Why is the Ukraine war causing a worldwide food crisis and can anything be done?

The head of the United Nations has said there is a looming global food crisis because of the impact of Russia’s invasion of Ukraine.

Surging inflation – boosted by higher energy prices as the West disengages from Russian oil and gas supplies – has been exacerbated by rising food prices, leading to fears that many of the world’s poorest will not be able to afford to feed themselves.

Finance ministers from the G7 met on Thursday to deal with the immediate effects of Vladimir Putin’s war in Ukraine and also the COVID-19 pandemic, which is also to blame for causing prices to rise.

And on Wednesday, officials from among others the US and the World Bank rolled out a multibillion-dollar plan to try to offset the dangers.

But what is it that is making the situation so severe?

Food

The problem stems from the fact that Russia and Ukraine are huge exporters of some of the world’s biggest staple foods.

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Between them, they are responsible for 53% of global trade in sunflower oil and seeds and 27% of the wheat trade, according to the UN Conference on Trade and Development.

At the moment, Ukraine has vast quantities of wheat in storage that, because of the war, it is unable to export.

Besides the fact that many of the shipping companies that would be transporting that wheat or oil around the world just won’t take the risk that their ships will be caught up in the fighting, satellite photos have revealed that the Russians are actually blocking vessels from moving to and from the ports on the Black Sea that are so important for exports.

Louise Jones, of McKenzie Intelligence, told Sky News: “Odesa and Mykolaiv are two of the key grain exporting ports.

“Mykolaiv is on the Dnipro River and you can see quite clearly on satellite imagery that the Russians have a chain of barges across the river mouth, so that’s pretty effectively blocked it off. And you can also see a Russian corvette that’s lurking nearby.

“Odesa, unlike Mykolaiv, isn’t blocked off, but we know they’ve been laying minefields and the problem with the minefields is that the Russians who laid them aren’t really sure where they are.

“And then you’ve got the Black Sea fleet, which is reactive. It hasn’t got the flagship anymore, but it’s still got frigates and corvettes, so quite difficult to just push aside.”

She said that while she wasn’t aware that the Russians had issued a direct threat to any shipping companies, they “just couldn’t take the risk”, of attempting to dock and load up with food exports.

“You need very fixed assurances before you risk taking an expensive ship past some of these guns.

“We do a lot of work for the insurance industry, keeping an eye on marine assets. These are saying… they’ll pick it up after the war, they’re not insured to start running a blockade.“

While Russia is not subject to a blockade, it is subject to severe Western sanctions, which may be affecting its ability to trade with countries around the world.

Why are wheat and sunflower oil so important?

While much of the developing world gets most of its food energy from rice, in many parts of the world, imports of wheat and oil provide the majority of calories that people consume.

It’s estimated that wheat provides 15% of the world’s calories, according to World Atlas, with vegetable oil (of which sunflower oil is just one of four main types), providing a further 10% of the energy humans consume.

Demand isn’t likely to go down, so when such huge suppliers like Ukraine and Russia are unable to export as much, prices inevitably rise.

Adding fuel to the fire has been defensive moves by other major producers, with countries like India banning wheat exports on Saturday, partly due to a scorching heat wave that has curtailed output, and Indonesia, the world’s top palm oil exporter, halting exports of crude palm oil (CPO) and some derivative products in late April in a bid to control domestic prices.

Meanwhile, in some parts of France, extremely dry weather has caused severe damage to grain crops as the country experiences record temperatures for May, a crucial month for winter crop development.

Experts say substantial rain will be needed by early June to allow those in large producing regions of the European Union’s largest grain producer to pull through.

What has been the impact on worldwide prices?

Wheat prices have rocketed since the invasion of Ukraine on 24 February.

One of the worldwide benchmarks for wheat prices – the cost of a bushel of wheat on the Chicago Board of Trade (CBOT) index – has seen dramatic peaks in early March and in the last week or so.

Of course, because of the war, the situation in Ukraine is not likely to improve, with many areas either under Russian occupation or just hit by the impact of large numbers of Ukrainians – some of whom might have been farming – occupied with seeing off what they view as an aggressor.

The International Grains Council on Thursday cut its forecast for wheat production in 2022/2023 to 769 million tonnes from 780 million.

Meanwhile, vegetable oil prices have also risen.

The International Food Policy Research Institute says that, as with a number of other commodities, prices for many vegetable oils were at very high levels prior to the invasion. But, since then, vegetable oil prices have risen by almost 30% on average.

Who is likely to suffer the most?

While Ukraine exports huge amounts of grain to countries around the world, its major customers tend to be in Asia and Africa.

According to the United Nations Conference on Trade and Development (UNCTAD), as many as 25 African countries, including many least developed countries, import more than one third of their wheat from the two countries at war.

