The Food and Agriculture Organization of the United Nations noted in February 2022 that its global food index hit an all-time high and averaged 140.7 points, up 5.3 points (3.9%) from January and as much as 24.1 points (20.7%) above its level a year ago. Vegetable oils were up 8.5% year over year, and meat and cereals prices correspondingly increased by 15.3% and 14.8%. One of the key reasons for increasing prices was rising production costs. Higher prices put poor households at risk in many developing and low-income countries. At the same time, food security remains an important issue for advanced economies. For instance, while 89.5% of the United States households had consistent, dependable access to enough food, the remaining 10.5% or 13.8 million households were food insecure [Sherman, 2022].
Russia’s invasion of Ukraine has significant implications on the global food market as both countries remain important suppliers of agricultural products. The war accelerated the growth in food prices, increasing existing risks. Despite Ukraine and Russia together accounting for a modest 2.2% of global goods trade, their roles in grain and energy markets remain significant. The World Food Program (WFP), the United Nations (UN) food aid agency, procures more than half of its wheat from Ukraine for more than 80 countries [Okonjo-Iweala, 2022].
The Ukrainian share of global exports of barley and wheat increased in 2021, to 14% and 10% respectively, while the corresponding shares of Russia grew to 12% and 18%. Russia and Ukraine jointly account for 57% of global sunflower oil exports. Between 35% and 40% of the EU’s sunflower oil comes from Ukraine. Many Eurasian countries depend on cereal imports from Russia and Ukraine. These include Armenia (92% of imports from the two countries), Georgia (85%), and Azerbaijan (77%). The UN expects that between 20% and 30% of land usually destined for cereals, maize, and sunflower seeds will not produce crops for next year’s harvest. According to estimates for different scenarios, Ukraine’s exports may decrease from 33% to almost two fold. 100%. For Russian exports, the three scenarios anticipate a reduction of shipments by 10%, 20%, and 30%. Risks are concentrated on export restrictions [Weil and Zachmann, 2022].
Currently, Russia and Ukraine’s exports account for about 12% of total calories traded in the world. The share of Russia in global trade in nitrogenous fertilizers and potash fertilizers correspondingly equals 15% and 17%. The European Union countries import 40% of natural gas from Russia, which remains an important feedstock for the production of nitrogenous fertilizers such as ammonia and urea. It is important to note that large areas of food production in Ukraine are under the control of Russian troops: between 25%-30% of maize and sunflower seed production, 10%-15% of barley production, and 20 to 25% of wheat production are in such oblasts [Glauber and Laborde, 2022]. According to the Ukrainian Agrarian Policy and Food Ministry, as of March 23, 2022, the projected area of the mainspring crop plantations within the Ukrainian-controlled territory was 5.990 thousand hectares, which was 1.689 thousand hectares lower compared to the same period last year. For instance, all categories of households have already sowed 22.5 thousand hectares with spring wheat (compared to the projected area of 157.4 thousand hectares), 74.8 thousand hectares with spring barley (1.036 thousand hectares), 2.2 thousand hectares with sunflowers (4.811 thousand hectares), and 2 thousand hectares with soybeans (1.041 thousand hectares) [Ukrinform, 2022].
The conflict-induced surge in wheat and corn prices will affect low and lower-middle-income countries as almost 80% of households in developing countries are net buyers of these products. Data shows that the average daily price of wheat was 53% higher during the first week of March compared to January, while the price of corn increased by 23%. Future contracts suggest that growth in prices for these products will vary from 24% to 40%. Higher prices will affect the well-being of consumers, while producers may benefit. Estimates show that average household welfare decreases in 43 countries out of 53 in the sample due to growth in prices. The average loss in household real income is -1.5%, while in countries like Armenia, Georgia, Kyrgyzstan, and Tajikistan, they can fall by more than 5% on average. Another implication of surging food prices is growth in inequality. The estimated welfare impacts of food price inflation are large as the war causes growth in prices for the broader range of products, including energy [Artuc et al. 2022].
