27

As of now at the end of March 2022, it is quite common to find articles in the media and also some declarations by world leaders talking about a food crisis caused by the Ukrainian war. Here are some random examples from a quick internet search:

The Local

French President Emmanuel Macron warned of “an unprecedented food crisis” following Thursday’s NATO summit in Brussels.

New York Post

President Biden on Thursday warned of global food shortages as a result of the Russian invasion of Ukraine

Another example would be the article by Radio France Internationale titled "Poor countries to be hit hardest as Ukraine war threatens global food crisis".

What they don't tell is that Winter in Ukraine just ended and for the moment they did not produce any food as usual. The climate in Ukraine is considered temperate, but it is exposed to the Siberian winds and in Winter fields are covered in snow. How is it possible to face now shortages of food that is expected to be delivered at the beginning of next Autumn? Is it really a food crisis or a preparation for the next food speculation?

Update: @philipp answer and other comments state that the Russians products will not be on the market due to sanctions. But they will probably shift to Asian and African countries, the overall food supply will not be changed by the sanctions.

Related question: https://skeptics.stackexchange.com/questions/53413/does-exported-ukrainian-wheat-only-amount-to-2-5-of-the-worlds-production/

the gods from engineering
  • 158,594
  • 27
  • 390
  • 806
FluidCode
  • 7,140
  • 1
  • 15
  • 48

7 Answers7

38

While it is still winter in Ukraine and Russia, spring will arrive soon. When the situation continues as currently, Ukrainian farmers won't be able to seed much and Russian farmers will probably still be under sanctions preventing them from exporting their stock.

There are mostly three agricultural products where Russia and Ukraine are relevant suppliers on the world market: Seed oils (57.4% of global trade volume), Wheat (28.5%) and to a lesser extent Corn (19%). Seed oils are not that critical because it's more of a luxury item than a staple food and there are plenty of substitutes available. But the conflict could indeed lead to a global increase in wheat and corn prices. This will affect poor people from cultures where these are staple foods in particular. It will even affect regions which are net exporters of these products themselves (like Central Europe or North America) because with higher prices on the global market, export becomes more attractive to producers, which means that the domestic markets need to raise prices to keep up.

JJJ
  • 39,094
  • 10
  • 121
  • 182
Philipp
  • 76,766
  • 22
  • 234
  • 272
  • 22
    There are places where seed oil is considered a staple food. Turkmenistan is one example, where the price of seed oils is a standing political issue. – alamar Mar 28 '22 at 12:08
  • 4
    "Relevant suppliers"... I think this answer is missing the most important piece of info that Russia is the world largest supplier of wheat (top 2 staples along with rice in the world) by far. Ukraine of course is up there in the top 5. – uberhaxed Mar 28 '22 at 12:09
  • 11
    @uberhaxed That depends on whether you consider the EU as one economic entity or multiple. Relative rankings are not as meaningful as looking at the absolute numbers. – Philipp Mar 28 '22 at 12:12
  • 7
    +1 I think you've captured the key issue that the OP is wondering about, which is the fact that due to the seasons of the agricultural cycle there is a time lag between cause and effect. There almost certainly will be a global impact on food supplies, but it takes time for that to manifest. – ohwilleke Mar 28 '22 at 18:14
  • 5
    There's not just direct crop production by Ukraine/Russia at risk here. Note that "Russia is the world’s leading exporter of fertiliser materials in value terms" according to this. – ajd138 Mar 28 '22 at 19:12
  • 1
    There already is a big issue: Most grain was exported from Ukraine on the Black Sea. The Black Sea is controlled by Russia now, thus they can't export grain there. They are now exporting grain (from storage, obviously) using trains into the EU, but there is far less capacity on this route. one source for this – Josef Mar 29 '22 at 10:44
  • 7
    You should maybe talk about sunflower oil specifically, instead of “seed oils”, which is a bit of a useless classification and wouldn't support the point about “luxury” you made. – leftaroundabout Mar 29 '22 at 13:58
  • Russian exports will go to Asian and African countries, they are not off the market, they will not change the overall supply availability. They will just shift. – FluidCode Mar 30 '22 at 10:30
  • 1
    I don’t know exactly which seed oils are involved, but sunflower oil is a pretty important component in a lot of cooking in my experience. Perhaps I’m cooking fancy enough things that it counts as “luxury” but I’m not sure. – Tim Mar 30 '22 at 18:32
  • 1
    The US makes so much excess corn that the federal government has to subsidize it every year to the tune of $4b+ just to keep the market price from collapsing. It also subsidizes wheat to a lesser extent. Farmers (Agribusinesses) are essentially commodities traders who speculate when they plant, and they're surely seeing what you are. So at this point it doesn't seem obvious to me that the world market won't adjust for the loss of western European supplies with increases from growers in other areas. – T.E.D. Mar 30 '22 at 20:10
  • @Philipp While combined export of wheat by EU members is higher than that of Russia, when considering the Union as one entity, one would have to exclude exports from one member state to other members. Looking at publicly available UN FAO data for 2020, EU member states combined exported 61M tonnes of wheat, but imported 32M tonnes. Of course, that doesn't tell us how much of those imports are internal to EU, still, it does show that EU has somewhat less surplus in wheat than Russia does with its 37M tonnes of net export. – Danila Smirnov Jun 08 '22 at 01:54
29