For 15 of them, the share is over half.

In addition, the World Food Programme – which feeds some 125 million of the world’s most needy – buys 50% of its grain from Ukraine.

It led UN food chief David Beasley to appeal directly to Russian President Vladimir Putin on Wednesday, saying: “If you have any heart at all, please open [Ukraine’s] ports.”

He said: “Failure to open the ports will be a declaration of war on global food security, resulting in famine and destabilisation of nations as well as mass migration by necessity.

“This is not just about Ukraine,” he added. “This is about the poorest of the poor around the world who are on the brink of starvation as we speak. So I ask… please open these ports… so that we can feed the poorest of the poor and avert famine, as we’ve done in the past, when nations in this room have stepped up together.”

Fertiliser

But the threat to worldwide food supplies does not just come from problems with Ukrainian and Russian wheat supplies.

Rises in energy prices have had a huge knock-on effect on the cost of producing the fertiliser needed to grow plentiful amounts of crops around the world. This is because manufacturing fertiliser is particularly energy intensive.

And, Russia and Belarus – which has backed Moscow in its intervention in Ukraine and is also under sanctions – are the source of more than 40% of global exports of the crop nutrient potash.

The impact has been seen in the prices of fertiliser, despite it being relatively localised, as illustrated by this graph that shows the price of a particular type of nitrogen-based fertiliser sold in Middle Eastern countries.

There are further ever-deeper spiralling effects that spin out from Russia’s invasion of Ukraine, and the subsequent sanctions on Vladimir Putin’s regime – some of them probably yet to emerge.

One that has already been predicted – that will further push up food and energy prices, as well as the cost of all goods – is the impact on worldwide freight, the cost of which is entirely reliant on fuel.

What might be the consequences?

With people around the world reeling from the shock of rising food prices, the IMF has already predicted that there could be unrest.

There are signs that rising prices in energy is having an effect – with violence seen in Sri Lanka blamed partly on fuel price hikes.

Food prices are adding to Sri Lankan’s woes with inflation hitting 29.8% in April, as food prices expanded 46.6% year-on-year.

In the last few days, reports have emerged that unrest has broken out in Iran, amid protests against rising food prices.

The risk of unrest was raised by UNCTAD in a report in March that examined how similar food price shocks had coincided with unrest in the last decade or so.

A report said: “Long-standing effects of rising food prices are hard to predict, but an UNCTAD analysis of historical data sheds light on some troubling possible trends,” as it pointed to food commodity cycles coinciding with major political events, such as the 2007-2008 food riots and the 2011 Arab Spring.

What about the UK?

The impact on the UK is hard to gauge as the UK does not rely on Ukraine or Russia for its wheat supplies.

Indeed, while the amount imported from each country varies from year to year, UK flour millers mostly import German, French, US and Canadian wheat, according to the industry body that represents them.

Yet, that won’t mean the UK is immune.

Alex Waugh, director of UK Flour Millers, said in March that the “sharp jump in market prices follows earlier increases as a result of relatively poor harvests in 2021. It is inevitable that in time they will feed through in increased consumer prices for a range of foodstuffs that depend on grain as a key input. These include items like bread but also a range of other foods such as eggs, meat and more”.

What can be done about it?

UN Secretary-General Antonio Guterres said on Wednesday that he was in “intense contact” with Russia, Ukraine, Turkey, the United States and the European Union in an effort to restore Ukrainian grain exports.

Mr Guterres said he was “hopeful” of an agreement to ease the problem and that Russia would allow the export of grain stored in Ukrainian ports and ensure Russian food and fertiliser would have unrestricted access to global markets.

But he also told a ministerial meeting “there is still a long way to go”.

The IKAR consultancy said that Russia may export more wheat in the coming season due to a large harvest and stockpile, further raising hopes.

But the chances of that were dashed on Thursday when Russia appeared to dismiss any chance of a breakthrough, with Moscow insisting that sanctions would have to be reviewed if it were to open access to Ukraine’s grain exports – something that is unlikely considering Western resolve.

Interfax quoted Russian Deputy Foreign Minister Andrei Rudenko as saying: “You have to not only appeal to the Russian Federation but also look deeply at the whole complex of reasons that caused the current food crisis and, in the first instance, these are the sanctions that have been imposed against Russia by the US and the EU that interfere with normal free trade”,

Louise Jones told Sky News the blockade is unlikely to be breached, by NATO or Ukraine, even if the Ukrainians are supplied with advanced weapons.

She said: “That would be an open confrontation with Russia that I think NATO has steered away from.

“The Ukrainian navy is not in that position.

“At this stage, the only way out would be UN-brokered. It would be Putin being persuaded that Russians escorting grain ships out to feed the world would be a good PR move. So, basically, we’re waiting on the goodwill of Putin.”

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