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The Ukraine war and the global food crisis

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Why are food prices rising? Does Ukraine have other options of exporting its grain other than the Black Sea routes?

Why are food prices rising? Does Ukraine have other options of exporting its grain other than the Black Sea routes?

The story so far: Russia’s invasion of Ukraine and the subsequent sanctions on its economy have sent global food prices soaring, threatening to push millions of people, especially those in low-income countries, into starvation. Ukraine and its allies in the West have accused Russia of weaponising food, saying that its blockade of Ukraine’s Black Sea ports is the primary reason for the rising prices, while Moscow has blamed Western sanctions for the crisis. As the war, in its fourth month now, is still raging in Ukraine’s east with no political solution on the horizon, the United Nations and Turkey have initiated talks with the Russian leadership to facilitate the exports of grains and fertilizers from Russia and Ukraine.

How serious is the food crisis?

Many countries were facing growing food insecurity even before Russia’s war. Climate shocks, conflicts and the COVID-19 pandemic had disrupted supply chains, pumping up prices of both commodities and crops. The war in Ukraine has aggravated this situation. As of June 1, 2022, the Agricultural Price Index was 40% higher compared to January 2021, according to the World Bank. Maize and wheat prices rose 42% and 60%, respectively, from the levels of January 2021. Global food, fuel and fertilizer prices are projected to be sharply higher this year and will remain elevated into 2024, the Bank estimates.

Almost all economies in the world have been hit by higher food prices. Across the western world, there’s a cost-of-living crisis with food and energy prices rocketing. In the U.S., Treasury Secretary Janet Yellen told senators on Tuesday that the country was facing “unacceptable levels of inflation” which would stay so in the coming years. In the U.K., inflation numbers have already hit a 40-year high. Almost 90% of emerging markets and developing economies experienced food price inflation greater than 5% this year. Low-income countries that are reliant on imports for basic food consumption, are the hardest hit. According to the UN World Food Programme (WFP), Ethiopia, Nigeria, South Sudan and Yemen remain at ‘highest alert’ as hotspots with “catastrophic conditions”, as Afghanistan and Somalia are added to this category.

How important are Russia and Ukraine for global food security?

Russia and Ukraine together account for more than a quarter of the world’s wheat supplies. Russia’s share in the global exports of wheat, the world’s most widely grown crop, is some 20%, while Ukraine accounts for 8%, according to the U.S. Food and Drug Administration’s Foreign Agricultural Service (FAS). Wheat is a staple food for at least 35% of the world’s population, as per the estimates of the UN Food and Agriculture Organization (FAO). About 50 countries depend on Russia and Ukraine for more than 30% of their wheat imports, according to the FAO. If Azerbaijan and Georgia source more than 80% of their imported wheat from Russia and Ukraine, Turkey, Egypt, Bangladesh and Lebanon meet over 60% of their imports from these two countries. Besides wheat, Ukraine is the world’s eighth largest producer and fourth largest exporter of corn, accounting for 16% of global exports. Furthermore, Ukraine, which produces up to 46% of sunflower-seed and safflower oil is the world’s largest exporter of sunflower oil. So, the war and the sanctions have clearly hit the world’s bread basket region, adding pressure on food prices.

What is causing the crisis?

Before the Russian invasion of Ukraine started, Ukraine had the capacity to export up to six million tonnes of wheat, barley and maize a month, mainly through its ports in the Black Sea/Sea of Azov. In the eight months before the war, some 51 million tonnes of grain were exported through Ukraine’s Black Sea ports, according to the WFP. But exports have collapsed since the invasion as the Russian war effort is entirely focused on Ukraine’s eastern and southern parts along the Black Sea/Sea of Azov coast. Now, several Ukrainian port cities, including Mariupol, Kherson and Berdyansk, are under Russian control. Although the southern cities of Mykolaiv and Odessa, which is known as the ‘Pearl of the Black Sea’, are still with the Ukrainians, commercial ships cannot dock at these ports because of two reasons — Ukraine has mined the waters around these ports as a deterrent against potential Russian attacks and Russia has enforced a naval blockade in the waters of the Black Sea.

