Friday, March 25, 2022

The Impact of the Conflict in Ukraine on the Global Agrifood Ecosystem

It is becoming increasingly apparent that high levels of inflation are impacting the world's food commodities.  The United Nations Food Price Index which tracks the international prices of vegetable oils, meat, cereals, sugar and dairy products among others hit a record high in February 2022 according to the Food and Agriculture Organization, rising by 4 percent on a month-over-month basis and up 24.2 percent on a year-over-year basis as shown here


...and here:


Note that these food price increases took place prior to the current military adventures taking place in Ukraine.  The FAO notes that there are several factors behind the rise in food prices including concerns over crop conditions, adequate abilities to export food products, an increase in demand at the same time as there were supply-side issues.


The Russian invasion of Ukraine has the potential to significantly worsen the world's food production and price situation.  According to the FAO, at least 12 percent of the world's food calorie exports pass through the Black Sea region.  A recent report from the United Nations Conference on Trade and Development (UNCTAD) assess the impact of the military operations in Ukraine on trade and development given the fragile state of the global economy, particularly given the importance of both Russia and Ukraine to the world's food supply:


Together, the two nations represent the following share in key food items:



Here is a graphic showing the global dependance on agrifood commodities from Russia and Ukraine by nation:


Let's look at some of the world's most food-susceptible nations.  If we focus on the market for wheat in Africa, between 2018 and 2020, African nations important $3.7 billion in wheat (32 percent of total African wheat imports) from Russia and an additional $1.4 billion from Ukraine (12 percent of total African wheat imports).  As many as 25 African nations import more than one-third of their wheat from Russia and Ukraine and 15 of them import more than one-half of their wheat from Russia and Ukraine as shown on this graphic:


History has shown that civil unrest is often associated with food shortages and resultant increases in food prices.  Africa is definitely on the front lines of the food issues that will face the world if Ukraine delays or completely misses the planting of this season's crops.


It is also important to keep in mind that Russia is a major supplier of agricultural chemical products including fertilizer (the world's largest producer) and its component ingredients as well as other crop nutrients.  Over the past year, increases in fertilizer prices have already been partially responsible for much of the increase in food prices.  With Russia's Ministry of Industry and Trade recommending that fertilizer exports be halted, the negative impact on yield of the world's food supply and further increases in food prices is almost guaranteed.  

To show us how dire the food situation is across the globe, here is a summary of an analysis by the International Fund for Agricultural Development or IFAD showing the impact of price increases and other ripple effects of the Ukrainian conflict on some of the world's poorest communities:


1.) In Somalia, where an estimated 3.8 million people are already severely food insecure, the costs of electricity and transportation have spiked due to fuel price increases. This has a disproportionate impact on poor small-scale farmers and pastoralists who, in the face of erratic rainfall and an ongoing drought, rely on irrigation-fed agriculture powered by small diesel engines for their survival.

2.) In Egypt, prices of wheat and sunflower oil have escalated due to Egypt’s reliance on Russia and Ukraine for 85 percent of its wheat supply and 73 percent of its sunflower oil.

3.) In Lebanon, 22 percent of families are food insecure and food shortages or further price hikes will exacerbate an already desperate situation. The country imports up to 80 percent of its wheat from Russia and Ukraine, but can only store about one month’s worth of the crop at a time due to the blast in Beirut’s port in 2020 that destroyed the country’s major grain silos.

4.) Central Asian countries that rely on remittances sent home by migrant workers in Russia have been hit hard by the devaluation of the Russian ruble. In Kyrgyzstan, for example, remittances make up more than 31 percent of the GDP, the majority of which comes from Russia. Remittances are crucial for migrants’ families in rural areas to access food, education and other necessities.

Just in case you weren't aware, the World Bank's President David Malpass did warn people against hoarding food and gasoline because we can count on governments to be there to help us if we need it.  I wouldn't bet on it if I were you.


The impact of the military operations and resulting increased sanctions environment that has been enacted on Russia will most certainly not favour the sweaty masses who consume the world's food supplies.  Perhaps the self-appointed ruling class at the World Economic Forum will see its vision of the serf class surviving on a diet of insects and weeds come to fruition as more and more households in advanced economies find themselves unable to afford to eat, drive and heat their homes and are forced into a subsistence life style, something that Africans have long experienced.

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