by Emma J Devereux
Citation: Devereux, E.J.,(2022), “The Russian Invasion of Ukraine: Impact on Global Wheat Trade, Food Prices & Food Security”, EcoFoodDev, https://www.ecofooddev.com/the-russian-invasion-of-ukraine-impact-on-global-wheat-trade-food-prices-food-security/
As snowflakes fell in Ireland this morning, I could not help but see a type of poetry when considering what occurred on Europe’s eastern borders in the early hours of February 24th, 2022. This post is more hastily put together than usual, due to the invasion of Ukraine which began in the early hours of this morning. As Russia invades Ukraine, and the potential of war looms in Europe, many people, places, and commodities are at risk. One is the global and European wheat supply and the knock-on effects of war that will be felt on oil and food prices. We cannot dispute the economic importance of wheat, and its place in human and livestock diet. As highlighted in previous posts, wheat is the third most important global crop after rice and maize and is one of the most widely cultivated crops in the world. Hence, wheat production is not only sensitive to changes in funding and research, but to climate stress and of course, geopolitical upheaval.
Ukraine is one of the top ten wheat producers in the world, who altogether contribute up to 70% of the global wheat supply. Ukraine has been a relatively stable supplier of global wheat, alongside the Russian Federation and Australia. Ukraine was the breadbasket of Europe and the Russian Empire for centuries but suffered unimaginable famine and death under Collectivization during the Stalinist Period. This was the Holodomor, or Great Famine.
Today, Ukraine is the breadbasket of Europe, North Africa, and the Middle East again. Ukraine is also a major producer of oils, such as sunflower oil. In 2009, when I travelled from Kyiv to the then autonomous region of Crimea, my overnight train cut through the endless steppe, with sunflowers stretching from either side of the train to the horizon in every direction. Some of the most agriculturally productive regions of Ukraine are located in its East (Kharkiv, Kherson, Zaporizhia for example, west of Donetsk and Luhansk), with their fertile black soil- the area that is now under attack from Russia. This has potentially far-reaching consequences on food security around the globe.
In 2020, Ukraine exported ~18 million metric tonnes of wheat, making it the world’s fifth-largest exporter (Smith, 2022). Russia is the world’s largest wheat exporter, and S & P Global projects Russia’s 2022 wheat export at 36.6 million metric tonnes (Nandy, 2022).
S & P Global reports that Ukraine wheat exports have remained steady up to February 21st and were even up 34% on the year, but that export prices of wheat have dropped roughly 4% in the past month in response to Russian tensions. Demand will be impacted by the current situation as shipping wheat from the Black Sea Region will become impossible due to the seizing of ports by Russia. This will lead to a demand for wheat from elsewhere, such as Australia (Nandy, 2022).
Russian assets
Russia holds huge stocks of natural commodities. They supply the globe with oil and gas and are themselves a large agricultural producer. However, they aren’t a huge player in the global economy, and primarily trade in oil and gas. Hence, conflict in Ukraine and sanctions on Russia will lead to huge increases in the price of oil, and hence the price of moving goods around the world, including food, and food-related products such as packaging materials. Hence, the cost of living will increase in every sphere, from the food you buy, to getting to the supermarket, to getting deliveries, etc. In addition, economic output and activity will slow.
Russia was not always the world’s largest wheat producer. In the 1980s, the USSR imported over 60% of its wheat from the USA. However Russia has become a major player in the global wheat trade, due in part to the devaluation of the rouble, and since 2001, global wheat exports from Russia increased from 1% to 26.4%. Russian farmers have become part of the global agricultural economy.
Developing World
Ukrainian wheat plays a vital role in the diet of developing countries, particularly in the Middle East and North Africa. Half of the 2020 Lebanese wheat supply consisted of Ukrainian wheat, and disruption in that supply will have critical consequences (Smith, 2022). Various developing nations that are already in the throes of a food security crisis are dependent on Ukrainian wheat, and hence geopolitical disturbances pose potentially catastrophic threats. Yemen, Malaysia, Indonesia, and Bangladesh import over 20% of their wheat from Ukraine. Libya imports 43%, and Egypt and Turkey see over 70% of their grain come from Ukraine. These Russian attacks will lead to a sharp decline in Ukrainian wheat production and supply (hence economic slow-down) as land is destroyed, farmers flee, and logistics are incapacitated, and ultimately will have huge food security implications for these nations’ who are dependent on Ukrainian wheat and wheat products.
