A feature of the war in Ukraine is its impact on the world food supply and thereby the price of it. There was already a problem via the impact of higher energy costs even before the war began as they were making energy intensive types of farming uneconomic. This was in addition to raising prices across the board. The further push from the Ukraine war meant the UN told us this as March began.
The FAO Food Price Index* (FFPI) averaged 140.7 points in February 2022, up 5.3 points (3.9 percent) from January and as much as 24.1 points (20.7 percent) above its level a year ago. This represents a new all-time high, exceeding the previous top of February 2011 by 3.1 points.
The significance of the food price rises of 2011 were that they led to the riots and revolutions of the Arab Spring. This time around the price rises are being led by these.
The February rise was led by large increases in vegetable oil and dairy price sub-indices. Cereals and meat prices were also up, while the sugar price sub-index fell for the third consecutive month.
If we bring the war into focus it has a direct impact here.
World wheat prices increased by 2.1 percent, largely reflecting new global supply uncertainties amidst disruptions in the Black Sea region that could potentially hinder exports from Ukraine and the Russian Federation, two major wheat exporters. Coarse grain export prices also rose by 4.7 percent.
Maize too.
World maize prices increased by 5.1 percent month-on-month, underpinned by a combination of continued crop condition concerns in Argentina and Brazil, rising wheat prices, and uncertainty regarding maize exports from Ukraine, a major exporter.
Bringing it up to date
The New York Times summarises the present situation like this.
A crucial portion of the world’s wheat, corn and barley is trapped in Russia and Ukraine because of the war, while an even larger portion of the world’s fertilizers is stuck in Russia and Belarus. The result is that global food and fertilizer prices are soaring. Since the invasion last month, wheat prices have increased by 21 percent, barley by 33 percent and some fertilizers by 40 percent.
This mornings producer price release from Germany shows us the state of play there in February.
Especially high were the price increases of fertilisers and nitrogen compounds (+71.7%),
That contributed to this.
From February 2021 to February 2022 food prices increased by 9.2%. Especially high was the price increase of butter (+64.6%). Prices of crude vegetable oils increased by 50.1% though they slightly fell compared to January (-2.2%). Prices of meat of bovine animals rose by 25.6% compared to February 2021, coffee prices by 16.9% and prices of bakery and farinaceous products by 7.4%.
I had to look farinaceous up and it means starch so bread and potatoes and the like.
Whilst prices have already risen there is further pressure on the way from the consequences of this.
Ukrainian farms are about to miss critical planting and harvesting seasons. European fertilizer plants are significantly cutting production because of high energy prices. Farmers from Brazil to Texas are cutting back on fertilizer, threatening the size of the next harvests. ( New York Times)
Another Arab Spring?
These things always have more impact in places which were already in trouble and few are in a worse mess than the Lebanon.
Even before the Ukraine crisis, Lebanon was in the grip of a financial meltdown; its currency has lost more than 90 per cent of its value since 2019. With more than 70 per cent of its wheat imports coming from Ukraine, consumers have been dealt a further blow. ( Financial Times ).
Or as we are told by Claudius in Hamlet.
“When sorrows come, they come not single spies, but in battalions”
Or as the FT puts it.
Since the start of March, flour has disappeared from the shops and the price of bread has increased by 70 per cent. “Supermarkets are hoarding basic goods, then selling them at higher prices,” said Hamieh.
According to the FT many other places in Africa depend on Ukraine for food.
Apart from Lebanon, Ukraine is a leading supplier of wheat to Tunisia, Libya and Syria. Egypt, the world’s largest wheat importer, relies on Russia and Ukraine for more than 80 per cent of its wheat purchased on international markets, according to UN Comtrade data.
They are trying to ameliorate it as best they can.
Governments across the region have sought to contain the knock-on effect by attempting to procure more food supplies from other producers in Europe, rationing and imposing export bans on staples including flour, pasta and lentils. Lebanon has allocated all its flour supplies to bread production, and the government has also increased the price.
One of the countries which was heavily impacted by the Arab Spring seems to be struggling this time around as well.
Egypt has adopted drastic measures to ensure that its subsidised bread programme, which feeds 70mn people, will remain on course despite the war. Officials say they have four months’ worth of wheat in their granaries, and the local harvest will start in mid-April.
It is not clear to me that potentially criminalising farmers will make the situation any better.
As an incentive, the government has increased the price it pays farmers and laid down a minimum level of grains that growers are required to sell to the state. They will also need permission to transport or sell any wheat above that quota. Failure to comply could result in a jail sentence.
What if the government price is below the cost of growing the wheat?
Was it not Lenin who offered bread and land?
The subsidised bread programme is at the core of Egypt’s social protection system. Successive regimes have been wary of increasing the price of bread for fear of unleashing social unrest.
There is trouble in Tunisia as well.
In Tunisia, the expectation of more shortages and the approaching holy month of Ramadan, when food consumption rises, have prompted panicked shoppers to empty supermarket shelves.
In fact it was already in crisis.
Having seized power eight months ago, suspending parliament and the constitution, Tunisian president Kais Saied has yet to come up with a plan to address the deteriorating economy. In recent months, the government has sometimes fallen behind in paying public sector wages and there were flour shortages even before the war.
Algeria has its problems too
São Paulo – Algeria has banned the export of basic consumer imports, such as sugar, pasta, oil, semolina e wheat derivatives. The measure was taken on Sunday (13) in a meeting of the Council of Ministers chaired by Algerian president Abdelmadjid Tebboune and announced in a statement. ( anba)
The situation spreads well beyond Africa.
Armenia, Mongolia, Kazakhstan and Eritrea have imported virtually all of their wheat from Russia and Ukraine and must find new sources. But they are competing against much larger buyers, including Turkey, Egypt, Bangladesh and Iran, which have obtained more than 60 percent of their wheat from the two warring countries. ( New York Times)
Comment
Sadly this sort of situation always hits the weakest the hardest. There is simply less scope to accommodate the higher prices. In the case of various part of Africa the impact is direct via their imports from the warring nations but the impact will reverberate around the world as they respond by trying to find supply from elsewhere. The ultimate problem here is both the supply and price of fertiliser which is a barrier to farmers elsewhere increasing production. Of course added to this is that we do not know whether farming in 2022 will be lucky or unlucky with regards to the weather.
These issues will affect us in the UK as well as we note yet again the likely stagflationary path of 2022. As the prices of such essential or as central bankers put it non-core items rise there will be less money for other things.
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