The world is facing a looming food crisis as the conflict between Russia and Ukraine, known as the breadbasket of Europe, disrupts exports and planting of new crops in the region, threatening supplies to some of the hungriest people on the planet.
However, the conflict is just the latest shock to the global food system, which has already been severely impacted by disruptions to supply chains due to the Covid-19 pandemic and mounting effects of climate change.
Now, this perfect storm of factors has cut commodity exports across the world, with some of the largest producers of key staples like cooking oil and grains banning foreign shipments to shore up supplies at home, triggering some of the steepest price increases since the global financial crisis in 2008.
Prices of wheat, the second most produced staple after corn, are forecast to increase more than 40%, reaching an all-time high in nominal terms this year, according to the World Bank’s Commodity Markets Outlook report published last week.
That will put huge pressure on some of the poorest and most food-deficit affected countries, alongside developing economies that rely on wheat imports from Russia and Ukraine, it said.
“Even before the Ukraine war that started in February, global agricultural production and supply chains were already under pressure due to the ongoing pandemic,” said Chen Zhigang, a professor at Zhejiang University and dean of the China Academy for Rural Development.
“Food prices have been rising since the first quarter of 2020, and the number of hungry people around the world is soaring,” said Chen.
In March, the Food Price Index issued by the Food and Agriculture Organization of the United Nations (FAO) leapt to the highest level since its inception in 1990 and was 33.6% higher than the same month last year as the war spread shocks through markets for grains and vegetable oils.
The scale of the impact on global food supplies from the conflict between Russia and Ukraine can’t be understated.
The two countries account for nearly 30% of global wheat exports, about 32% of barley shipments, and almost 70% of sunflower oil exports, according to the FAO.
‘Hunger Hotspots’
Adding to the desperation, many of the biggest importers of grains from Russia and Ukraine are among the least developed regions or low-income, food-deficit countries in the Middle East and North Africa, some of which are themselves embroiled in serious conflicts.
These include Libya, Yemen, Lebanon, Pakistan, and Tunisia, wrote Mario Lubetkin, assistant director-general of FAO, in an op-ed for the Rome-based Inter Press Service on April 27.
On the extreme end of the scale, poverty wracked countries like Eritrea rely 100% on Russia and Ukraine for its wheat, and Somalia, over 90%, according to the FAO.
Yemen, Somalia and Lebanon are listed among the acute food insecurity hotspots in the joint FAO-World Food Programme’s (WFP) February to May 2022 Outlook.
These so-called “hunger hotspots” are defined by the WFP as regions experiencing any manifestation of food deprivation that threatens lives or livelihoods regardless of the causes, context or duration.
Egypt, Turkey, Bangladesh, and Iran are the top global wheat importers, buying more than 60% of the grain from Russia and the Ukraine, according to the FAO.
“Commodity markets are experiencing one of the largest supply shocks in decades because of the war in Ukraine,” said Ayhan Kose, director of the World Bank’s Prospects Group, which produces the Commodity Markets Outlook.
“The resulting increase in food and energy prices is taking a significant human and economic toll—and it will likely stall progress in reducing poverty,” he said.
Outlook Grim The outlook for any resumption of exports from Ukraine doesn’t look promising.
Since the invasion, many of Ukraine's grain storage facilities and ports have been damaged or destroyed and Russia has suspended all commercial shipping in the Sea of Azov, the main route for exports from Ukraine.
Before the war, Ukraine exported about 5 million tons of grain per month, according to the country’s Agrarian and Food Minister Mykola Solsky. But with its seaports largely blocked, it exported only 200,000 tons in March, while it sits on about 20 million tons of old-crop grain that could not be shipped this spring, he said in an interview with Economichna Pravda in mid-April.
The war has also prevented farmers from starting spring planting in many key producing regions, as they can’t get the seeds, fertilizers and machinery, for which they have already paid, according APK-Inform, an agribusiness consulting agency covering the Commonwealth of Independent States.
Only 4.7 million hectares will be planted with spring grains in Ukraine in 2022, down 39% from last year, the firm estimated, while out of the 7.6 million hectares planted with winter wheat, rye and barley, only 5.5 million hectares could be available for harvesting.
Grain production may be the lowest in 15 years, and oilseed crops may be the lowest in 10 years, according to APK-Inform forecasts.
For what it’s worth, considering the Russian stranglehold on exports, Ukraine has banned overseas shipments of wheat, oats and other food staples in order to guarantee domestic supplies.
Overall, the shortfall from reduced supplies from Russia and Ukraine will be hard to replace for now, experts estimate.
While buying from alternative sources such as the EU and India will increase, FAO sees limited potential for other producing countries to replace the output levels of Russia and Ukraine to any significant extent.
“In the future, global commodity importers will become more dependent on South America and the U.S.,” said Wang Wei, chief agricultural analyst at Northeast Securities.
But that may not serve as a panacea in the short-term with crops in North America struggling.
Only 27% of the U.S. winter wheat was rated in good-to-excellent condition by the country’s Department of Agriculture last week, the lowest for this time of year since 1989, as drought persists in the Plains wheat belt.
、Climate Change
“The world now faces more adverse climate conditions compared with the last food crisis,” said Wang. More frequent extreme weather events, such as La Nina, have impacted crop yields, he said.
Increased heatwaves, droughts and floods have exposed millions of people to acute food and water insecurity, especially in Africa, Asia, Central and South America, on small islands and in the Arctic, according to a February statement by the United Nations’ Intergovernmental Panel on Climate Change.
Global agricultural productivity has slowed by about 21% since 1961 due to climate change and as much as 34% in warmer regions such as Africa and Latin America and the Caribbean, according to a study published in April last year in online journal Nature Climate Change.