Smart traders anticipate supply and demand and act accordingly.

With the Russian invasion, a significant part of the global food supply will be destroyed (or not seeded and harvested at all). Market logic suggests that prices will increase until enough people "decide" not to eat the food at the increased prices. But here a logic that works nicely for concert tickets or chocolate gets applied to basic food. "Deciding" not to pay the increased price could mean starvation. People will do without many other things before they do without food.

On the long run, the markets could react by feeding less corn to meat animals, etc., but not on the short run. Some people are going hungry, and either the market or government interference in markets will decide who. When you have a warehouse full of grain, in a place where grain is plentiful, and grain is scarce elsewhere, then the capitalist answer is to transport it as long as the transport cost are less than the price difference.

The cynic in me can't understand why there is no sunflower oil on a few of the shelves in Western Europe. Western Europe can out-bid other consumers and secure supply that way. (I've seen supermarkets where any sunflower oil and cheap olive oil was out, but more expensive olive oil was plentiful. The market at work.)

Markets are not entirely rational.

Humans act out of motivation like fear, or herd instinct. Remember that toilet paper shortage in the West at the start of the Covid lockdown? Some people buy more toilet paper, toilet paper starts to run out, everybody buys toilet paper before it runs out and that makes it run out. The same cause as in a bank run, except that a bank run can be entirely unjustified and for this food run there is at least reasonable basis for concern.

o.m.
  • 108,520
  • 19
  • 265
  • 393
  • 3
    feeding less corn to meat animals, etc. - in Ireland farmers are already being pushed towards grain instead of cattle so that would be in time for this year's harvests - and that's the timescale we're talking about here (though not quite the same thing, it's still shifting away from livestock towards more basic foodstuffs) – Chris H Mar 29 '22 at 11:25
  • 3
    "the markets could react by feeding less corn to meat animals": The point is exactly that the world's poorest (grain eaters) and the world's richest (meat eaters, bio fuel drivers) are competing on the same market for the same goods (and mid-term for the same arable surface area). The playing field is not level: Meat-eaters and car drivers pay already much more per calorie, kWh and protein unit than grain-eaters. The playing field is not level. When the bottom falls out there is no safety net. When "the market reacts" it will react by selling to the highest bidder. – Peter - Reinstate Monica Mar 30 '22 at 13:26
19

No, this is not just a massive speculation.

This is a perfect storm of several circumstances, not just the Ukraine crisis (but it's the driving factor):

  • Russia has stopped fertilizer exports (being the world's biggest producer), as has Belarus (being one of the biggest producers).
  • Sanctions mean that prices for diesel (needed to do any modern farming) are through the roof.
  • The combination of sky-high prices for diesel and fertilizer means that farmers throughout the world won't be able to afford to plant as much and yields will be lower.
  • In Ukraine itself, in addition to the normal disruptions of war, the Russian air-force is systematically destroying Ukraine's fuel infrastructure to cripple their military, but tanks and tractors run on the same fuel. So, one of the biggest grain producing regions in the world will not have much of a planting season at all this year (even if the war stopped tomorrow).
  • In the US, which is mostly insulated from fuel and fertilizer turmoil because it's a major producer itself, there is a severe drought across the main grain-growing regions, with no let-up in the forecast (https://www.drought.gov/), so US production will be significantly lower this year.

