Ukraine War and the Global Food Crisis – Explained, pointwise

Introduction

Russia’s invasion of Ukraine and the subsequent sanctions on its economy have sent global food prices soaring. This has threatened to push millions of people, especially those in low-income countries, into starvation. Ukraine and its allies in the West have accused Russia of weaponizing food, saying that its blockade of Ukraine’s Black Sea ports is the primary reason for the rising prices. Russia has blamed Western sanctions for the global food crisis. The war has raged on for the 4th month now and no political solution seems to be imminent. The United Nations and Turkey have initiated talks with the Russian leadership to facilitate the exports of grains and fertilizers from Russia and Ukraine.

What is the severity of the current Global Food Crisis?

As of June 1, 2022, the Agricultural Price Index was 40% higher compared to January 2021, according to the World Bank. Maize and wheat prices rose 42% and 60%, respectively, from the levels of January 2021. The Food Price Index of FAO has reached its highest level since it was started in 1990.

Source: The Times of India. Food Price Index has risen from 95.2 in 2018 to 158 in 2022.

Almost all economies in the world have been hit by higher food prices. Across the western world, there’s a cost-of-living crisis with food and energy prices at record high. In the U.K., inflation numbers have already hit a 40-year high.

Almost 90% of emerging markets and developing economies experienced food price inflation greater than 5% this year. In India, the Consumer Price Index has risen by 10.5% since January 2020, leaving consumers facing much higher prices for essential food staples. 

Many Low-income countries have been hit the hardest because they are reliant on imports for basic food consumption. According to the UN World Food Programme (WFP), Ethiopia, Nigeria, South Sudan and Yemen remain at ‘highest alert’ as hotspots with ‘catastrophic conditions’.

The World Food Programme estimates that the number of severely food insecure people was 276 million at the start of 2022. The number is feared to increase to 323 million by the end of 2022.

The war has set in a vicious cycle: Higher inflation has led to higher cost of living. This has wiped out people’s real income and they are unable to adjust to rising costs. The Russia Ukraine conflict threatens to tip tens of millions of people over the edge into food insecurity, followed by malnutrition, mass hunger and famine.

How important are Russia and Ukraine for global food security?

Wheat

Russia and Ukraine together account for more than 25% of the world’s wheat supplies. According to the U.S. Food and Drug Administration’s Foreign Agricultural Service (FAS), Russia’s share in the global exports of wheat is ~20%. Ukraine accounts for another 8%.

According to the FAO, about 50 countries depend on Russia and Ukraine for more than 30% of their wheat imports. Azerbaijan and Georgia source more than 80% of their imported wheat from Russia and Ukraine. Turkey, Egypt, Bangladesh and Lebanon meet over 60% of their imports from these two countries. 

Corn and Sunflower

Besides wheat, Ukraine is the world’s eighth largest producer and fourth largest exporter of corn, accounting for 16% of global exports. 

Furthermore, Ukraine produces up to 46% of sunflower-seed and safflower oil. It is the world’s largest exporter of sunflower oil. India has been particularly hit by shortage in sunflower seed oil. It imported nearly $8 billion worth of the oil from Ukraine between 2016 and 2020.

Fertilizers

Russia is also a leading exporter of fertilizer, an essential commodity for food production. Russia and its ally Belarus together account for some 38% of potassic fertilizers, 17% of compound fertilizers, and 15% of nitrogenous fertilizers.

Source: The Times of India

What are the reasons behind the Global Food Crisis?

Pre-Russia Ukraine Conflict Factors

First, climate change has impacted the production of various food crops especially due to the changes in the regular rainfall pattern and rising temperatures.

Second, Covid 19 pandemic induced the countries to announce lockdown measures in their regions that disrupted the supply chain and raised the prices of food items.

Post-Russia Ukraine Conflict Factors

First, Ukraine is unable to export because of the Russian invasion of key port cities. In the eight months before the war, some 51 million tonnes of grain were exported through Ukraine’s Black Sea ports, according to the WFP. But exports have collapsed since the invasion as the Russian war effort is entirely focused on Ukraine’s eastern and southern parts along the Black Sea/Sea of Azov coast. 

Even in cities which are under control of Ukraine (like Odessa), commercial ships are unable to dock there because of two reasons: (a) Ukraine has mined the waters around these ports as a deterrent against potential Russian attacks; (b) Russia has enforced a naval blockade in the waters of the Black Sea.

Second, besides the blockade, the western sanctions on Russia are also contributing to the crisis. Russia’s food and fertilizer sectors were not directly targeted by western sanctions. However, the sanctions on financial sector made payments difficult for Russia, and it has complicated its exports, including food grains. Also, the targeted sanctions on Russian oligarchs have choked finances for the agricultural industry.

What options are available with Ukraine to resume its exports?

The current Global Food Crisis can be dampened to an extent if exports can be resumed on an immediate basis.

One option is to transfer the grains overland to the Baltic states, either through Poland or Belarus, and then ship them out from the Baltic Sea ports. However, according to UN officials, Ukraine has dismissed the proposal to seek help from Belarus. Belarus is a Russian ally that is also facing western sanctions.

Further, moving them overland via Poland is challenging because the rail track gauge in Poland is smaller than that of former Soviet countries such as Ukraine and the Baltic states. This means cargoes will have to be moved to different trains at the Polish-Ukraine border and then again at the Polish-Lithuania border to start exporting them from the Baltic ports.

Second option is to broker a deal with Russia and remove the blockade on Ukrainian ports. This seems a more practical solution.

What lies ahead?

First, the month of June marks the beginning of a harvesting season in Ukraine. This season, Ukraine is expected to produce ~30 million tonnes of corn, wheat and sunflower oil, half of which are meant to be exported. But unless the blockade is lifted and Ukraine starts exports, the country would not even find enough warehousing capacity to store this year’s harvest. This would make the global food crisis worse.

Second, rising prices for basic food items have already fueled protests in several countries, including Argentina, Indonesia and Greece. In Iran, protestors took to the streets after prices for flour-based staples rose as much as 300%. This makes it imperative to curb export restrictions or be prepared for more chaos and discontent that in extreme situations may take the form of a civil war.

Third, the only practical solution to take Ukrainian grains to the global markets is to open the Black Sea routes. Further, to ease the pressure on global food items, Russia will also have to step up exports of both grains and fertilizers. For this, it is imperative to stop with war as early as possible. 

Fourth, the countries must try to import from alternative suppliers until a peace agreement is reached between Russia and Western nations. For instance, Egypt recently made a deal with India to help replace some of the 80% of its wheat imports which come from Russia and Ukraine.

Fifth, there is high possibility of rise in ban on exports of key food items by producing/exporting countries to stabilize food prices in their own domestic jurisdiction. For instance, in May, India’s ban on wheat exports delivered a blow to world markets. Such actions will further exacerbate the global food crisis.

Conclusion

According to the estimates of the World Bank, Global food, fuel and fertilizer prices are projected to be sharply higher this year and will remain elevated till 2024. The current global food crisis would result in widespread hunger and starvation which can become a humanitarian crisis. Therefore in the interest of humanity and world prosperity, the West and Russia must find a diplomatic solution to the ongoing war.

Source: The Hindu, Times of India, Down to Earth