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Rising Food Costs and the War in Ukraine: Are We Moving Towards a Global Crisis?

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Geopolitical tensions have kept traders on edge since Russia invaded Ukraine. Sanctions imposed by the U.S. and its allies on Russia have made investors worried that the global market could be heading to another major disaster similar to the COVID crisis. We’ve already seen oil prices reach their highest level in 13 years, but there’s another area where the war could have a spillover effect.

Ukraine and Russia play a vital role in the global production of the soft agriculture supply chain; the two nations contribute nearly 30% of the worldwide wheat exports, and Russia is the world’s largest fertilizer exporter. Fertilizer and food prices have already reached record highs as the global supply chain is hampered by covid, the war, and Western sanctions.

Since the invasion, the global outlook for corn supplies has experienced a serious shock. The corn futures market in Chicago soared above the $8 a bushel price level for the first time in nearly ten years recently. The surge in corn prices is mainly due to the threats to global supplies and the disruption of farming and trade flows in Ukraine. To put things in perspective, the region contributes about a fifth of global corn exports. The invasion hasn’t only disrupted the immediate supply of corn, because traders are also concerned about the spring season, which will undoubtedly be influenced by the current crisis.

In addition, soaring fertilizer prices, driven by higher oil prices, have hampered the planting prospects of corn around the globe, especially in the U.S. For the third consecutive year, the U.S. farmer is expected to favor soybean plantations over corn as the latter is a price-intensive grain.

Food price inflation can also be tied to the global supply chain disruption. According to the United Nations’ Food and Agriculture Organization’s latest estimates, food prices could surge by 20%, which could further fuel inflation in the U.S. and globally. A significant spike in food prices could exacerbate global food insecurity; in 81 countries, nearly 283 million people face acute food shortage, according to the World Food Program.

Rising food prices may potentially worsen political turmoil in import-dependent countries. Historically, there has been a correlation between food prices and political upheaval. A decade ago, the Arab Spring was fueled by surging grain prices, which drove up the price of bread by 37% in Egypt. Earlier in the year, soaring food prices sparked riots and protests in places like Sudan, which secures more than 80% of its wheat supply from Russia and Ukraine. Protests have also erupted in countries such as Iraq and Greece, with the latter seeing hundreds of farmers protesting against rising fertilizer prices.

Conclusion

The ongoing conflict between Russia and Ukraine has already started to show signs of a food crisis as prices soar for soft commodities. If the conflict continues, the global agriculture supply chain disruption could push the world economy into another new crisis.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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