To sum it up: production will be much lower than normal consumption this year. To bring the supply/demand equation into balance, prices will have to increase. For basic foodstuffs with a very inelastic demand curve, they will have to increase a LOT

Eugene
  • 2,355
  • 8
  • 14
  • 8
    Not to mention that diesel prices have a huge impact on transportation costs - which are in turn a huge part of retail prices of food. It doesn't help that farmers generally have trouble staying in the black even without those disruptions, and even with all those ridiculous subsidies and price fixing. And all of those factors together with environmental complications also mean that adapting the supply to changing demand (e.g. shifting to more food production vs. biofuel and such) is rather complicated and unlikely to happen. And the farmers who do so will likely not see more profit either. – Luaan Mar 29 '22 at 08:48
  • Agree with all of it except this "The combination of sky-high prices for diesel and fertilizer means that farmers throughout the world won't be able to afford to plant as much and yields will be lower". Not plant as much? Why? Those are costs that can be passed thru to the customer all the way through the chain, which is part of the 'why' for the anticipated spike in price. – Jared Smith Mar 30 '22 at 11:21
  • 4
    @JaredSmith A - farmers will not necessarily reap the benefits of high prices, there is a high likelihood that they have already signed a legally binding futures contract for stuff like their winter wheat (which needs fertilizer right now) to sell at price X. Maybe even for the crops yet to be planted. Agricultural futures markets have long horizons. – Eugene Mar 30 '22 at 15:54
  • 3
    @JaredSmith B - Even if the farmers do not have their crop price locked in already, they may not have the money to buy the fuel+fertilizer they need right now. If e.g. a farmer has budgeted 100K for fuel and fertilizer and now it's 300K, where is the extra 200K going to come from in time for spring planting? He may be able to beg his bank for let's say another 100K, but he's still 100K short and so he has to make 100K worth of cuts by ploughing less acreage and/or fertilizing less. – Eugene Mar 30 '22 at 16:01
7

Obviously it's speculative. The only reporters who are even remotely competent on the subject are the business reporters with expertise in commodities.

The modern food supply chain, however, is designed to withstand droughts and famines. Commodities futures contracts allow for buying and selling of commodities 6 months to a year in advance. In cases of shortages, the prices of commodities go up and create capital necessary to draw down on stockpiles, in the short term, and ramp up production, in the long term.

It is plainly irrelevant what any one source of commodities is producing at the moment as long as the other sources are not operating at full capacity. Increased prices create opportunities for short-term gains from increasing production. They also create medium-to-long term incentives to increase capacity.

This is not only true of grains and other food stuffs, but also of fertilizers. Plant capacity utilization of fertilizer producers can go above 100%. Although probably not forever. However, if there are profits to be made by increasing capacity, new plants will be built. Certainly manufacturers of capital equipment, used by those plants, can prioritize projects which pay more (and result in higher margins).

The need, in a global capitalist economy is indicated by higher prices. And the higher prices create opportunities to fulfill those needs.

wrod
  • 9,321
  • 25
  • 64
  • 10
    The food crisis is a crisis because people in some countries cannot afford food any more. Which happens in any given year, but more now than usual. – o.m. Mar 28 '22 at 18:01
  • 1
    @o.m. and some people couldn't get toilet paper when the COVID started. In both cases the shortages were caused by stockpiling. But "not being able to afford" means that the prices go up. There is a point at which the prices get to the point where the stockpiles will get released. – wrod Mar 28 '22 at 18:03
  • 8
    The stockpiles will not get "released," they will be sold at high prices. What about those who cannot pay increased prices? – o.m. Mar 28 '22 at 18:32
  • 1
    @o.m. how is it different from a drought? "Released" in this context means "released to be sold." – wrod Mar 28 '22 at 18:33
  • 12
    When there is a drought, people on this planet starve. In Africa, in the Middle East. Sometimes rich nations donate money to buy them food. Usually not enough. Right now many nations don't spare attention there. – o.m. Mar 28 '22 at 18:58
  • 2
    @o.m. money doesn't create food. food production creates food. – wrod Mar 28 '22 at 19:59
  • 6
    @wrod Sure, but "not enough food production" is very rarely the cause for starvation. By far the biggest problem is getting the food from the producers to the consumers. And even if you subsidize that (there's plenty of charities etc. supporting food deliveries to poor countries), you need to be extremely careful not to destroy the local producers - it's kind of hard to compete against free stuff, and it's very easy to make the problem worse while creating an utter dependence on foreign "help". Needless to say, increasing petrol prices have a huge impact on food prices. – Luaan Mar 29 '22 at 08:43
  • @Luaan sure, delivery costs might go up. But that's not really what's being discussed. The amount of food produced is. Delivery costs fluctuate all the time, too. Although shippers buy their fuel on commodity markets, too. So their costs influence future production, too. – wrod Mar 29 '22 at 16:24
4

Is it really a food crisis or a preparation for the next food speculation?