Global food prices will rise sharply in the face of a tightening market, as will inflation. Such food price hikes, especially in countries such as Yemen, will lead to even more dire food insecurity situations (Smith, 2022). Food insecurity commonly precipitates civil unrest, uprisings, the emergence of extremist groups (such as Al-Qaeda and IS), refugee crises, migration, and famine. Such a disturbance following two years of global supply chain bottlenecks due to COVID-19 will push these countries to breaking point and beyond. It is the poorest people who suffer the greatest from these oil price spikes, as most of their income is spent on food and heating, the two areas most impacted by the Russian attack on Ukraine and retaliatory sanctions.
As of this morning, stock markets across the world have plunged in reaction to sanctions imposed on Russia and as a response to Russian military action in Ukraine, and oil prices have soared. However, hikes in prices of commodities such as oil and gas were being seen prior to February 24th.
Global wheat supply is vital for everyone. The current geopolitical upheaval in Ukraine, the actions of Russia, and the sanctions placed on Russia will lead to shortages in bread flour and basic, essential foodstuffs. Perhaps not now, but certainly by September. We have also suffered from poor growing seasons in the northern hemisphere over the past few years due to environmental variation. We are also facing increased pestilence resistance in northern European crops, and huge price hikes in input costs such as fertiliser. Milling companies such as General Mills have already warned of acute supply shortages on its dough and pizza products, and the Kellogg CEO warned of pressure on their company due to wheat inflation (Bomey, 2022).
Fodder corn is also important in the global food supply, and the risk is not isolated to milling flour alone. Ukraine exports corn for livestock feed, especially for chicken and pig farms across Europe, which will further destabilize European and global food security. Wheat prices are already at a record high, and Russian war and invasion will further drive the cost of farming up. Coupled with the rising cost of fertiliser this poses a devastating threat on multiple fronts to global farming and food production. It is essential that governments recognise this and act to protect our food supply chain, and those of nations already in great need.
Cover image: https://www.agweb.com/markets/world-markets/ukraine-russia-tensions-what-it-could-mean-agriculture
References
Bomey, N., 2022, “Russia’s invasion of Ukraine puts wheat supplies at risk”, Axios, https://www.axios.com/russia-ukraine-wheat-supplies-25ada311-cc08-4418-bdd2-d1b61ffe3cf8.html Accessed: 22.02.2022
Cohen, P., & Ewing, J., 2022, “What’s at Stake for the Global Economy as Conflict Looms in Ukraine”, The New York Times, https://www.nytimes.com/2022/02/21/business/economy/ukraine-russia-economy.html Accessed: 22.02.2022
Duggal, H., & Haddad, M., 2022, “Infographic: Russia, Ukraine and the global wheat supply”, Al Jazeera, https://www.aljazeera.com/news/2022/2/17/infographic-russia-ukraine-and-the-global-wheat-supply-interactive Accessed: 22.02.2022 – Particularly good infographics
Nandy, S, 2022, “Ukraine wheat prices tumble as tensions intensify; exports firm”, S&P Global Platts, https://www.spglobal.com/platts/en/market-insights/latest-news/agriculture/022222-ukraine-wheat-prices-tumble-as-tensions-intensify-exports-firm Accessed: 24.02.2022
Nandy, S, 2022, “Russia’s 2021-22 wheat exports down 18% on year, prices weaken further”, S&P Global Platts, https://www.spglobal.com/platts/en/market-insights/latest-news/agriculture/011722-russias-2021-22-wheat-exports-down-18-on-year-prices-weaken-further#:~:text=Russia%20is%20the%20world’s%20largest,exports%20at%2036.5%20million%20mt. Accessed: 24.02.2022
Smith, A., 2022, “A Russia-Ukraine War Could Ripple Across Africa and Asia”, Foreign Policy, https://foreignpolicy.com/2022/01/22/russia-ukraine-war-grain-exports-africa-asia/ Accessed 24.02.2022