Indeed, losses for developing or low-income countries will be significant. The WFP is spending $71 million a month on grain purchases, 44% more than the average monthly outlay in 2019. The war will worsen the situation, the needs will rise, and hunger will intensify in countries already suffering from a lack of food. The number of people, living under famine-like conditions worldwide, amounts to 44 million. Already, the WFP has had to reduce food rations to 8 million people and has repeatedly warned that half of Afghanistan’s population is “food insecure” with nearly 9 million people facing famine-like conditions. Therefore, possible export restrictions on wheat and flour from Kazakhstan, as a response to Russia’s export bans, may put Afghanistan at significant risk [O’Donnell, 2022].
Individual countries and regional organizations respond with different policy measures and strategies. In Central Asia, Uzbekistan’s response was one of the fastest. According to the government of Uzbekistan, 1 million 27 thousand hectares of land in the country have been given to wheat in 2022 for the stable supply of wheat and flour products that will help to provide 7 million 679 thousand tons of harvest. To guarantee the provision of sugar products to the population, 600 thousand tons of products are planned to be produced in the country in 2022. The Presidential Decree provides for the introduction of a customs duty rate of 20% of the value of white sugar and a 20% excise tax when importing sugar [UzReport, 2022].
The European Union proposed a comprehensive strategy to mitigate the consequences of the current food crisis. In particular, the EU Emergency Support Programme of €330 million for Ukraine will help to secure access to basic goods and services, as well as the protection of the population. A package of €500 million will support the producers most affected by the serious consequences of the war in Ukraine. In the 2021-27 program for international cooperation, the EU will work on developing the sustainability of food systems with about 70 partner countries. Earlier, at the Nutrition for Growth Summit in Tokyo in December 2021, the EU and its Member States committed to continue addressing malnutrition with a substantial pledge amounting to €4.3 billion [European Commission, 2022].
Therefore, the war in Ukraine will result in food shortages, higher prices, welfare losses, and political instability in food imports dependent countries. To solve the crisis, separated and individual efforts are not enough, and there is a need for broader international cooperation primarily to stop the war.
References:
Artuc, Erhan, Falcone, Guillermo, Porto, Guido, and Bob Rijkers (2022). War-induced food price inflation imperils the poor. Retrieved from https://voxeu.org/article/war-induced-food-price-inflation-imperils-poor. Accessed on 02.04.2022.
European Commission (2022). Commission acts for global food security and for supporting EU farmers and consumers. Retrieved from https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1963. Accessed on 01.04.2022.
Glauber, Joseph, and David Laborde (2022). How will Russia’s invasion of Ukraine affect global food security? Retrieved from https://www.ifpri.org/blog/how-will-russias-invasion-ukraine-affect-global-food-security#:~:text=Russia’s%20invasion%20of%20Ukraine%20will,enter%20a%20new%20planting%20season. Accessed on 01.04.2022.
O’Donnell, Lynne (2022). Afghanistan’s Hungry Will Pay the Price for Putin’s War. Retrieved from https://foreignpolicy.com/2022/04/01/afghanistan-food-insecurity-humanitarian-crisis-war/. Accessed on 02.04.2022.
Okonjo-Iweala, Ngozi (2022). The World Must Avoid Another Food Crisis. Retrieved from https://www.project-syndicate.org/commentary/ukraine-war-how-to-avoid-global-food-crisis-by-ngozi-okonjo-iweala-2022-03. Accessed on 28.03.2022.
Sherman, Erik (2022). Food Inflation Will Hit Millions Hard. Retrieved from https://www.forbes.com/sites/eriksherman/2022/03/29/food-inflation-will-hit-millions-hard/?sh=6a61886232d6. Accessed on 01.04.2022.
Ukrinform (2022). Sowing campaign launched in 11 regions of Ukraine. Retrieved from https://www.ukrinform.net/rubric-economy/3439930-sowing-campaign-launched-in-11-regions-of-ukraine.html. Accessed on 02.04.2022.
UzReport (2022). Uzbekistan increases food security measures. Retrieved from https://uzreport.news/economy/uzbekistan-increases-food-security-measures. Accessed on 01.04.2022.
Weil, Pauline, and Georg Zachmann (2022). The impact of the war in Ukraine on food security. Retrieved from https://www.bruegel.org/2022/03/the-impact-of-the-war-in-ukraine-on-food-security/. Accessed on 01.04.2022.
Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.