Peter Mhando
The economic implications of the Russia-Ukraine conflict go beyond the commonly known energy supply chain disruption route. They will likely be seen through trade channels — commodity prices and multiplier effects via global food price inflation. Not only does conflict lead to higher food prices, but higher food prices can also contribute to conflict in far-away areas that are not directly affected. As the conflict ensues, it can cause greater food instability around the world and further price increases.
Ukraine and Russia are critical food suppliers as exporters of major grains and vegetable oils. According to the International Trade Center, the two combined accounted for about 26% of global wheat exports in 2020. In the same year, Asia, the Middle East, and Africa, where food insecurity is a concern, consumed 95% of Ukraine’s wheat exports. There are quite a few direct and indirect implications from this. For one, currently, sub-Saharan Africa imports $15 billion in food crops (grains, edible oils, and sugar).
Along with the direct implications of the conflict, there is a risk associated with the tightening of global financial sanctions against Russia and consequent global repercussions. Specifically, would Russia opt to stop grain exports as it temporarily did in 2020, and for almost a year in 2010, leading to price hikes across the globe and resultant food insecurity?
Ironically, Russia is also the world’s largest fertilizer exporter, and according to the U.N. Food and Agriculture Organization, disruptions to fertilizer production or exports could have dire effects around the globe. Fertilizer price volatility creates further uncertainty in agricultural input costs and availability. For example, if African agriculture is to play a greater role in enhancing food security, the crisis renders improvement in yields and cost competitiveness in jeopardy.
Food prices are already soaring as farmers grapple with supply chain disruption and skyrocketing fuel and fertilizer costs. Food and nutrition security deterioration is a reality for millions. Countries like Egypt and Turkey, which get more than ¾ of their wheat from Ukraine and Russia, are already seeing the impact. Brazil, a major world food producer, is worried as it’s also a major importer of Russian fertilizer. Higher prices of fertilizer result in farmers’ minimal fertilizer use, which leads to poor crops. Simply put, less fertilizer means poor crops, lower quantity, and less protein. This could be witnessed in the U.S. home front, as well. The crisis is, indeed, a concern, with global implications.
