Russia’s attack on Ukraine will lead to a surge in food inflation in rich countries, while experts warn that poor countries face famine and, most likely, social unrest. This is one of the weighty reasons why Turkey is now so actively mediating between Moscow and Kiev: President Erdogan cannot but remember that in 2011 a wave of uprisings and revolutions in North Africa and the Middle East, called the “Arab Spring”, began against the background of a sharp rise in the price of bread.
Record wheat prices due to Russia’s invasion of Ukraine
At some point, this wave then reached Syria and led to a long civil war in which Russia fought on the side of the ruling regime. Now the Russian Federation is waging a new war, which has accelerated the rise in prices in Turkey, Egypt and other states of the Eastern Mediterranean and North Africa, where bread is the staple food of the poor. Indeed, two of the most important suppliers of wheat to these regions are involved in the current armed conflict: Russia and Ukraine.
However, the problem is much broader, it concerns the entire world food market, since these two countries have so far accounted for about 30% of global wheat exports, recalls Carsten Fritsch, an expert on commodity markets at the German Commerzbank. So now almost a third of the global supply of key agricultural raw materials, necessary both for the production of bread and, in the form of feed, for the production of meat, is in jeopardy.
Quotes on the Matif futures exchange in Paris (France – the largest producer and exporter of wheat in the EU) have already soared to a record level, exceeding 420 euros per ton. “Grain prices are unimaginably high,” states the German agricultural information portal agrarheute.
The main reason for the nervousness of the market is the fear that Ukraine will largely or even completely fall out this year as a supplier of grain (as well as other agricultural products). According to media reports, on March 6, the government of the defending country had already suspended the export of rye, oats, sugar, meat, livestock and restricted the export of wheat, corn, chicken, eggs and sunflower oil.
In Ukraine, both the sowing campaign and the harvest are under threat
But the main concern is something else. “It is not clear to what extent the Ukrainian agricultural sector will be able to carry out the spring sowing campaign at all now. Who will work in the fields?” asked Per Brodersen, director of the German Agribusiness Alliance at the Eastern Committee of the German Economy, in an interview with DW. This organization represents the interests of German business circles working in the post-Soviet space.
“It is also unclear who will then harvest the crop, what state the infrastructure for its collection, storage, transportation and export will be in after the hostilities,” the expert continued. According to him, the possibilities of agricultural exports from Ukrainian ports on the Black Sea are already insignificant or even completely nullified: “Let’s not forget that one of the very first actions of the Russian army during the attack on Ukraine was the capture of Serpent Island near the sea border with Romania in order to ensure thereby control over the approaches to the Ukrainian Black Sea ports.
That is why the Ukrainian railway company Ukrzaliznytsia is now urgently working on options for the delivery of export agricultural goods through neighboring countries Romania, Hungary, Slovakia and Poland to European ports. At the same time, the railway routes in the Romanian direction with access just to the Black Sea have the highest capacity.
Sanctions against Russia could seriously complicate its agricultural exports
“In the event of the occupation of significant parts of the territory of Ukraine, I proceed from the fact that they will be subject to the same sanctions that have now been imposed against Russia. They will greatly complicate payments for the supply of agricultural products,” warned Per Broderzen.
Thus, the expert of the Eastern Committee proceeds from the fact that because of the war, but in this case – because of international sanctions for unleashing the war, Russia’s ability to export wheat and other agricultural products will also be severely limited.
Sale of bread in Ankara. In 2021, Turkey purchased 70% of imported wheat from Russia
At the same time, Russian food supplies to foreign markets themselves are not authorized at all. Problems will arise both in the financing of transactions – Russian banks are cut off from international cash flows, and in logistics – many ships will refuse to enter Russian ports, and insurance companies will insure their cargo.
In this situation, the Russian Federation will seek to increase exports to China, where grain is now also rapidly becoming more expensive. German Asia specialist Professor Eberhard Sandschneider reminded DW that China “has significant economic interests in Ukraine related to the import of wheat and corn from there.” These deliveries, which have grown rapidly in recent years, are now disrupted because of the war.
“China will undoubtedly remain an important buyer of Russian agricultural products,” Per Brodersen said in turn. “However, let’s see how the trade of the two countries will be affected by the fact that the Russian railway company RZD has fallen under the sanctions.” And sanctions against the Russian banking sector could make it difficult to settle accounts with Chinese banks – or even scare away many of them.
German expert on bread prices in Russia
It is also completely incomprehensible how the war will affect the sowing campaign, and then the harvest in Russia itself. Will there be enough fuel, for example, in grain-growing regions near a vast war zone, will there be enough seeds, because they are usually imported in large quantities, to what extent, given the interrupted supply of foreign spare parts, will it be possible to use foreign agricultural equipment?
Director of the German Agribusiness Alliance Per Brodersen
Per Brodersen recalled that after the introduction of the Russian embargo on food supplies from the EU in 2014, the state actively stimulated agriculture and achieved a significant increase in gross indicators. “But at the same time, this mechanism contributed to the emergence of monopoly structures. In recent years, we have observed in Russia a significant increase in food prices while reducing their quality,” the expert recalled.
In the fundamentally new situation that has now arisen, the government of the Russian Federation will no longer have the funds that could previously be used to support agriculture or subsidize retail food prices.
Nevertheless, Per Brodersen is convinced that there will be no rise in prices specifically for bread: “They are of great political importance, and the Russian government will do everything possible to keep them at a symbolically low level, regardless of how grain prices change on the world market. “. Domestic prices will be held back by measures such as the already existing export duty, which restricts the export of wheat from the country (but deprives producers and Russia of a currency that is now so scarce).
The war in Ukraine leads to a humanitarian catastrophe in other regions of the world
The impact of international sanctions on Russian food exports is very feared by Matin Qaim, director of the Center for Development Studies (Zentrum für Entwicklungsforschung, ZEF) at the University of Bonn, which studies developing countries.
“Now the question is whether we can find ways to continue Russian food exports to prevent a humanitarian catastrophe in other parts of the planet, which will be the” collateral damage “of this war,” said Professor Kaim in an interview with DW. And he urged: “We need to seriously discuss the issue of exemptions for food supplies.”
A completely different solution is offered by the industry associations of German poultry farmers. They appealed to the German Minister of Agriculture Cem Ozdemir (Cem Özdemir) with a call to immediately stop the production of biofuels. Under the conditions of “this severe crisis,” they believe, it is unacceptable to make ethanol from grain, it must be put into feed.
The first filling station with biofuel appeared in Germany in 2005. Today fuel with 10% ethanol is called E10
The situation on the global food market on Friday, March 11, at the initiative of Cem Özdemir, will be discussed by the ministers of agriculture of the G7 (G7) during a video conference. The German politician also invited his Ukrainian colleague and representatives of the European Commission (the “government” of the EU) and international organizations to it.
“The food supply of Germany and the EU is secure, but serious shortages can be expected in some countries outside the EU,” said Cema Özdemira, noting that in some regions food shortages have already arisen due to drought.
The current extremely high wheat prices will certainly push EU farmers to expand grain crops, and if the harvest in such grain-producing countries as France, Germany, Romania, Poland, Spain and Italy turns out to be good, European exports can, at least in part, replace Ukrainian and Russian deliveries to the world market. Meanwhile, India, the world’s top three grain producer along with China and the US, has already driven its wheat exports to record levels this year.
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