Atlantic Council, by Niels Graham and Inbar Pe’er: Together, Russia and Ukraine account for nearly a third of global wheat exports. However, following Russia’s attack on its neighbor, both vital supply chains have been crippled. The war will impact global grain markets most acutely in the MENA region, with possibly devastating economic and political ripple effects.
Following Russia’s invasion, Ukrainian port infrastructure has been destroyed and the Black Sea is now mined and blocked. The impact on Ukraine’s wheat trade has been severe. Nearly 80% of Ukraine’s grain exports flow through its southwestern ports of Odessa, Pivdennyi, Mykolayiv, and Chornomorsk into the Black Sea. Today, even if ships are able to find a place to dock and load bulk grain shipments (which most fail to do), insurance is either prohibitively expensive or unavailable to sustain a voyage.
Unlike Ukraine, Russian exports are, largely, not diminished by production disruptions. Rather, decreased Russian wheat exports are the result of merchants electing to not participate in the Russian market. Although food is not subject to sanctions, traders and banks are reluctant to facilitate trade from Russia for fear of being fined by foreign governments, or shamed by the Western press. Russia has also experienced exceptionally high insurance premiums on shipping, with rates jumping at least 400%, from an estimated pre-invasion rate of 0.025% to anywhere between 1% to 2%, reaching as high as 5%. The costs of trading with Russia are simply too high—both optically and literally.
The impact of decreased Russian and Ukrainian exports on the grain market can already be felt. AgFlow, a crop data company, estimated only around 73 agriculture vessels departed from Russian ports during the first two weeks of March, down from around 220 vessels over the same time period last year. Similarly, the United States Department of Agriculture (USDA) reduced estimated wheat exports from both Russia and Ukraine by 7 million tons—or nearly 12% of pre-invasion projections. Although the pessimistic projection has been partially offset by abundant rainfall and better-than-expected harvests in Australia and India, and to a lesser extent Canada, global wheat exports are still projected to drop by around 3.5 million tons when compared to pre-conflict estimates.
Impact on the wheat prices
This export loss caused already high wheat prices to skyrocket globally. Since January, wheat prices have surged around 62%, from an average price of $6.93 a bushel throughout 2021 to over $11 a bushel. Earlier this month, the United Nations (UN) Food and Agriculture Organization announced the February reading of the Global Food Price Index, which also tracks global food prices, saw a 20.7% year over year increase and had reached an all-time high. The UN also estimated the number of people experiencing food insecurity around the world could be at a 15-year high because of the effects of the COVID-19 pandemic, on top of the negative impacts of climate change. Russia’s invasion of Ukraine will only exacerbate this unfortunate reality as prices compound and supply chains break down.
Further straining the global wheat supply, China, the world’s largest wheat consumer, announced its winter wheat crop could be the “worst in history.” Rare heavy rainfall in 2021 delayed the planting of about one-third of the normal wheat acreage. As a result, China’s Ministry of Agriculture and Rural Affairs warned harvests could be down by more than 20%. This will only push up global prices further.
To address this production shock, China’s Finance Ministry allocated an additional $6.59 billion in agricultural subsidies. It will also prevent attempts to use cropland for any purpose other than agriculture, and specifically grain production—though this will not boost production in the short term. China does, however, maintain the world’s largest grain stockpile which accounts for around 51% of global wheat reserves and can meet Chinese demand for around one and a half years. Although Chinese consumers are unlikely to notice any shortages, wheat prices may remain elevated as Beijing balances domestic supply and demand.
Where will the impact be most felt?
The MENA region will feel the supply crunch most acutely. Much of the region relies on wheat imports, and spiraling food costs will contribute to existing famine and inflame widespread public anger. Bread is a particularly politically charged commodity, which has a history of sparking violent national protests in the region. The reason for this correlation is simple; in many MENA countries, basic food prices such as bread are heavily subsidized by the government. When prices rise to an unattainable level, the government can no longer afford to keep prices low, triggering wider protests about broader political grievances.
Egypt, the world’s top wheat importer, is a prime example. Cairo gets 80% of its wheat supply from Russia and Ukraine. As a result, annual state spending on imports will nearly double because of the conflict. Though the government claims its strategic reserves are enough to cover supply through the end of 2022, the price of unsubsidized bread has already jumped by as much as 25% and the government has been forced to set a fixed price for it. Even if the government relies on its reserves now, it would be like putting a band aid on a bullet wound.
Unfortunately, the grain shortage will not be going away anytime soon, but will only get worse as the war in Ukraine drags on. When it does, we can expect major political upheaval in the MENA region. In 1977, the Egyptian Bread Riots erupted when the state stopped subsidizing basic food supplies. Similar protests erupted with the same trigger in 2008, 2011, and most recently in 2017. In fact, some have argued that the Arab Spring was driven in large part by rising food prices. Food prices today are higher than they were in 2011, and are only climbing higher. Rising prices will likely trip the fuse—not just in Egypt, but across the region in countries like Tunisia and Algeria as well. Other countries such as Lebanon, Syria, and Yemen will face even worse outcomes. Rising food prices will exacerbate already appalling humanitarian conditions, conflict, and widespread famine. Through global wheat markets, it is clear the impacts of Putin’s war of choice will be felt far beyond Europe.
Prophetic Link:
“I saw that the powers of earth are now being shaken and that events come in order. War, and rumors of war, sword, famine, and pestilence are first to shake the powers of earth, then the voice of God will shake the sun, moon, and stars, and this earth also.” Early Writings, page 41.
Comments
Will Flatt
Monday April 25th, 2022 at 12:11 PMLike Volodymyr Zelensky, Putin is a globalist puppet. As is Joe Biden. They and their masters (like Claus Schwab, George Soros, Bill Gates, et.al.) are manufacturing a global famine because 8+ billion people on this planet is too much for their agenda. They want to cull no less than 80% of us!
To make matters even more troubling, food processing plants all over the USA are being blown up or burned down. So if you haven’t started already, make 2022 the year that you, your family and your friends all pitch in together to start as large a garden as you can, and grow as much food as you can. If you don’t have land on which to grow your own food, but have a basement, then consider hydroponics and vertical gardening! It’s fun and there’s a LOT of science behind it now that allows you to use non-hybrid seeds and still maximize yield, etc.
All we need to do is keep our faith in Jesus, whose name means ‘Yahweh Saves’ (praise His HOLY name!) …and hold on till he returns, his coming is IMMINENT! Thank God!