Nobody knows (especially without knowing how long this war might take). Even the UN warns of a possible food crisis and they are probably not in the market for food speculation.

It is uncertain whether Ukraine will be able to harvest existing crops, plant new ones or sustain livestock production as the conflict evolves. As insecurity persists, and both local and national supply chains are disrupted, people are likely to fall deeper into emergency levels of hunger and malnutrition. Noting that the immediate food security dimension of this conflict is related to food access and not food availability, agricultural production must be allowed to resume immediately and safely to avoid further potential impact on food security in Ukraine – and beyond – in the coming days, weeks and months.

Note however that they word very cautiously (and are mostly concerned with the situation in Ukraine itself) and have a long tradition of issuing warnings on food security.

More reading The importance of Ukraine and the Russian Federation for global agricultural markets and the risks associated with the current conflict:

The recent escalation of conflict engaging such important global agricultural commodity market players, at a time of already high and volatile international food and input prices, raises significant concerns over its potential negative impact on food security, both domestically and internationally. Domestically, the escalation could directly constrain the countries’ agricultural production, which coupled with limited economic activity and increasing prices, could undercut the purchasing power of local populations. Globally, were it to result in a sudden and prolonged reduction in food exports by either country, the conflict could exert additional upward pressure on international food commodity prices to the detriment of low-income food-deficit countries (LIFDCs), in particular. Simulations undertaken to assess the possible ramifications if that reduction were to take place, confirm such apprehensions. The simulations suggest that this scenario could lead to further increases in international prices of the foods most traded by the countries, including spillover effects into other food sectors, as well as an increase in the global number of undernourished people.

NoDataDumpNoContribution
  • 9,607
  • 2
  • 31
  • 59
0

Local and international trade boats are completely blockaded at the Ukrainian ports and have been unable to leave since the start of the war.

"Zero grain is currently being exported from the ports of Ukraine — nothing is leaving the country at all," Jörg-Simon Immerz, head of the grain trading at BayWa, told dpa news.

About 200-300 boats bound for Egypt, 25 African nations and worldwide are stranded, some have been struck including boats from Bangladesh and Estonia. The Ukrainian dock workers are not loading or unloading any cargo or working the harbors.

The Russian shipments will also be affected by the war.

There has been a lot of speculation which has already brought a 25% rise in wheat prices: https://www.macrotrends.net/2534/wheat-prices-historical-chart-data

bandybabboon
  • 2,918
  • 1
  • 11
  • 19
  • Did you read the question? Of course there is no grain to export, they don't produce grain in Winter. If you are talking about grain produced last year and stoked how much is it? What percentage of last year production was stocked instead of being put on the market immediately? How much of the production stocked is in the area affected by the war? – FluidCode Mar 30 '22 at 19:37
  • "The Russian shipments will also be affected by the war." Yes, they'll go to China or India instead of going to Europe. So China and India will buy less from other exporters. – FluidCode Mar 30 '22 at 19:39
  • Did you write a last line that modifies the question entirely to a different question? in that case mark the different question in big letters like "How can there be a food crisis when Ukraine's wheat harvest comes in July?" As one a major wheat exporter, they make use of silos and warehouses locally at farming level and regionally, which are kept cold by the winter, whereas the same silos would keep provisions a lot less well in the heat of Africa, and so Ukraine exports it all through winter and spring. – bandybabboon Mar 31 '22 at 09:07
  • I made an additional hypothesis in my comment because I was trying to make sense of you answer. Now I understand there is no way to make sense of it and no need to change my question, you are just making unsupported claims. – FluidCode Mar 31 '22 at 11:23
0

Ukraine still produces enough grain, as most of the area where the grain is grown is far from the front lines. The amount exported to Europe actually increased since the beginning of invasion, with Ukraine raising to the third place. Russia is currently making only one tenth of this. The talks that Ukraine and EU will starve without Russian grain are the known fake. Very differently, the protests from the local farmers in EU are raising as export restrictions from Ukraine has been lifted (Reuters).

With enough grain, production of meat and everything else that depends on this grain is also unlikely to be impacted.

However some third party countries may still be impacted by the blockade of Ukraine sea ports. This has been pointed out many times, especially at the time when the "grain deal" has been established between Russia and Ukraine, allowing to pass the grain carrying ships. The exact consequences of this deal collapsing yet to be seen but Ukraine is working on other solutions to export the grain.

Stančikas
  • 21,514
  • 1
  • 52
  • 113