Food prices in the US soared to record heights in
February 2022.
Global food prices also followed suit, posting a
20.7% increase compared to last year.
Highest prices we've seen since probably for the last
ten years. Stock levels, lowest levels since, in some
cases 2007,2008.
It's particularly severe because we are just coming
out of a recovery from a two year, two and a half
year pandemic that had severe implications on the
price of goods and services, as well as the
price of commodities.
Coming right out of that kind of historic
disturbance of the world.
Boom were hit with a really huge geopolitical event.
The war in Ukraine is putting a massive strain on
the global food supply.
The chief of UN World Food Program warned that a
potential global food crisis might be on the
horizon on a scale not seen since World War Two.
Some estimates place the total caloric value
of the food exports from the Ukraine and Russia at
around 12% of the globe's total calories.
The Ukrainians can't plant right now and can't get
their wheat in the ground.
It does mean that the 2022 planting season will not
yield much if they get some in or the size harvest that
the world is anticipating.
This is going to be another major test of the food
supply system.
We will have to watch very carefully what's happening
in other parts of the world and consider ways to
reduce risks of food shortages and conflict.
This is going to be very challenging.
So how exactly does the conflict in Ukraine pose a
threat to the global food supply, and can anything be
done to stop it?
Russia and Ukraine are agricultural giants that
provide a pivotal role in the global food supply.
In 2021, Russia exported $37.3 billion worth of
agricultural products to the rest of the world, while
Ukraine exported more than 27 billion.
They regained their role as one of the primary bread
baskets of the world.
They're not only large in wheat, but also in things
like corn, where they account for some 20-25% of
corn exported in the world.
Sunflower oil, where the two countries account for
almost 75%.
So a lot of nations depend on exports from those two
countries.
But the Russian invasion has had a drastic impact on
Ukraine's agricultural exports.
The country banned exports of several grains, sugar,
salt and meat in early March.
The blockade of the country's port has also
halted the shipment of existing grains.
As a result, Ukrainian grain exports in March were
four times less compared to the levels in February.
To ship 9% of the world's grains.
When you don't have a seaport is quite difficult.
Now there's some talk about shipping on trains or on
land, but it's not a substitute for the massive
kinds of shipping that was existing before.
There's also the question of whether Ukraine could
maintain its agricultural productivity, given its
current predicament.
It's a really topsy turvy, uncertain situation.
Maybe in the far western part of Ukraine.
The security system is pretty good, but are they
going to have the availability of diesel fuel
to get the tillage and the planting done?
And we also know a lot of farmers are probably joined
the Ukrainian military so there could be labor
shortages.
While Russia has yet to impose a wide export ban on
agricultural goods.
Its involvement in Ukraine has put a massive strain on
the cost of fertilizers.
Prices for raw materials like ammonia, nitrogen
nitrate, phosphate, potash and sulfate saw a 30%
increase compared to the start of 2022.
Russia and Belarus are big exporters of
fertilizers in the world, and fertilizer prices have
been very high.
Natural gas prices have been very high, and natural
gas is a feedstock for nitrogen based fertilizers.
In early March, the Russian ministry recommended the
country's fertilizer producers temporarily halt
any exports.
If the price of fertilizer goes up.
You know, that might be a relatively small price in
terms of input costs that might get transferred to
consumers. But if less fertilizer is produced and
less fertilizer is applied to crops, we might have
lower yields. And so that could affect total global
supply of important food commodities.
The global food supply was already in a fragile state
before the crisis in Ukraine due to global
warming as well as supply chain disruptions caused by
the pandemic.
You've got to realize that even prior to the invasion,
global food stocks were tight.
That is, we have run down levels over the last couple
of years, part of that due to the pandemic, but some of
it due to the fact that we had weather issues.
We had a drought in the North America that affected
the wheat crop last year in Canada and parts of the US.
We're just coming out of a drought in South America
which is adversely affected, the Brazil soybean
crop and Brazil's the largest soybean exporter in
the world.
Coming right out of that kind of historic
disturbance of the world, boom were hit with a really
huge geopolitical event.
In response, food costs have climbed to its highest level
in nearly two years, while prices for commodities like
wheat and corn have reached the highest it's been in a
decade. The US Department of Agriculture predicts that
food at home prices will see an increase of up to 4%
by the end of 2022.
The United States is already experiencing very high
inflation on food and energy prices.
There is no question that the war in Ukraine will
accelerate the increase in prices in both commodities.
