Ed Cropley explores the impact of the conflict between Russia and Ukraine on the prices of staple food. Grain prices have soared because the two nations combined export close to 30 percent of the global trade, with wheat now priced at more than $14 a bushel.
- The conflict between Ukraine and Russia has driven cost of staple commodities upward.
- Poorer countries are likely to be more adversely affected by the rise in commodity prices.
- The increase in this commodity could have a butterfly effect on international markets.
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This article was written by Reuters Breakingviews columnists and editors for distribution on Refinitiv Perspectives. Refinitiv is the exclusive provider of Reuters news to the financial community.
Russia is scattering the seeds of political instability across the world.
Since Moscow launched its full-scale invasion of Ukraine three weeks ago, prices of wheat, maize and soybean have rocketed to record or near-record levels.
A previous price spike in 2007 led to food riots in Africa and Asia. This year’s bread crunch may be worse.
Staples prices rising before conflict
Even before President Vladimir Putin authorised his assault, the cost of staples was rising sharply as demand bounced back from the COVID-19 pandemic. The Food and Agriculture Organization’s Food Price Index jumped 21 percent year-on-year in February.
Since then, the cost of a bushel of wheat has soared by nearly 80 percent, to above $14.
Traders are fretting about interruptions to exports from Russia and Ukraine, which between them account for nearly 30 percent of the world’s traded supplies. By comparison, wheat has traded at around $5 a bushel for much of the last decade.
In 2011, when rising food prices fuelled protests and revolutions across the Arab world, it was around $8.
Poorer countries to bear the brunt of the pain
This time the costs will particularly fall on poorer countries.
The average household in Nigeria, Africa’s most populous nation, spends over half its income on food, compared with just 6 percent in the United States, according to the World Economic Forum.
In Egypt, routinely the world’s biggest wheat importer due to generous state bread subsidies, the government is braced for a nearly $1bn hit to this year’s budget, almost 1 percent of total planned spending.
The upheaval is only just beginning.
Although farmers from Ireland to Kenya are rushing to get more crops in the ground, it will be months before their harvests hit the market. In addition, farmers have to contend with higher oil prices and a looming shortage of fertilisers: Russia and Ukraine are also big exporters of nutritious minerals like potash.
Meanwhile, national larders are worryingly empty.
Lebanon, whose main grain silo blew up in 2020, only has two months of reserves. Egyptian wheat stocks are at their lowest in at least a decade.
The impact of high grain prices stretches across the globe
The last time grain prices jumped so dramatically was in 2007, when wheat rose to more than $13 a bushel following poor rice harvests in Vietnam and India.
Riots ensued from Indonesia to Ivory Coast, Mexico froze food prices for a year and Haiti’s government fell. The world is set to reap an equally grim global harvest.
