The war in Ukraine has triggered a global food shortage

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Russian ships and sea mines block Ukrainian Black Sea ports. Before 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 15-20% of this volume can be exported by rail, Danube river and trucks (around 700,000 tonnes in April 2022 and around 1 million tonnes in May 2022). In addition, commercial risks related to Russian exports have increased due to sanctions imposed by various trading partners and banks. This has led to price spikes and supply chain disruptions, which have significantly compromised food security in poor importing countries.

International trade of cereals excluding rice represents just under 20% of total world production (around 620 million out of around 3.3 billion tonnes produced in 2020/2021). Total production is enough to feed the world’s 8 billion people, but production in semi-arid countries is less and some countries are lagging behind their potential. This is why trade plays an important role in balancing global supply and demand. In the season 2020/21Russia supplied 52.32 million tonnes (7.8%) and Ukraine 69.82 million tonnes (11.3%) of cereals to the world.

Ukraine also exports oilseeds (sunflower, soybeans, rapeseed) with a well-established crushing industry to produce sunflower oil. fifty-two percent of sunflower seeds and oil traded globally came from Ukraine in 2020. Currently, edible oil supply chains are disrupted and edible oil prices have risen even more than grain prices. For the past few weeks, the author has not been able to buy sunflower oil in his neighborhood in Hamburg/Germany.

Global grain and oilseed markets were already tight before the crisis due to dwindling stocks leading to an upward trend in prices. This new supply shock caused prices to almost double compared to two years ago. Market demand for agricultural products is inelastic – people have to eat – and this has dire consequences in poor importing countries. The number of food insecure people (about 800 million) and people facing hunger (about 44 million) will most likely increase. This will lead to increased poverty and threaten social stability in poor importing countries.

Global Equities shrink. World wheat stocks of about 300 metric tons are enough to cover about four months of annual world consumption. Of these stocks, approximately 50% (approximately 150 metric tons) are held in China. We know from the past that prices go up if stocks hit a certain critical low. In this situation, crisis-induced trade disruptions accelerate market development and may even lead to government interventions restricting exports to protect national interests. If many countries do this, it has disastrous effects on world markets.

Ukrainian current cereal actions are estimated at around 20 to 25 metric tons. The new harvest in the fall will be much lower than last year due to less area and lower intensity caused by the lack of necessary inputs and financing. Estimates are difficult, but market watchers let’s say it would be about 20 to 30 percent less or about 30 metric tons. Assuming constant domestic demand, this would lead to a drop in exports of around 40-50% in 2022. So if the Black Sea ports remain blocked until the end of this year, the world will have around 55 metric tons less grain. To put this into perspective, consider that one ton of grain can feed a family of six for a full year. So this missing number of grains would mean that we would have less food for over 300 million people.

World grain and oilseed markets are hard hit by the war in Ukraine.

And it may get even worse if you consider the limited exports of fertilizer. The share of Russia and Belarus in world potash trade is 40%. Russia alone exports about 20% nitrogen and 10% phosphate. Fertilizer prices are rising. Higher grain and oilseed prices can be expected to increase production in poor importing countries, but this will be partly offset by higher input prices. Poor importing countries in Africa can try to encourage higher production to feed a growing population, but they would need huge efforts in finance and investment to achieve this goal. Even with more resources channeled into agriculture in Africa, supply would respond with a time lag.

There are four entry points for reducing the pressure: individual, national, international and ad hoc crisis measures:

  1. At the individual level in industrialized countries, we all have to ask ourselves uncomfortable questions about our individual food consumption habits. We throw away too much in households (Europeans almost 200 kg and Americans about 300 kg of food per year). And we eat too much meat. Remember that it takes 3 kg of grain to generate 1 kg of pork in the production process.
  2. At the national level, we need to rethink biofuel policies. European and American mandates for the production of biodiesel from edible oil and gasoline from corn must be flexible enough to reduce production in times of (too) high prices. Second, in EU countries we should think more pragmatically about policies to reduce fertilizer use and set aside productive areas for biodiversity. Right now we need more production, not less. Climate goals are good for saving the planet, but you also need to feed the people of the planet.
  3. At the international level, we would need to use the platforms of the G-7 and the G-20 to agree on measures that would alleviate the pressure of international markets for agricultural and food products. Thus, joint declarations by countries to refrain from export restrictions would be necessary, a reorientation of international cooperation programs towards agriculture and agribusiness would be useful, and the budgets of the World Food Program must be replenished. to avoid the worst.
  4. As long as Russia blocks Ukrainian ports, other transport logistics will have to be supported. These include investments in Ukrainian railways, including handling facilities, and more phytosanitary laboratories at the Ukrainian-Polish border.

World grain and oilseed markets are hard hit by the war in Ukraine. Food prices are rising and the number of people with precarious food supplies will inevitably increase.

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