That is food, the bread you buy in your grocery store,
the gasoline that you have to put in your car or truck.
The United States is a net exporter of a lot of the
grains that we're talking about.
Those exports are still are affected by world prices.
So we're still going to see increased prices.
And again, energy prices are world prices as well,
and those are going up.
As consumers,when there's a really large increase in
energy prices, consumers are going to definitely see
that in their prices because that affects every
stage of the supply chain.
While prices might rise, experts reassure that a food
shortage is unlikely to occur in the United States.
The US does import very much from from Ukraine a little
bit of sunflower oil, but we grow a lot of soybeans
and other so called oilseeds that we're able to
get vegetable oil. So the lack of vegetable oil from
Ukraine itself is doesn't have much impact on on us
consumers.
I can say with some real confidence that in the
United States, the average consumer is not going to see
a shortage of bread.
We may see some shelves that are empty for
various kinds of food products like we have as we
recover from the pandemic.
While richer countries have the resources to offset the
shortage caused by the crisis in Ukraine, a strain
on the global food supply could still hurt
marginalized populations, as well as developing
countries that are forced to rely heavily on imported
food.
I do have concerns moving forward of what will happen
to households that are particularly vulnerable and
particularly impacted by inflation.
And I am concerned about countries that may
additionally have certain frictions to global trade.
There are certain countries that may be traded with
Russia and Ukraine and don't have trade relations
with other parts of the world where they might get
these products. We could really see a lot of people
suffering here in the near future.
A global food crisis could also potentially lead to
more conflicts around the world.
For instance, the Arab Spring is thought to be
fueled by anger surrounding the rise in food prices.
Egypt, Yemen, Indonesia, Bangladesh, Ethiopia and
Lebanon, Libya, Pakistan and Iraq.
So those are the main importers of wheat.
Of course there are then others that get some from
Russia and some from Ukraine.
But just think about the size of these countries and
many of these places.
Yemen is in an ongoing conflict.
Bangladesh is on the edge because of all of the
refugees coming in from Myanmar.
Ethiopia is in a war with its province, Tigray.
Lebanon is in an extreme state because of the crisis
that it had over a year ago.
Just think about all these places around the world that
could blow up.
There are several ways to mitigate a potential
fallout. Shortly after the invasion, countries like
Hungary, Serbia banned exports of certain
agricultural products to protect their food supply.
Experts say such protectionist measures will
only have negative consequences.
It might be a good short term solution for that
country in the sense that it keeps wheat prices lower
in the country. But by not exporting, that means prices
in the rest of the world are going to be even higher.
And unfortunately, with things like export
restrictions, they tend to be very contagious.
We economists call this as a beggar thy neighbor type of
contagion. So if one country does that, then the
next country will get scared.
They'll do it. And all of a sudden you've made a
very difficult situation even more difficult.
The best advice is do no harm.
That is, don't create additional restrictions.
Don't put on export restrictions in other things
that can further hamper supplies to the market.
It's also important for other major producers to
grow and export more food to help fill the gap left by
Ukraine and Russia.
There are some things that markets do very well, and
part of that is increasing those incentives for farmers
and producers to produce goods that maybe there's
some shock to supply in another part of the world.
The European Union has already announced that
they're going to try to take some measures to
release what they call some of their set aside acres,
make it eligible for production this summer.
There's been a big controversy about doing
something similar here in the United States with
what's called conservation reserve program makers.
I don't think there's probably much we can do
given the late date relative to planting here
for spring planted crops.
But there's a possibility of maybe making some of
those acres available for winter wheat production next
fall.
Some policies might also need a reassessment.
Given the current situation.
I think it's time to really give a hard look at things
like biofuel policies.
In the US, some 42% of our soybean oil goes to
biodiesel production.
You know, this is a time when vegetable oil prices
of which soybean oil is one, are hitting record high
levels. So I think an argument could be said, why
should we be putting 40% of our soybean oil into into
biodiesel?
But as always, the most effective solution might be
in prevention.
Do as much as we can to encourage the
development of agriculture within
these poor, consuming countries.
That's probably long term the most important thing
that we can do.
What I worry about every day is that this common
knowledge that, oh, we will not suffer because the world
has enough food is maybe coming under question.
If this war goes on for a long time, or we strain the
supplies and that the less developed world which has
fewer resources, let so many people squander
this opportunity.
And I'm just hoping that the world's development
community uses this as a wake up call to do more.