Ukraine is sometimes called the “breadbasket of Europe.” Even its yellow-and-blue flag connotes a flat wheat field beneath an azure sky.
As Russia continues its attacks on Ukraine, the war has rightfully focused attention on Europe’s vulnerable energy sector. Ukraine is a major transit country of Russian gas. But lost in the discussion is what a wider conflict might do to global food prices amid a disruption to the supply chain of grains from Europe’s breadbasket. An increase in prices could have grave consequences for countries that rely on imports from Russia and Ukraine, even as the world has already seen a steep rise in hunger and malnutrition because of the COVID-19 pandemic.
Russia provides 20% of the world’s wheat, making it the world’s largest wheat exporter. Ukraine is the fifth largest. The war between these two farming giants is poised to disrupt a quarter of the global grain trade, slashing supply. If Russian banks are banned from using the international payment system SWIFT, as part of sanctions already agreed upon by Western allies, then buyers, traders and other supply chain actors and financial institutions would be blocked from transactions to import food from Russia.
The global agricultural trade at stake is worth some $1.8 trillion. About a third of agricultural exports used global supply chains involving at least three countries as of 2015. A disruption in the supply chain near Ukraine’s Donbas region could have a ripple effect on the price of, say, oilseed in Africa. Ukraine’s Black Sea ports ship most of its grain exports, and with Ukraine closing its ports until the war ends, grain prices will rise.
Countries that rely most heavily on wheat imports from Russia and Ukraine don’t need a reminder that high food prices can fuel social unrest. Egypt, which gets the bulk of its wheat from Russia and Ukraine, saw revolution and waves of violence amid the Arab Spring triggered in part by food inflation. Across Kenya, higher food prices for staples such as milk, bread, sugar and maize recently fueled a countrywide social media protest.
In January, wheat prices globally were more than 25% higher than at the same time last year. Food prices are high because energy prices are high, which causes fertilizer prices to soar. The cost of natural gas, a key component in fertilizer, has surged. And top suppliers curbed fertilizer exports last year to tame inflation at home. Shortage of fertilizer can jeopardize the next harvest. In sub-Saharan Africa, fertilizer demand was estimated to have declined up to 30% in 2021 due to higher prices, resulting in potentially 33 million tons less food produced.
Across the globe, rising prices have already put even the most basic foods beyond the reach of many households. Botswana, Kenya and other countries have raised consumer taxes on household items such as food and fuel in an effort to raise revenue — only to see it drive up food inflation.
With more than 800 million people chronically hungry, the effect of food inflation is felt most profoundly in poorer countries. Other crises have been instructive about how trade policy shapes the consequences.
The global food crisis of 2007–08, originally a result of drought and soaring oil prices, saw food prices surge, causing large food-producing countries to restrict food exports out of domestic supply concerns. Other countries panicked and ramped up food imports, which caused demand to spike, pushing prices up further. The most vulnerable regions, such as South Asia and sub-Saharan Africa, sank deeper into poverty and suffered from hunger. When the pandemic hit, governments remembered the lesson of 2008 — that export bans and panic hoarding intensify price volatility — and committed to keeping the food trade flowing amid lockdowns that affected ports, freights and labor mobility. As a result, only limited disruptions to global food supply chains occurred at the beginning of the pandemic.
What should be done now? To start, large imports of Russian wheat should be exempted from the effects of current sanctions and not targeted in future ones. That will go a long way toward keeping the global food trade moving. All countries should refrain from export bans as well as reduce tariffs and taxes.
Longer term, countries that import food should find new and more diverse suppliers. Countries should also be doing more to promote freer trade within their regions. Exports can mitigate revenue losses, and imports can boost food availability and stabilize local food prices. Right now, the majority of agricultural commodities are exported to other regions instead of being traded within the regions where they are produced.
Of course, global trade is not a perfect tool. While it helps nations meet food demand, it’s also vulnerable to the shocks in one country — a war, a pandemic, a natural catastrophe — that can ripple across borders instantly. And the trends driving up food prices will persist even beyond the war or COVID. Protectionism, for example, will always be tempting to lawmakers seeking quick fixes. But if governments and industries are well prepared, there’s no reason international trade cannot continue.
As the conflict in Ukraine escalates, countries have to grapple with the food security implications. Nothing is more important than trade when it comes to access to food. War in Europe’s breadbasket should not mean a crisis of hunger too.
This article first appeared in The Los Angeles Times on March 4, 2022.