These factors have in effect brought exports from Ukraine to a grinding halt. According to Ukrainian authorities, more than 20 million tonnes of grain are stuck in warehouses and containers. June marks the beginning of a harvesting season in Ukraine and this season, the country is expected to produce some 30 million tonnes of corn, wheat and sunflower oil, half of which are meant to be exported. But unless the blockade is lifted and Ukraine starts exports, the country would not even find enough warehousing capacity to store this year’s harvest. This would make the food crisis worse.

Besides the blockade, the western sanctions on Russia are also contributing to the crisis. Russia, besides being the world’s top wheat exporter, is also a leading exporter of fertilizer, an essential commodity for food production. Russia and its ally Belarus together account for some 38% of potassic fertilizers, 17% of compound fertilizers, and 15% of nitrogenous fertilizers. Fertilizer prices are also on the rise, which would make food production costlier. Russia’s food and fertilizer sectors were not directly targeted by western sanctions, but the sanctions on its financial sector, which made payments difficult for Russia, has complicated its exports, including food grains. Also, the targeted sanctions on Russian oligarchs have choked finances for the agricultural industry.

Is there a way out?

Russia has suggested that it would resume exports (not sure whether Ukrainian or Russian grains) from the ports on the Sea of Azov that it controls (Mariupol and Berdyansk) and that it would open a corridor for commercial vessels in the Black Sea if Ukraine demines the ports it controls (mainly Odessa and Mykolaiv). But these proposals, which were discussed in Ankara on Wednesday, could be implemented only as part of a deal between Moscow and Kyiv, with blessings from the West as Russia seeks sanctions relief in return for opening the maritime corridor. Ukraine, however, is sceptical, saying it doesn’t trust Moscow. No breakthrough has been achieved so far. 

Ukraine has little good options to ship its grains out of the country if its ports remain blockaded. One option is to transfer the grains overland to the Baltic states, either through Poland or Belarus, and then ship them out from the Baltic Sea ports. According to UN officials, Kyiv has dismissed the proposal to seek help from Belarus, a Russian ally that also faces western sanctions. A Wall Street Journal report stated on Tuesday that the U.S. State Department also stays staunchly opposed to giving any concession to Belarus in return for help for moving food grains. Moving them overland via Poland is challenging because the rail track gauge in Poland is smaller than that of former Soviet countries such as Ukraine and the Baltic states — this means cargoes will have to be moved to different trains at the Polish-Ukraine border and then again at the Polish-Lithuania border to start exporting them from the Baltic ports. So, the only practical solution to take Ukrainian grains to the global markets is to open the Black Sea routes. And to ease the pressure on global food items, Russia will also have to step up exports of both grains and fertilizers. For this, Kyiv and its allies may have to strike a deal with Russian President Vladimir Putin.

THE GIST

Global food prices are on the rise. Ukraine and its allies accuse Russia of weaponising food, saying that its blockade of Ukraine’s Black Sea ports is the primary reason for the rising prices, while Moscow has blamed Western sanctions for the crisis.

Before the Russian invasion of Ukraine started, Ukraine had the capacity to export up to six million tonnes of wheat, barley and maize a month, mainly through its ports in the Black Sea/Sea of Azov. Now, several Ukrainian port cities are under Russian control and have thus brought exports from Ukraine to a grinding halt. While Russia’s food and fertilizer sectors are not directly targeted by western sanctions, the sanctions on its financial sector, which makes payments difficult for Russia, has complicated its exports, including foodgrains.

Both the UN and Turkey have initiated talks with Russia to find a solution to resume exporting both Ukrainian and Russian grain, but no breakthrough has been achieved so far. Russia and Ukraine together account for more than a quarter of the world’s wheat supplies. 



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