Balloons in colours of Ukrainian flag are placed in a field at the border crossing in Medyka, southeastern Poland, on March 11, 2022. —
When the Russian army launched its attack against Ukraine on 24 February, food prices worldwide were already at record highs. The war is likely to push them even higher.
Global food prices hit a record high in February, climbing 24% higher than where they were at the same period a year previous, following a 4% month-on-month rise.
The euro area has not been spared with prices for food, alcohol and tobacco rising by 4.1% month on month in February, following a 3.5% increase in January.
These sharp rises have been attributed to a variety of factors, primarily energy and transport. The cost for both of these has shot up over the past year with demand for natural gas and shipping far outstripping supply as economies around the world shook off their COVID-19-induced stupor.
Then Russia invaded its neighbour — falsely claiming the attack was necessary to prevent genocide by Ukrainian authorities in the east of the country — and the reaction on the markets was immediate.
Wheat prices jumped 50%.
Ukraine and Russia are together commonly referred to as the breadbasket of the world, producing about 30% of food commodities such as wheat and maize. Ukraine alone — the country is 28 times smaller than Russia — provides 16% and 12% of the world’s wheat and maize respectively.
Two weeks into the conflict, Kyiv took the decision to ban exports of food staples, prioritising feeding its population as a humanitarian crisis — exacerbated by repeated ceasefire violations making it impossible for aid convoys to reach key cities — set in.
Russia has since followed suit, banning exports of wheat to some neighbouring counties until the end of June.
No empty shelves in Europe
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«I don’t think we’re going to see empty shelves for any food products in Europe, and the reason is, first of all, we are not importing wheat from Ukraine or Russia, or at least not in large quantities,» Dr. Matin Qaim, Professor of Agricultural Economics and Director of the Center for Development Research at the University of Bonn, told Euronews.
«We are importing maize from Ukraine and it is primarily used as animal feed so that is something we may be feeling,» he added.
Additionally, our food production is heavily mechanised, so the price of commodities play a smaller role in the price of the finished product.
«An industrially-baked loaf of bread that you may buy at a supermarket, the share of the wheat in the price of the final loaf of bread may be less than 10%,» Dr Qaim explained.
«So that means if the wheat price increases, you will see the loaf of bread becoming a few cents more expensive,» he added.
But that won’t shield Europeans from higher food prices.
«Obviously, there are many other components, such as energy, and labour costs, the cost for the machinery, the cost for the transport, the cost for the branding, the packaging of the products — all of this is flowing into it. And that means when the wheat price doubles — and it is now double at the level it used to be two years ago — that doesn’t mean the bread price will double in our context,» he stressed.
But ‘very high food prices’ coming
Furthermore, food prices are set internationally and with Ukraine and Russia both pulling their exports for now this will continue to have an impact. How long the impact will be will depend on the length of the war and the state of the infrastructure once the dust settles.
Ukrainian authorities have accused Russia of deliberately targeting agricultural equipment and Black Sea ports — a key trade hub for wheat — have already been badly damaged.
There is also uncertainty over what Russia will export. Will trade sanctions imposed by Western countries prevent major exports? And will Russia’s leadership even allow the exports to go through rather than extend its ban to more countries and through the year?
«Food prices are so high and wheat and wheat bread are the main staple food for the Russian population. People in Russia are quite poor and if the bread prices really go up, then there may be unrest. And that’s something that (Russian President Vladimir) Putin really tries to avoid,» Qaim highlighted.
Further uncertainty over what other countries will do to either shield their own population from rising prices or to benefit from their spike is likely to compound the issue. For instance, Argentina, one of the world’s biggest exporters of soybean products, has already announced it is halting exports.
All of that «means in this year 2022, we are likely going to live with high and very high food prices,» Qaim stressed.
EU ‘must build food systems resilience’
The European Central Bank has already updated its inflation forecast for the year, now expecting inflation for 2022 to reach 5.1%. It flagged that energy prices are expected to remain high and that other commodities including food and metals «might also be severely affected by the conflict given the role of Russia and Ukraine in global supplies of these commodities.
It warned that food inflation will «remain high throughout 2022, owing to high commodity prices and extraordinary increases in gas and electricity prices, which account for around 90% of the total energy costs of the processed food industry and are an important factor for the production of fertilisers.»
Some European industry players have already sounded the alarm, including France’s National Association of Food Industries (ANIA) which demanded earlier this month that the government provides support to the sector to mitigate the impact the war has on prices and supplies.
An EU spokesperson conceded to Euronews that «the coming months are likely to raise challenges to our agri-food system.»
«At this stage, there is no immediate threat to food security in the EU as the EU is a big producer and a net exporter of cereals. The immediate impact rather lies in the increase of costs throughout the food supply chain, the disruption of trade flows from and to Ukraine and Russia, as well as to their impacts on global food security.
«In the short-term, the challenge comes from increased input prices such as energy, fertilizer and feed and the impact of increasing food prices on society. In the medium-term, we need a sustainable, productive, and resilient agriculture – building on the Farm to Fork and Biodiversity strategies,» they added.
The Commission is currently working on identifying short and longer-term measures it can implement to build up the resilience of the bloc’s food systems. A Communication to that effect is tentatively planned for 23 March.
‘Poorest people will suffer the most’
But while the war will hit Europeans’ pursestrings, it is likely to have devastating consequences elsewhere.
«The situation is going to look quite different in poorer parts of the world,» Qaim underlined. «The poorest countries and the poorest people will be suffering the most.»
Going back to the loaf of bread, in countries where «wage rates are low and there is a lot of hand-making, not too much machinery, the price of bread is much closer correlated with the price of the actual grain,» he explained.
So a 50% rise in the price of wheat could lead to a sharp increase in the price of the final product.
Their own agriculture could be impacted as well as Russia and Belarus together provide 30% of the world’s exports of potassium fertilizers and Western sanctions on both countries could also hit those exports.
«If these countries cannot use fertilizers either because it’s completely lacking or because prices are too high that farmers cannot afford them, then of course, that can lead to lower yields at a time when we would actually need higher yields in order to make up for the missing food quantities from Ukraine and Russia,» Qaim flagged.
The World Food Programme (WFP) has already announced that higher prices mean the UN organisation will be feeding fewer people.
«Ukraine’s the breadbasket of the world and now we’re handing out bread inside Ukraine. I never thought that would happen. If this war rages on for another six months, this could be catastrophic all over the world with supply chain disruptions, increased food costs,» WFP chief David Beasley told the BBC earlier this week.
The shutdown of Ukrainian farming systems and supply chains coupled with hikes in energy prices due to sanctions on Russia «will limit access to food for some of the most vulnerable people in the world, many of whom are already facing super-high inflation,» he also said.