BL Explainer

Is the Russia-Ukraine war causing a global food crisis?

Subramani Ra Mancombu | Updated on: Mar 16, 2022

Is a global food crisis in the making on account of Russia-Ukraine war?

Yes. The Russia-Ukraine conflict is leading the world to a potential food crisis. This comes amidst global food prices surging to a record level in February. According to the Food and Agriculture Organization (FAO), soaring prices of food commodities are likely to expose several million people to hunger as supply of key staple crops such as wheat, corn and sunflower could be affected. Prices of wheat, corn and cooking oils have all increased to a record high after the war broke out. Besides, crude oil prices ruling over $100 a barrel will lead to rates of farm inputs such as fertilisers increasing.

Russia is the top wheat exporter and Ukraine is among the top five shippers in the global wheat market. With supplies from these countries coming to halt have resulted in prices for wheat escalating. 

Ukraine is a major supplier of corn — 17 per cent of global exports — and sunflower oil — over 60 per cent of world exports. The suspension of operations at Port Odessa has resulted in the market panicking and prices soaring. 

Since the war broke out on February 24, wheat prices have gained over 50 per cent, corn by 25 per cent, sunflower oil by over 35 per cent and its alternative soyabean oil by 20 per cent. It is not just food but supply of feed materials are being threatened.

Corn and barley prices have skyrocketed. Russia and Ukraine make up for 14 per cent of barley shipments in the global market.

Why has this crisis fueled food protectionism?

Various nations in a bid to ensure that their citizens are not left hungry or are forced to pay high costs for food are resorting to protectionism. 

Hungary has banned export of grains, while Moldova, a small exporter, has suspended shipments of wheat, corn and sugar.

Argentina is ensuring wheat supply to domestic millers and keep pasta prices under control. Indonesia has increased supply of palm oil by domestic producers to 30 per cent from the earlier 20 per cent as cooking oil prices have soared. 

Bulgaria, a large exporter, is working out a system to buy food grains to meet the needs of its citizens. Egypt, too, has banned exports of key agricultural products, including flour, lentils and wheat.

Russia itself has been taxing exports for some time now, while Ukraine has barred shipments of wheat, oats and key staples to ensure its citizens do not go without food while fighting the Russian. The protectionism will ensure that food produced for the domestic market is not exported in view of surging global prices.

Which are the countries that are likely to be impacted the most?

Least developed countries mainly in Africa and Asia are likely to be affected the most. Countries in West Asia will also be affected. The main reason is that countries in Africa and West Asia had been depending on Russian and Ukraine supplies for wheat, corn and cooking oils. Both these nations are also logistically nearer, while the prices of their agricultural commodities are priced competitively.

Egypt, Iran, Turkey and Bangladesh depend on these two nations for 60 per cent of their wheat supplies, the FAO has said. Lebanon, Tunisia, Yemen, Libya and Pakistan are other nations depending on the erstwhile Soviet Union member nations for their food needs. Besides, Russia is a key supplier of fertilisers. Its war with Ukraine and the sanctions against it threaten to either make fertiliser costly for importing nations, thus raising farm input costs, or altogether stop them. 

Will India be affected too?

Yes, India will be affected with prices of fertilisers and cooking oil set to surge sharply. At least 35 per cent of India’s fertilisers are imported. The Centre subsidises fertiliser costs, but it might to have bear additional financial burden that is likely to passed on to tax payers.

Since India imports 80 per cent of its crude oil requirement, it will result in higher fuel prices, including cooking gas. This will push up prices in general and result in inflation rising further. 

Cooking oil is another worry since the halt to sunflower oil exports from Ukraine, which accounts for 60 per cent of total global exports, will result in further hike in prices. Alternative sources are limited and the US Department of Agriculture last week said Argentine sunflower prices have increased 42 per cent since the war broke out. Palm oil prices have increased as Indonesia is curtailing its exports and the edible oil is also being diverted for bio-diesel production in view of crude oil prices zooming.  

Since there is a demand for exports of wheat and corn, domestic prices of these agricultural produce have increased. In fact, even before wheat can be harvested its prices are ruling higher than the minimum support price (MSP) of ₹2,015 a quintal this year. Corn prices are also ruling near the MSP level of ₹1,870 a quintal. This will increase the costs for the poultry and starch sectors as the grain is a key raw material. 

Is this an opportunity for India to export its agricultural surplus?

It is an opportune time for India to export its agricultural surplus and cut down the huge inventories it is carrying.

In the case of wheat, India is currently carrying wheat stocks three times the mandatory norm of 7.6 million tonnes (mt). The Commerce Ministry has tapped its missions abroad to help push exports of agricultural products and India is looking to meet any food emergency in its neighbourhood.

In view of the geopolitical crisis, India is likely to export a record 10 mt of wheat this fiscal. Already wheat prices are ruling higher than its MSP and this will ensure that growers can expect better returns from buyers.

Wheat traders say the grains are delivered at ₹22,500 a quintal at ports. This ensures that growers get at least ₹22,200. Corn prices are ruling around MSP level with demand coming in from South and South-East Asia.

Published on March 15, 2022

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