The Russia / Ukraine crisis continues to worsen, with Russian forces now reported to be active within Ukrainian borders.
In addition to humanitarian concerns, this has wide economic and commercial implications for food, since both parties are major producers and exporters of agricultural products.
Global food commodity markets are dominated by a few very large exporters – for example, Brazil accounts for 46% of all the global soybean trade, whilst Vietnam accounts for 20% of the coffee trade 1.
Production performance of these key players therefore has a strong influence over global pricing. This has been demonstrated several times in recent years.
For example, in 2010 a drought reduced wheat yields in Russia and the Russian government banned exports in August.
Global prices rose from around US$220 / tonne in August 2010 to US$320 / tonne by February 2011. At least part of this increase may be attributed to Russian action, which restricted global supply. Other possibilities could include market speculation, currency change or poor harvests elsewhere.
Russia and the Ukraine are large countries, with correspondingly large areas of agricultural land – Ukraine in particular is noted for the quality of its “Black Earth” soils (or “Chernozem”).
(sq km, 2018)
|Share vs World
Source: World Bank, February 2022
Both countries export large amounts of grain and vegetable oils - Russia is also the world’s leading exporter of fertilizer (many fertilizers are derived from natural gas, which Russia has in abundance).
||Share of global exports
|Share of global exports
Source: FAO / IGD analysis, February 2022
Events in the Ukraine have already impacted global prices for oil and gas and this is having a direct impact on consumers in the UK in the form of higher bills for motor fuel and domestic utilities.
Impacts on global food markets are likely to be more complex, but equally serious.
In the best case, it is reasonable to assume that current events will lead to reduced planting in the Ukraine this spring, reducing the amount of grains and oil available for export.
This may not affect consumers in Europe directly – most wheat exported from Ukraine goes elsewhere, especially to customers in North Africa and Southern Asia (the wheat is mostly “soft” and ideal for making flat breads, noodles and so on).
Barley is sold to China and also to customers across North Africa and the Middle East.
For Ukrainian maize, China is a key customer, but large amounts also flow into European countries such as the Netherlands, Spain and Italy.
If these clients are unable to source all the grain they need from Ukraine, then they will be forced to source elsewhere, pushing prices upwards. This suggests that we should expect still further inflation for consumers around the world in 2022.
Historically, food price increases have been associated with political change on many of the areas that Ukraine exports food to (eg: the Arab Spring of 2010-11)
Click chart to enlarge
1 Source; FAOSTAT / IGD analysis. Average based on export tonnage for 2016-20.
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