GM and welcome to So What: your snippet of risky goodness that (in this case) will bum you out before breakfast (you are reading this before breakfast, right?)
Let’s dive in.
1,200 words, 4:48 reading time
1/5 of the world’s grains originate from Ukraine and Russia, meaning the Russian invasion of Ukraine is causing a significant interruption to global food supplies. In addition to the detrimental effects on food security, this may also cause instability in some countries. Here’s why.
The Invasion Interrupted the Spring Sowing Season
The Russian invasion coincided with the spring sowing season (March to May), meaning a significant proportion of Ukraine’s arable land was not planted for the summer 2022 harvest. Meanwhile, Ukrainian farmers could not adequately manage even crops in areas not directly affected by the conflict, with the result that overall yields from Ukrain are significantly affected.
(These effects will be similarly felt in the sunflower seed market, where Ukraine produces over 25% of the global supply. This is highly significant, but sunflower oil seems more straightforward to replace than grains.)
Exports from Ukraine are Significantly Hampered
The Russian Navy’s blockade of the Black Sea means that Ukraine’s grain exports – 98% of which is normally moved by sea – have been reduced to a trickle. Meanwhile, there is not the excess rail capacity to make up for this shortfall, meaning that Ukraine is unable to export grain from the 2021 harvest. Not only does this limit the current supply to global markets, but the reduction of storage capacity in Ukraine means less storage for the 2022 harvest, which will increase waste and further reduce availability.
Fertilizer Prices Spiked and Worldwide Yields Will Suffer
Another side-effect of the conflict is that fertilizer prices have also risen dramatically. Russia and Belarus account for around 40% of the potash used as fertilizer worldwide, and a combination of export reductions and sanctions have cut supplies significantly. This price spike in spring 2022 put fertilizer out of the reach of poor farmers and forced even well-off producers to cut back. Consequently, worldwide yields in the summer / fall 2022 harvest of a range of crops will be reduced.
Countries are hoarding supplies
Some countries that would typically be grain exporters are preventing export and are hoarding supplies for domestic use. This reduces global food supplies further.
So the two big takeaways are:
There is less food available
The worldwide grain supply will be reduced significantly in 2022 and possibly into 2023. Other crop yields will also be reduced due to the reduced use of fertilizer, particularly in poorer countries.
Food prices increase
Supply, meet demand.
Food insecurity and undernourishment will increase
The reduced supply of food and increased prices will push many vulnerable people into what the FAO calls’ undernourished’ status. Many of those who are already undernourished will be forced into malnutrition. Although these effects will be most notable in countries classed as Low-Income Food-Deficit Countries (LIFDCs), the poor and elderly in more affluent countries will also feel the effects and have to choose between paying for food and other needs. (Budgetary difficulties will be exacerbated by the increase in energy costs, also linked to the Russian invasion of Ukraine.)
The most acute effects are likely to be felt in the Horn of Africa where a drought has caused a famine affecting millions. The reduced availability of basic foodstuffs like grain and sunflower oil, plus higher prices, mean that aid agencies will have less food to supply to those with the most acute need.
Countries that subsidize wheat products could become unstable
Many countries subsidize the price of bread to ensure that this staple is always affordable and readily available. These subsidies cost a significant amount.
These subsidized foodstuffs are vital to the less well-off in Egypt and elsewhere in the Middle East, where such subsidies are common. However, the issue is also a potential flashpoint, and previous attempts to remove subsidies have become violent. This leaves governments such as Egypt’s in a difficult position: continue to spend more on grain subsidies, placing significant pressure on the economy, or risk widespread unrest by increasing prices. If the food shortages drag into 2023, this decision may be out of their hands as countries may be forced to reduce subsidies as the cost grows too high.
There are so many implications of this situation that it’s hard to go into each in detail, so I’ll summarize some top-level considerations.
If you are reliant on the affected foodstuffs or fertilizers, plan for interruptions into 2023.
There is no clear end state to the conflict in Ukraine, and the expansion of support from NATO seems incremental and designed to hold Russia at bay, not to provide a decisive Ukrainian victory. Meanwhile, Russia is content to wage a war of attrition, making incremental territorial gains but unable to mount a decisive attack on Ukraine. Even if there is a negotiated settlement in 2022, the effects on food and energy prices will carry on into 2023. Any remaining Russian blockade of the Black Sea will extend the disruption.
If you are in a country classed as Low-Income Food-Deficit (LIFDCs), plan for increased food shortages and lower-paid workers to face increased food insecurity.
The security situation will decrease as the food shortages become more acute.
If you are adjacent to regions with existing or increasing food insecurity, migration will increase.
This will place additional strain on the economy and infrastructure of the recipient community. Where tensions exist, these will be exacerbated by the influx of people and instability is likely.
If you are in a country where the population relies upon food subsidies, expect increased tension as the fear of a subsidy reduction grows.
Any actual reduction of a subsidy will cause protests which may become violent, depending upon the posture of the local security forces. (Note that a similar situation will occur anywhere fuel subsidies are threatened.)
That’s a wrap on number two of So What? so I’d love to know what you thought or what I should tackle next.
One thought on “Ukraine and Russia Produce Over 1/3 of the World’s Grains. So what?”
We are not receiving your sitrep. Pelase check email.