With no end in sight to the hostilities between Russia and the Ukraine, governments across the globe are taking action in an effort to insulate their countries from the worst possible scenario whereby shortages of daily essentials are manifested in bare supermarket shelves and empty pantries in homes.
Egypt banned exports of wheat, flour, oil, rice, and pasta for three months in March and is offering incentives for farmers to produce wheat, after surging food prices sent inflation to the highest level since mid-2019.
Meanwhile, supermarkets across the U.K. are limiting how much cooking oil customers can buy and Indonesia shocked global markets by broadly banning exports of palm oil last week, cutting off supplies from the country that accounts for 60% of global production.
Palm oil is the most widely used vegetable oil in the world and is found in everything from shampoo, chocolate and instant noodles to bread, cookies and soap.
Export Bans ‘Counterproductive’
“Second-ranking Malaysia, with 25% of global market share, won’t likely be able to fill Indonesia’s gap, as it is still normalizing production as borders are reopening and laborers returning after pandemic restrictions,” said Trinh Nguyen, a nonresident scholar in the Asia Program at the Carnegie Endowment for International Peace, in an article on the group’s website last week.
However, despite seeking to shore up food supplies at home, export restrictions ultimately end up causing more harm than good, especially to the most vulnerable in “hunger hotspots.”
“The war in Ukraine has triggered an alarming global surge in government controls on the export of food,” said David Malpass, president of the World Bank Group, in an article published on the organization’s official blog site April 8.
In just a few weeks, the number of countries imposing food-export restrictions jumped by 25%, bringing the total number of countries to 35, he said.
“History shows that such restrictions are counterproductive in the most tragic ways,” said Malpass. “A decade ago, most notably, they exacerbated the global food crisis, driving up wheat prices by a whopping 30%.”
Indeed, it may take up to three to five years to repair the effects of this food crisis and it will take more effort than the last crisis a decade ago, said Cheng Guoqiang, a professor of agricultural economics and rural development at Renmin University in Beijing.
Knock-On Effects
The knock-on effects of the war are wide ranging and aren’t limited to halted exports and delayed planting. Production and trade in crude oil is expected to push energy prices up by more than 50% in 2022, and natural gas – a key ingredient in fertilizer – will more than double, according to the World Bank.
The global price of nitrogen fertilizer has surged 40% to 50% and phosphorus and potash fertilizers are up 30%, according to British commodity consultancy CRU.
Russian is also the world’s No. 1 exporter of nitrogen fertilizer and No. 2 for phosphorus and potassium plant nutrients. Many developing countries — including Mongolia, Honduras, Cameroon, Ghana, Senegal, Mexico and Guatemala — rely on Russia for at least a fifth of their imports, according to the International Fertilizer Association.
“Higher fertilizer prices will force farmers to skimp on nutrients for their crops, threatening to further reduce production of staples around the world,” said Renmin University's Cheng.
The fertilizer crunch is likely to affect crop yields in the second half of the year, with the impact first becoming evident in July and August, said Wu Xiaoming, a researcher at SDIC Anxin Futures Research Institute.
China Shores Up Supplies
So, it begs the question: How will China, the world’s most populous nation which is itself now struggling with the worst outbreak of Covid-19 since the beginning of the pandemic, be affected by the looming global food crisis?
The short answer, according to experts, is that the country has sufficient grain reserves and policy tools to ensure people won’t go hungry.
According to Zhang Hongyu, president of the China Agricultural Risk Management Research Association, there are three basic criteria for food security: at least 95% self-sufficiency in grain; annual per capita supply of grains amounting to 400 kilograms; and grain reserves equivalent to 18% of the current year’s forecast consumption.
“China has met all three,” said Zhang, who is also vice president of the China Rural Research Institute of Tsinghua University.
And while China is reliant on imports of some grains and oilseeds to meet demand, especially its exploding appetite for animal feed, it has been adept at finding alternative sources.
For example, while China was the largest importer of Ukrainian barley in 2020-21, the purchase of old-crop of supplies was completed prior to the outbreak of the war and Beijing has turned to Argentina, France and Australia to make up the expected deficit later in the year.
It’s a similar story for corn.
China’s 2021 corn imports almost tripled in volume from the previous year, hitting a new record, according to the General Administration of Customs, as buyers turned to cheaper alternatives overseas amid soaring prices, a domestic supply crunch and surge in animal feed demand over the past two years.
This was led by expansion of pig production as farmers – with government support - rebuilt their herds to levels seen before African swine fever decimated live hog herds in 2018.
Corn imports from Ukraine in March jumped 63.9% year-on-year despite the war and after those supplies were cut off, China snapped up large volumes of U.S. corn and turned to Myanmar for shipments in April.
China is also highly dependent on foreign edible oils and soybeans, which produce both oil for cooking and meal for animal feed. About 84% of China’s soybean consumption in 2021was met with imports, mostly from the U.S. ad Brazil, according to customs data.
Boosting Domestic Output
Soybean prices have climbed to above $17 near their highest in almost 10 years on the benchmark Chicago Board of Trade amid worries that a shortage of sunflower oil from Ukraine might boost demand for other vegetable oils and disruptions to shipping in the Black Sea.
Unsurprisingly, China has set boosting soybean and oilseed production as a priority for 2022 agricultural planning. As part of efforts to reach its grain production goals and ensure food security, China is encouraging “companion planting” of corn and soybeans, which means planting the two crops side by side.
However, with limited arable land, that means corn and soybeans are competing for planting area. As corn prices surged, many soybean farmers switched to planting corn, resulting in a 14.6% decline in soybean planting area and a 16.4% fall in production last year.
The strategy could boost total output by 20% to 30%, but the two crops require different planting cycles and maintenance, which may require double the labor input, said analyst Wang at Northeast Securities.