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Ukraine crisis: Food prices may rise

05 April 2022 10:31 (UTC +04:00)

By Jala Azizova, Veyseloglu Group of Companies

While political and military analysts and the world media, as well as ordinary people around the globe (myself, included) are focused on the tragic events in Ukraine, there is another important development that needs the world’s attention: the current spikes in global food prices. This trend had started well before the conflict broke out in Ukraine. However, more recent food price increases caused by this conflict are already leading to food security problems around the world.

As the fighting intensified, international aid organisations and experts have been alerting the world that the existing food crises is raising the likelihood of famine in certain parts of the world. For instance, United Nations’ Food and Agriculture Organisation (FAO) estimates that if the war results in a prolonged reduction of food exports by Ukraine and Russia, the number of undernourished people globally could increase by between 8 million and 13 million.

Why the spike?

Globally, food is 20 per cent more expensive now than it was a year ago, with prices rising by a few per cent every month since January this year. What we need to understand that there is a number of various factors that have caused these price increases. These include, amongst other things, rising fuel and increased commodity prices, such as corn and wheat. And let’s not forget about what is described as supply chain disruptions. They had been causing serious problems and affecting consumer prices during and in the immediate aftermath of the coronavirus pandemic.

Bread is a staple

For a lot of families, and not just in Azerbaijan, bread is a key element to people’s daily rations. Bread prices have been rising everywhere, not just in this region. Needless to say, lots of ordinary people are bemused and concerned.

We’ve already realised that the wheat export supply chains from Ukraine have been disrupted by the conflict. Ukrainian ports on the Azov and the Black Sea coast have been blocked: subsequently port facilities in Ukraine have suspended commercial operations, preventing the outflow of the wheat crop harvested in 2021.

While the 2022 wheat crop was planted last autumn, other crops need to be planted soon. Final production for all crops in Ukraine depends on farmers being in their fields, not fighting a war, to fertilise, harvest and move the crop, if the supply chain is restored to its pre-war conditions.

What’s next?

Pundits are concerned that conflict in Ukraine will continue to push up food prices as the supply from Ukraine which is known as the “breadbasket of Europe” is cut in the short term. It might possibly be seriously disrupted in the long term too, depending on how things on the ground pan out.

First off, let’s not forget that Ukraine and Russia represent around 10 per cent and 20 per cent, respectively, of global wheat production, and nearly 30 per cent of all wheat exports come from these two countries. Most of this wheat is imported by nations in the Middle East and North Africa, for instance. Consequently, production from Ukraine, or lack thereof, influences global food security.

Since the beginning of hostilities, concerns about supply disruptions have pushed up wheat’s value to an unprecedented increase. A sad reality is that higher wheat prices will translate into higher food prices for all.

Breadbasket indeed

Many of you may have seen idyllic postcard pictures of vast sunflower fields in Ukraine contrasting clear blue sky – the iconic image that is reflected in the country's national flag. Yes, sunflower seeds and oil is another produce that this nation exports internationally.

The European nations import half of Ukraine’s production of sunflower oil, which can be found in everything from baked, canned and pre-made foods, to spreads, sauces and soups. It is also widely used in confectionary products and is an ingredient that is difficult to replace in baby food.

The vegetable oil refiners and market players in Europe are extremely concerned because they are dependent on rather regular supplies of Ukrainian sunflower seed oil to the continent.

Will sustainable agriculture be sustainable now?

Environmentalists, farmers and economists alike fear that the war in Ukraine could also mean dialing back Europe’s big ambitions to make farming clean up its impact on the climate and the environment. Less corn from Ukraine means less feed for Europe’s animals this year, and higher animal feed prices for Europe’s farmers, who are already struggling to make ends meet. A lot of that Ukrainian fodder traditionally comes via Black Sea ports that are now blocked.

Fears of looming feed shortages have fueled calls to delay or even entirely rethink the EU’s landmark sustainability plans for the agriculture sector. The European Commission is considering temporarily scrapping the requirement to leave a chunk of farmland out of production to help boost nature protection, and instead use it to grow animal feed.

The usual suspects

The tragic events in Ukraine has also shocked energy markets. Russia produces 23 per cent of the world’s natural gas, and about 40 per cent of the European Union’s natural gas comes from Russia. Russia is also a major exporter of oil. Sanctions have helped pushed up Brent crude oil prices by more than 60 per cent since the beginning of the year, although they are not the only reason the price of oil is high.