Impact of Russia-Ukraine Conflict on Food Prices
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Russia and Ukraine jointly account for 1/3rd of the global wheat exports
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Food security concerns will increase as more war-time sanctions are levied on Russia
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According to GlobalData, the market value for cereal crops in Russia is projected to decrease over 7% in 2022
Impact of Russia-Ukraine Conflict on Food Prices
The ongoing conflict between the Russian Federation and Ukraine has threatened the stability of the global economy, including inflation in food prices. According to the US Department of Agriculture, Russia and Ukraine account for 33% of the global wheat exports, 20% of the global corn trade, and 80% of the global sunflower oil production. The volatility in food prices resulting from such conflicts could result in economic disruption in many countries.
This disruption to food supplies and the urgency to find an alternative source are likely to crush global supply chains, which are already struggling due to increased demand and rising prices. According to the United Nations Comtrade database, Russia was the largest exporter of wheat in 2020, while Ukraine and Russia were the second and third largest barley exporters during the same year. Depending on the duration of the conflict, there could be a large inventory of wheat (Russia is the largest exporter) and other grains waiting to be shipped, which could cause an acute food price inflation. The ban on all commercial vessels in the conflict region near the Black Sea, coupled with the closure of Ukrainian ports, is likely to disrupt most Ukrainian food exports. Ukraine is known as the “Breadbasket of Europe,” and there are also countries in the Middle East and Africa dependent on the country for wheat. Due to this reason, the risk to food security is high and must be mitigated on priority.
Amid the search for substitutes to ensure food security, sanctions from the US and NATO allies will make it difficult for Russian exports to arrive at Western markets over the long term. According to GlobalData, the market value for cereal crops in Russia increased steadily from $13 billion in 2018 to $19 billion in 2020, but the growth slowed down drastically thereafter. The market value for cereal crops in Russia is projected to decline by about 7% in 2022.
An increase in energy prices could also increase food prices. For example, an increase in natural gas prices will affect food prices if farmers cannot afford the increase in costs. It is because natural gas is a critical ingredient of fertilizers. If farmers cut usage due to the increased costs, it is likely to reduce crop quality and production. The pandemic-induced supply chain obstructions and labor scarcity have already caused significant inflation in food prices. The armed conflict between two major exporters ahead of the harvest season will heighten the adversity.
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