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These days, Ukraine is more than just the ‘bread basket of Europe’. In countries across the world reliant on its wheat supply, shortages and rising prices threaten food security for millions

Three weeks after the start of Russia's invasion of Ukraine, the war is wreaking havoc not just on the battlefield, but also potentially in the many nations that rely on either country to supply them with wheat. The World Bank has indicated that there are already wheat supply shortages in a number of developing nations due to the disruption of Ukrainian exports. 

The UN has issued a warning of what it describes as a global "hunger hurricane", the effects of which are already being felt in North Africa. António Guterres, the UN Secretary-General, flagged up the threat of world hunger posed by the conflict. He said: “The resulting meltdown of the global economy is provoking a hunger crisis that is hitting the poorest hardest.”

Ukraine, along with south-western Russia, has long been referred to as "Europe's bread basket" due to its rich, dark chernozem soil. Almost 15% of global wheat production and over 30% of global exports – used for bread, noodles and livestock feed, among other things – come from the region.

As the Russians strengthen their onslaught along the Black Sea coast, the prolonged battle has effectively blocked off these vital food producers from the rest of the world, with nothing leaving the ports.

Bushel inflation 

A surge in metals, energy and agriculture prices has fuelled inflationary pressures worldwide and posed new challenges for monetary policy since the invasion. Because of the impacts of the Covid-19 outbreak, food prices were already high before Russia invaded Ukraine, according to the Food and Agriculture Organisation.  

The price of a bushel of wheat was $8.70 at the start of this year and went up to $12.94 when the war broke out; this was the biggest rise in 14 years, up by 41%. Now it has dropped to around $11 per bushel, but there is still concern that it will climb again if war continues. Another aspect is that wheat producers in the US are worried about drought, and China is experiencing historically awful farming conditions, which is driving market anxieties.

Wheat is a key food staple, and rising prices will stress governments' budgets and contribute to world hunger and instability. The recent increases have surpassed the highs of a decade ago, during the global food-price crisis, which helped provoke the Arab Spring. 

Increasing fuel prices and fertiliser costs are further adding to the input costs of grains since many western and African countries import fertiliser from Russia. The price of urea, a nitrogen fertiliser, had already tripled in price over the last year due to rising energy costs. But with Ukraine and Russia being both significant fertiliser manufacturers, there is further pressure on agricultural expenses as the war drives energy prices even higher. 

Price increases disproportionately affect poorer countries, many of whom were already 

struggling financially prior to the pandemic, with some facing debt difficulties. It is likely that they will be forced to resort to nations where the wheat price is not as cheap as in Ukraine and Russia, putting pressure on their budget and balance of payments.

The Maghreb’s daily bread

The wheat shortage has already begun to hurt Egypt, Tunisia and Algeria. Ukraine's wheat is a major source of food for many Maghreb countries, with their need for foreign imports even greater this year due to the ongoing drought in the region. 

For Egypt, it has had particularly catastrophic effects. Egypt is the world's largest wheat importer, with Russia providing 60% and Ukraine 40%. The country is currently witnessing a rise in unsubsidised bread prices. Meanwhile, Egypt's bread subsidy programme is under threat. Millions of individuals benefit from this initiative, which gives them 150 loaves of subsidised bread per month.

The programme requires approximately 9 million tonnes of wheat per year, which accounts for over half of Egypt's total wheat consumption. The government pays about 90% of the production costs, which total $3.25 billion each year. But price rises because of the Ukrainian war could nearly double that amount.

Meanwhile, Tunisia is experiencing a financial crisis, as well as a 6% inflation rate. The country is already short of semolina and flour, which the government subsidises, as a result of its inability to pay wheat and barley ships docked in Tunisian ports due to its fiscal plight. 

In 2019, half of Tunisia's wheat imports came from Ukraine. Faced with growing prices, many Tunisians are struggling to feed their families without these subsidised goods, with long queues outside bread shops. 

Middle East unrest 

The price hikes will affect millions of people who live in poverty in the Middle East. Many countries have been hit by inflation and large public debts, while others have been destroyed by war. Any disruption to food supply, even a minor one, would plunge these countries into a severe food crisis, with thousands of people dying as a result.

Syria no longer produces enough wheat to feed its population, so it relies on imports and is now rationing wheat through the World Food Programme (WFP), which itself sources more than half of its wheat from Ukraine.

Yemen, where 17 million people need food assistance, is on the brink of famine; WFP is assisting 13 million of them. The country is almost entirely dependent on food imports, about 30% of which currently come from Ukraine. In mid-March, the UN called for $4.3 billion in funds to help the country, warning that more than 160,000 people there may suffer famine conditions during the second half of this year. 

Lebanon, meanwhile, is warning that if bread prices continue to rise, the central bank will be unable to provide subsidies. The country imports about 600,000 tonnes of wheat each year, with 80% coming from Ukraine and the rest from Russia and Moldova. Wheat remains the only product that is fully subsidised by its central bank – and there is concern it may stop doing this in the event of a global increase in prices, which would lead to a rise in the local price of bread. 

High energy prices followed by poor weather triggered the serious spikes in food prices in 2007-08 and 2010-12. These abrupt peaks triggered riots and eventually political upheaval, the effects of which are still being felt today. A failure to control food inflation in the Middle East and Africa would result in political and social instability. Such unrest could result in a new surge of migration into Europe, which is the last thing the European Union needs right now.

Solving the wheat shortage

Beyond the disruption of wheat supply, the exclusion of Russia’s banks from the Swift system make it even more difficult for African and Middle Eastern countries to import from Russia. Egypt, Libya and Lebanon are already seeking new suppliers for their wheat imports; the Egyptian government has been in contact with 14 countries. 

In the immediate term, expanding the global wheat supply will be tough. In the European Union and the US, about 90% of the wheat is planted in autumn, which currently leaves little room for expanding production.

South American wheat producers, especially Argentina, have large surpluses from the last harvest available for export. Kazakhstan and Canada are large wheat producers who harvest in the fall. Their exports may be able to cover much of the deficit caused by the loss of Ukraine production in the coming year and beyond – but at higher cost due to longer shipping routes and increased transportation costs resulting from higher oil prices.

The Russia-Ukraine conflict poses a significant threat to global food security. The consequences, both short- and long-term, will be determined by how the war plays out and how it affects Russian and Ukrainian exports in the following months and years. The impact of global price hikes and cereal shortages on wheat importer countries will also be determined by the responses of producer countries such as India, Argentina, US and Canada in terms of how much wheat they can offer to those currently reliant on Russia or Ukraine.

Written By: Olivium staff.


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