War in Ukraine will cripple global food markets
https://www.economist.com/finance-and-economics/2022/03/12/war-in-ukraine-will-cripple-global-food-markets?utm_medium=social-media.content.np&utm_source=twitter&utm_campaign=editorial-social&utm_content=discovery.content
In october 1914 the Ottoman Empire, having just joined the first world war, blockaded the Dardanelles Strait, the only route for Russian wheat to travel to Britain and France. The world had entered the conflict with wheat stocks 12% above the five-year average, but losing over 20% of the global traded supply of the crop overnight set food markets ablaze. Having risen by a fifth since June 1914, wheat prices in Chicago, the international benchmark, leapt by another 45% over the following quarter.
Today Russia and Ukraine, respectively the largest and fifth-largest wheat exporters, together account for 29% of international annual sales. And after several poor harvests, frantic buying during the pandemic and supply-chain issues since, global stocks are 31% below the five-year average. But this time it is the threat of embargoes from the West that has lit a bonfire—and the flames are higher than even during the Great War. Wheat prices, which were already 49% above their 2017-21 average in mid-February, have risen by another 30% since the invasion of Ukraine started on February 24th. Uncertainty is sky-high: indicators of price volatility compiled by ifpri, a think-tank, are flashing bright red.
The fallout from the war will be felt in three ways: disruption to current grain shipments, low or inaccessible future harvests in Ukraine and Russia, and withered production in other parts of the world. Start with shipments. In normal times wheat and barley crops are harvested in the summer and exported in the autumn; by February most ships are gone. But these are not normal times: with global stocks low, big importers of Black Sea wheat, chiefly in the Middle East and North Africa, are anxious to secure more supplies. They are not getting them. Ukrainian ports are shut. Some have been bombed. Inland routes, via the north of Ukraine and onwards through Poland, are too great a diversion to be practical. Vessels trying to pick up grain from Russia have been hit by missiles in the Black Sea. Most cannot get insurance.
Most alarming will be the conflict’s impact on agriculture worldwide. The region is a big supplier of critical fertiliser components, including natural gas and potash. Fertiliser prices had already doubled or tripled, depending on the type, even before the war, owing to rising energy and transport costs and sanctions imposed in 2021 on Belarus, which produces 18% of the world’s potash, as it cracked down on dissidents. As Russia, which accounts for 20% of global output, finds it harder to export its own potash, prices are sure to rise further. Since four-fifths of the world’s potash is traded internationally, the impact of price spikes will be felt in every agricultural region in the world, warns Humphrey Knight of cru, a consultancy.
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Honestly, this is a bigger problem than the oil prices. Especially for countries in Africa that have to subsidise their peoples' food.
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