The global food crisis incoming

Ukraine is long been one of the most important countries for food production, as 57% of the country’s land was used for growing crops in 2019, making it one of the most cultivated countries in the world. Furthermore, Ukraine accounts for more than 30% of the world’s production of sunflower oil, widely used in food production, and grows 4% of the world’s wheat. The fact that the country produces way more than it consumes translates to it accounting for almost 10% of global wheat exports, 13% of corn export. Moreover, it’s the largest producer and exporter of sunflower oil.

Ukraine’s exports of grain and oil seeds have mostly stopped, and Russia’s are threatened. Together, the two countries supply 12% of traded calories. Wheat prices, up 53% since the start of the year, jumped a further 6% on May 16th, after India said it would suspend exports because of an alarming heatwave.

With the beginning of the conflict, however, not only exports were greatly reduced, but production declined too for obvious reasons: at the moment, around 25 million tonnes of grain are stuck in Ukrainian ports that are being blockaded by Russian forces. Some grain was exported to European countries by rails, but there is a significant problem in doing so since the rail systems between Ukraine and European countries are different, thus requiring grain to be unloaded and then reloaded at the borders. Furthermore, with several amounts of Ukrainian farmland turning into a battlefield, and with roads and ports under attack from Russian missiles and bombs, the country’s food supply chain is completely disrupted.

Another important country in the food production is China, accounting for 20% of total world’s exports. However, the zero-covid policy currently enforced in the country reduced the amount of farmers working and, hence, the amount of food produced.

As of the current estimates, between 19 and 34 million tons of export production could disappear this year. Next year, depending on the situation in the country, the figure could be between 10 and 43 million tons, which translates into the necessary caloric intake for 60 to 150 million people. Furthermore, a reduction in the supply of food, aside from the hunger problems, means that prices are expected to rise, and these higher prices will affect an even broader range of the world’s population, well beyond the 150 million people estimated.

Reduced grain exports will hit particularly hard African and Middle East countries. Indeed, Ukraine accounts for 80% of Lebanon’s wheat imports and is a leading supplier for countries such as Somalia, Libya and Syria. Egypt imports almost two-thirds of the wheat it consumes, making it the world’s largest wheat importer, and more than 80% of those imports come from Ukraine and Russia: although most of the imports go into domestic consumption, the country processes these commodities to export to Eastern Africa.

The effects of the war in Ukraine will be heard by many countries in the world. Poor countries, which are already facing widespread hunger, will feel the pain the most. Countries that are a food exporter are less likely to suffer, and countries like China, which has abundant strategic reserves, are better positioned than most. Moreover, the latter countries may use their reserves as a diplomatic tool to generate goodwill from suffering countries.

At the present moment, the situation appears to be worse than what we have expected in the last decades. A limited-disruption scenario would still have impacts that last until 2024: in such a scenario, we see limited sanctions and miss one planting season. The reason for it being so long is that farmers will take some time to recover to normal planting. Missing a harvest or being unable to export would leave farmers low on funds for seeds, fertilizer, and agricultural equipment, making future harvests smaller. If the war, instead, drags out much longer, several planting seasons and harvests could be missed. Furthermore, there could be an escalation in sanctions which, at some point, could also include some agricultural commodities, or there might be governments that stop exporting vital commodities to countries that need them.

The crisis threatens to get worse, as Ukrainian silos that are yet undamaged by the fighting, are already full of corn and barley: farmers have nowhere to store their next harvest, which risks of rotting. Furthermore, there is a shortage of fuel and labor to plant the next harvest due to the conflict in the region. One solution to the global food crisis would come from breaking the Black Sea blockade, but that doesn’t seem easy: indeed, Russia would need to allow Ukrainian shipping, Ukraine should de-mine the road to Odessa, and Turkey would need to let naval escorts through the Bosporus. The cooperation between these three countries, however, is unlikely.

This article was originally written by Matteo Marinelli, on Blackink Research’s blog on June 1st, 2022. You can find the original version here.