need sufficient infrastructure to be able
to quickly export their production.
That’s not all though, for example, this same lack of infrastructure is also one of
the reasons why fertilizer use is so low in the region, because transportation costs are
much higher.
And if we add to all this the extreme climatic conditions in many areas of sub-Saharan Africa,
then we have the perfect cocktail to explain the underdevelopment of this sector in the
region.
This is precisely what explains, to a large extent, why subsistence agriculture is still
the order of the day here and why many of the countries in the region have to import
so much food.
And as the population keeps growing... Then the problem is clear. The demand for food
imports is increasing.
And of course, faced with such a scenario, the Ukrainian war has set that ticking time
bomb off.
VisualPolitik viewers, this is precisely the number one reason why the Ukrainian war has
become such a huge nightmare for the forgotten continent.
Listen up. (FINANCIAL INNOVATION AGAINST FAMINE)
Remember the anti-globalization activists? At the beginning of the 21st century we had
many people saying things like that financial globalization was going to completely destroy
the Third World and that the differences between rich and poor countries would increase catastrophically.
Well, nothing could be further from the truth.
In this video we have already told you how technological evolution has multiplied agricultural
production to the point of drastically reducing famines around the world.
But what we have not yet told you is how financial innovations have also helped to end hunger
in the world. We are talking specifically about the so-called "agricultural futures
market".
And you may be wondering, what are these markets? Well, basically, they are markets where you
can buy and sell, very easily, agricultural products, such as wheat or corn, without having
to move them all the time. They are instruments that allow you to guarantee your food supply
in the future. That is why they are called futures.
Of course, these markets are not strictly new, far from it. They have been with us much
longer than you might imagine.
To give you an idea, the first agricultural futures market was registered in the United
States, in 1848, in the Chicago Board of Trade. But it was not until the 1960s and 1970s that
we could speak of a truly global and totally open market in which to buy and sell agricultural
products.
As production could be sold in advance, investment in the sector increased and agricultural exports
soared. And so a new global market was born. Thanks
to it, developing countries that find it more difficult to produce their own food were able
to access a lot of new, much cheaper food. In other words, the countries of sub-Saharan
Africa that could not get on board with the Green Revolution were able to make up for
their production shortages by buying on the international market. And that contributed
decisively to reducing famines.
This does not mean that they have disappeared, for example, right now there is the dramatic
famine that Somalia is going through as a result of a severe ongoing drought, which
has already claimed more than 43,000 lives.
On the other hand, the dependence of these countries on wheat imports also makes them
more vulnerable to international market fluctuations. We saw this in the 2008 financial crisis,
which led to a food crisis, and we saw it again in 2020 with the Covid-19 crisis and
the collapse of supply chains.
But now the situation is even more dramatic. Take a look at the countries which are the
world's leading grain exporters: Exactly, VisualPolitik viewers, Russia is
the world's largest grain exporter and Ukraine the fifth largest. And we are not talking
only about grains, they are also huge exporters of many other products. Take the case of sunflower
oil, Ukraine had a 46% world market share of this staple before the war.
Their black soils, very rich in nutrients, along with reforms since the fall of the Soviet
Union, have led these two countries to increase their agricultural production to the point
of becoming the granaries of a large part of Europe and the world.
Without going any further, countries such as Benin, Tanzania and Congo import more than
70% of their grain from Russia.
Precisely for this reason, the all-out war that is now pitting Russia against Ukraine
has set off all the alarm bells. Prices have skyrocketed and food insecurity has once again
become a hot topic.
The question, then, is what is being done to avoid another humanitarian catastrophe
in sub-Saharan Africa? How is an attempt being made to tame prices? Well, let's take a look.
(AND TURKEY... WHAT'S IT DOING HERE?)
We have already told you that Ukraine was, and still is, one of the largest grain producers
in the world. Indeed, 72% of its entire rural population works in agriculture. But the war
has been devastating for this sector:
Between shelling, forced conscription and Russia's naval dominance in the Black Sea,
production costs have gone through the roof. In addition, it is estimated that 25% of all
Ukrainian households living on agriculture have suspended their activities.
