The war in Ukraine has led to a global food crisis

Russian ships and offshore mines blockade Ukrainian Black Sea ports. Prior to the war, Ukraine exported an average of about 6 million tons of agricultural products per month to countries in the Middle East, Asia and Africa. Currently, only 15 to 20 percent of this volume can be exported by rail, the Danube River and by truck (about 700,000 tons in April 2022 and about 1 million tons in May 2022). Also, trade risks related to Russian exports are increasing due to sanctions imposed by various trading partners and banks. This significantly increases food security in poor importing countries, disrupting prices and disrupting the supply chain.

Global trade in cereals excluding rice is just under 20 percent of total world production (approximately 620 million produced by 3.3 billion tons in 2020/2021). Total production is enough to feed the world’s 8 billion inhabitants, but in semi-arid countries production is low and some countries lag behind their potential. Therefore, trade plays an important role in balancing global supply and demand. In the 2020/21 season, Russia supplied the world 52.32 million tons (7.8 percent) and Ukraine 69.82 million tons (11.3 percent) of cereals.

Ukraine exports oilseeds (sunflower, soybean, rapeseed) with a well-established crushing industry for the production of sunflower oil. Fifty-two percent of the world-traded sunflower seeds and oil by 2020 came from Ukraine. Currently, the edible-oil supply chain has been disrupted and the price of edible-oil has risen more than the price of cereals. Last week, the author could not buy any sunflower oil in his vicinity in Hamburg / Germany.

The global food and oilseeds market was strong even before the crisis due to the upward price trend due to stock shrinkage. This new supply shock led to almost double the price compared to two years ago. Demand for agricultural commodities is volatile, people have to eat, and this leads to serious consequences in poor importing countries. Those whose food supply is insecure (about 800 million) and the number of hungry people (about 44 million) are likely to increase. This will increase poverty and threaten social stability in poor importing countries.

Global stocks are shrinking. The global stockpile of about 300 metric tons of wheat is sufficient for about four months of annual global expenditure. Of these stocks, about 50 percent (about 150 metric tons) are in China. We know from the past that prices rise when stocks reach a certain critical low. In this situation, crisis-induced trade disruptions can accelerate market development and even lead to government intervention by restricting exports to protect national interests. If many countries do this, it will have a catastrophic effect on the world market.

Ukraine’s current grain reserves are estimated at about 20 to 25 metric tons. Due to lack of necessary materials and funds, new crop in autumn will be much less than last year due to low acreage and low intensity. Hard to estimate, but market observers say it will be about 20 to 30 percent less or about 30 metric tons. Given the constant domestic demand, it will lead to about 40 to 50 percent lower exports by 2022. So, if the Black Sea ports remain closed by the end of this year, the world will have about 55 metric tons less cereals. To put it bluntly, consider that 1 ton of cereal can feed a family of six for the whole year. So, this missing number of cereals means we will have less food for more than 300 million people.

The global warming cereal and oilseed market has been severely damaged by the war in Ukraine.

And it could be even worse if we consider the limited export of fertilizer. Russia and Belarus account for 40 percent of global potash trade. Russia alone exports about 20 percent nitrogen and 10 percent phosphate. Fertilizer prices are rising. As a result of higher prices of food grains and oilseeds, production in poor importing countries is expected to increase but this will be partially offset by higher input prices. Africa’s poorest importing countries may try to encourage higher production to feed a growing population, but achieving this goal will require a lot of effort and investment of their money. Even if more resources are provided for agriculture in Africa, the supply will respond with an interval of time.

There are four entry points for stress reduction: personal, national, international and ad hoc crisis management:

  1. At the individual level in industrialized countries, each of us has to ask some uncomfortable questions about our personal eating habits. We throw a lot more into the household (Europeans weigh about 200 kg and Americans about 300 kg of food per year). And we eat too much meat. Keep in mind that the production process takes 3 kg of cereal to make 1 kg of pork.
  2. At the national level, we need to rethink biofuels policies. European and American orders to produce gasoline using biodiesel and corn using edible oil should be flexible enough to reduce production during periods of (very) high prices. Second, we need to think in a more realistic way about policies to reduce fertilizer use in EU countries and separate productive areas for biodiversity. For now, not less, more production is needed. Climate objectives are good for saving the planet, but we also need to feed the people on our planet.
  3. At the international level, we need to use the G-7 and G-20 platforms to agree on steps that will put pressure on the international agro-products and food markets. Thus, countries will need joint statements to refrain from export sanctions, reorganize international cooperation programs towards agriculture and agribusiness, and replenish World Food Program budgets to avoid the worst.
  4. Until Russia blocks Ukrainian ports, other transport supplies will have to be supported. These are, among others, investments in Ukrainian railways, with handling facilities, and more phytosanitary laboratories on the Ukrainian-Polish border.

The global warming cereal and oilseed market has been severely damaged by the war in Ukraine. Food prices are rising and the number of those whose food supply is unsafe will inevitably increase.

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