Global food prices are increasing as Russia's invasion of Ukraine adds pressure to world trade.
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Russia's invasion of Ukraine is worsening global food prices that were already at an all-time high, and the pressure is likely to continue throughout 2022, according to experts.
Both Russia and Ukraine are major exporters of wheat and corn. Ukrainian exports of agricultural commodities virtually stopped when the invasion began, as the country relies on Black Sea shipping routes that were blocked by Russia. In response to the invasion, the U.S., EU, U.K., Canada and other countries imposed financial sanctions and export controls on Russia.
Agricultural commodities were at elevated prices even before Russia invaded Ukraine on Feb. 24 as demand surged for certain products, such as animal feed and seed oils, even as the COVID-19 pandemic disrupted supply chains across the world.
The Food Price Index published by the United Nations' Food and Agriculture Organization, or FAO, which tracks monthly changes in the international prices of a basket of commonly traded food commodities, reached its all-time highest in March.
"If this invasion had taken place 10 or 15 years ago, it wouldn't have been nearly as disruptive," said Paul Hughes, chief agricultural economist at S&P Global Commodity Insights.
Higher prices
The FAO Food Price Index averaged 158.5 points in April, down 0.8% from the all-time high in March at 159.3 points, according to the FAO. April's number was 29.8% higher than the previous year.
The biggest price increases were registered for wheat, maize and oilseeds, all commodities exported from Ukraine, according to Monika Tothova, an FAO economist. In 2021, Ukraine supplied about 10% of total world wheat exports, Tothova said.
Prices for other food commodities are strengthening as consumers look for cheaper substitutes where possible, purchasing rice as a substitute for wheat, for example. Higher prices for feed grain and energy also push up the cost of meat and dairy products.
"International rice prices in April went up 2.3% from their March levels, sustained by a combination of strong local demand in various Asian exporters, purchases by Near Eastern and Chinese buyers, and weather setbacks in the Americas," Tothova said.
Factors at play
Increased demand, reliance on world trade and destructive weather patterns all affected global food supplies before the Russia-Ukraine war began, creating an environment ripe for disruption.
The trade in agricultural commodities has become increasingly globalized in recent decades.
"If you go back 15 years ago, [Russia and Ukraine] represented combined about 14% of world trade on wheat; now it's about 30%," said S&P Global's Hughes. Ukraine has also grown to be the fourth-largest exporter of corn.
Russia and Ukraine represent about 75% of world trade for sunflower seed oil, with 50% coming from Ukraine. Sunflower seed oil represents about 10% of world trade in cooking oils.
Most of the wheat grown in Ukraine is planted in October or November and harvested starting in June. The organization estimates that about 20% of this area will not be harvested because of damage from shelling, eventual losses of machinery and lack of fuel. Yields are also likely to be lower as farmers might not be applying fertilizers in normal amounts as those prices soar, Tothova said.
Farmers in Ukraine are now planting spring crops, including maize and sunflower seeds, but many lack inputs and fuel to carry out agricultural operations.
Who's vulnerable
High prices plus higher transaction and transportation costs will impact all countries that rely on food imports. Some are already particularly vulnerable.
"Countries which already in the past experienced high levels of food insecurity due to — often a combined — impact of conflict, economic crisis, natural disasters, etc., are among the most disadvantaged," FAO's Tothova said. This includes Yemen, parts of Africa, Afghanistan and Haiti. The largest importers of wheat are the Middle East and North African countries, according to Hughes.
"They have a very much bread-based diet and live in areas where wheat is difficult to grow," Hughes said.
Egypt is especially vulnerable because it is the largest wheat importer in the world, and Russia plus Ukraine account for 70% of Egypt's wheat imports, according to an April 21 S&P Global Ratings note.
The U.S. is also facing expensive commodities but has more capacity to cope with such prices. Farmers will benefit from higher international prices since the U.S. exports many agricultural commodities, but production costs have also risen.
Food prices in the U.S. are not likely to fall as long as Ukraine's agricultural sector remains under duress, said Joel Naroff, president of Naroff Economics.