However, it is not only Ukraine that has problems. Russia is not spared either. True, Western
countries did not impose sanctions against its agricultural sector, and in principle
they should have a much easier time exporting to the rest of the world, since they dominate
the Black Sea.
However, the sanctions are affecting them indirectly. Being excluded from international
payment systems, having their logistics sanctioned and insurers refusing to work with Russian
cargoes, their agricultural sector is suffering like the Ukrainian one.
Surely now you can better understand a graph like this one.
So in case you’re wondering, that’s why bread and baked goods were suddenly more expensive
when you went to the bakery…
Obviously, it's not just about bread... It's also about the bulk of the food basket. And,
of course, what may be an uncomfortable price increase in Europe or the United States, can
mean the difference between eating or starving in regions like sub-Saharan Africa.
And so, the international community began to call for changes to avoid a food catastrophe.
And do you know what? This is when our old friend, Turkey, enters the picture.
Turkey's role in this war between Ukraine and Russia has been ambivalent to say the
least: it has not sanctioned Russia, but neither has it supported it, as it is a member of
NATO. And the country has even supplied weapons to the Ukrainian army.
But beyond that, what is certain is that in general terms it has sought to play a certain
neutral role. Turkey has taken advantage of this conflict to make a move on the international
chessboard and try to win greater international sympathy by presenting itself as the mediator
between the two countries. And of course, being on the Black Sea and
in control of the Bosphorus Strait, Turkey has played a key role in trying to restore
grain exports from the Black Sea. In fact, together with the United Nations, it has been
the forerunner of a crucial initiative to reduce world grain prices: the Black Sea Grain
Initiative.
And what does this initiative consist of? Well, very simple: Russia does not bomb Ukrainian
ships carrying grain from the Black Sea; Ukraine enables three ports to carry out its exports,
Odessa, Chornomorsk and Yuzhne; and Turkey checks all vessels and cargoes in Istanbul
when Ukrainian ships enter and leave to prevent them, for example, from carrying weapons.
Sounds good, doesn't it? Well, you have to admit that the Initiative has been quite successful.
As you can see, both wheat and corn prices have been falling since the initiative was
signed. However, there have been moments of great uncertainty because at times Russia
has given the impression that it wants to break this agreement... This has caused prices
to rebound every now and then.
And the fact is that Moscow is playing with this initiative. They are trying to use it
to get some sanctions eased.
For example, when Putin signed his participation in July 2022, he did so for four months, and
in November, when he renewed it, he did the same, but just recently on 18 March 2023,
when he had to renew it, he did so for only 60 days. Why? Because he wants to tighten
the screws on Western countries.
And not only that. Russia wants to exploit this position intensively. Just look.
("If we finally decide not to extend the agreement within sixty days, we are ready to supply
from Russia free of charge to these countries all the volume sent during the last time to
the African countries in special need" – V. Putin (March 2023)
We can't be sure that this is going to be the case until Russia decides to withdraw
from the initiative, if it does pull out. But giving something away for free... I don't
know, it doesn't seem very Russian. They always want something in return.
We have already told you about Russia's strategy in Africa, and how the Russian mercenary group
Wagner, closely linked to the Kremlin, does not provide its services altruistically: gold
always comes first.
But even if it were willing to do so, it would be very difficult, if not impossible, to replace
Ukrainian production. This is why this Initiative is crucial for all parties: not only to lower
prices on international markets, but also to avoid a new food catastrophe in the most
vulnerable regions, as is precisely the case in sub-Saharan Africa.
The problem is that having Russia playing with the deadlines for extending its participation
not only generates great uncertainty in the markets, but also in the daily lives of hundreds
of millions of people. At the moment these are the expectations for 2023 in a market
that is already very pressured:
(The world cereal harvest will fall by 2.2 % in the 2022-2023 campaign, according to
the US. EFEAGRO)
So hold on, it’s going to be a bumpy road ahead. But at this point, the questions are
for you:
Do you think Russia will break its participation in the Grain Initiative? Will we see another
major food crisis again? What solutions do you think could be viable for alleviating
the situation? You can leave me your answer in the comments.
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