Is the world under a food threat because of the Russia-Ukraine War? Already one in ten people in the world do not have enough to eat and millions have been pushed into poverty and hunger by the impact of extreme weather events and the fallout of the COVID19 pandemic. Adding more to this is the invasion of Russia in Ukraine that has brought over its potential negative impact on food security.
“As hunger threatens Ukraine directly, the fallout from this war will spread across the globe. Russia and Ukraine together export about 30 percent of the world’s wheat,” said WFP Executive Director David Beasley.
MARKET SHARES
In 2021, Russia Federation or Ukraine (or both) ranked amongst the top three global exporters of wheat, maize, rapeseed, sunflower seeds and sunflower oil, while the Russian Federation also stood as the world’s top exporter of nitrogen fertilizers and the second leading supplier of both potassic and phosphorous fertilizers, the FAO said.
TRADE PROFILES
Several countries, especially the Least Developed Country (LDC) and Low-Income Food-Deficit Country (LIFDC) are highly dependent on imported foodstuffs and fertilizers. These countries, already prior to the conflict, had been grappling with the negative effects of high international food and fertilizer prices.
TRADE RISK
The recent war in Ukraine has led to port closures, suspension of oilseeds crushing operations and introduction of export licensing requirements for some crops. Moreover, the FAO says that it is uncertain if Ukraine would be able to harvest its crops during protracted conflict. Much uncertainty also surrounds Russian export prospects going forward, given sales difficulties that may arise as a result of economic sanctions imposed on the country.
PRICE RISK
The FAO mentions about a sudden and steep reduction in grain and sunflower seed exports by the two countries, which could push up international food and feed prices by 8 to 22 percent above their already elevated levels. Even if alternative producing countries expand their output in response to the higher prices, a considerable supply gap would still remain.
PRODUCTION RISKS
In Ukraine, farmers cannot attend to their fields, harvest and market their crops. Apart from this, disruptions to essential public services could also negatively affect agricultural activities. The FAO estimates that between 20 and 30 percent of the areas under winter cereals, maize and sunflower seed in Ukraine will either not be planted or remain unharvested during the 2022/23 season, with the yields of these crops also likely to be adversely affected.
In the case of the Russian Federation, although no major disruption to crops already in the ground appears imminent, uncertainties exist over the impact that the international sanctions imposed on the country will have on food exports. Over the medium term, the loss of export markets that they may entail could depress farmer incomes, thereby negatively affecting future production decisions.
HUMANITARIAN RISKS
The war will undercut the purchasing power of local populations, with consequent increases in food insecurity and malnutrition. Humanitarian needs in neighbouring countries, where displaced populations are seeking refuge, are also set to increase. if the conflict results in a sudden and prolonged reduction in food exports by Ukraine and the Russian Federation, it could exert additional upward pressure on international food commodity prices to the detriment of economically vulnerable countries in particular.
ENERGY RISKS
With Russia being such a huge player in the energy sector, inevitable prices hikes resulting from sanctions on its oil and gas will limit access to food for some of the most vulnerable people in the world, many of whom are already facing super-high inflation. Higher energy prices also make agricultural feed stocks (especially maize, sugar and oilseeds/vegetable oils) competitive for the production of bio-energy and, given the large size of the energy market relative to the food market, this could pull food prices up to its energy parity equivalent.
EXCHANGE RATE, DEBT, AND GROWTH RISKS
The Ukrainian Hryvnia reached a record low against the US dollar in early March. The economic sanctions imposed on the Russion Federation have also led to a significant depreciation of the Russian Rouble. Agriculture is the economic backbone of many developing countries, the majority of which rely on the US dollar for their borrowing needs. As such, a lasting appreciation of the USD vis-à-vis other currencies may have negative significant economic consequences for these countries, including for their agrifood sectors. Moreover, the potential reduction of GDP growth in several parts of the world will affect the global demand for agrifood products with negative consequences for global food security, while also likely reducing the availability of funds for development, in particular if military expenses increase globally.
RECOMMENDATIONS
- Keep trade in food and fertilizers open by preventing the conflict from negatively affecting productive and marketing activities in both countries in order to enable them to meet domestic production and consumption needs, while also satisfying global demands.
- Diversification of food supply for countries that directly rely on food imports from Ukraine and the Russian Federation will be key to help them absorb shocks and remain resilient amid the conflict
- Support vulnerable groups, including internally displaced people.
- Avoid ad hoc policy reactions.
- Strengthen market transparency and dialogue.
