Recent globalisation has been marked by innovation and falling international trade costs. Both factors have led to an explosion in global production, consumption and trade. With Covid, and now the war in Ukraine, globalisation has never seemed so threatened. The disruption of agricultural supply chains and its consequences should change our positive perception of an interdependent world.
Russia is using food supplies as a weapon with global repercussions, acting the same way it does in the energy sector, European Commission President Ursula von der Leyen said on May 24, at the World Economic Forum (WEF) in Davos, Switzerland.
“In Russian-occupied Ukraine, the Kremlin’s army is confiscating grain stocks and machinery (…) And Russian warships in the Black Sea are blockading Ukrainian ships full of wheat and sunflower seeds,” she added.
Since the start of the conflict in Ukraine, wheat and maize prices have increased by 41% and 28% respectively. Russia and Ukraine account for about a third of global wheat and barley exports and a significant share for maize and sunflower oil.
According to the International Fertiliser Development Centre, Ukraine also provides one-fifth of the world’s supply of fertiliser nutrients, while Russia and Belarus supply 40% of the potash used as a crop nutrient. In fact, the Ukrainian crisis has pushed up the price of the three most important items for agriculture: feed, fuel and fertilisers.
About 25 million tonnes of maize and wheat are currently stored in Ukraine. Farmers are unable to export their agricultural product via the Black Sea ports which are either under Russian control or blocked by its navy. Thus, farmers are trying to export their grain by road, river and rail.
A global food crisis seems inevitable if Russia maintains its blockade, a Ukrainian agriculture ministry official told Reuters last week. Vladimir Putin said that if sanctions were lifted, then Russia could “export significant volumes of fertilisers and agricultural products.”
Major agricultural powers are tempted to impose restrictions on food exports as the outlook for food security continues to worsen. India has already banned wheat exports, citing a food security risk, partly because of the war in Ukraine but also a heat wave that has reduced domestic production and pushed local prices to record levels.
The first direct victims of the impending food crisis will be the countries of the Middle East and Africa, where millions of people depend on subsidised bread. It is still too early to know what the indirect effects of higher food prices will be, such as social unrest or waves of migration.
Globalisation could be the ultimate victim of the coming food crisis.
Covid has made many Western countries aware of the drawbacks of relying on Chinese industry to produce something as simple as protective masks. The war in Ukraine should now make many countries aware of the importance of ensuring their own food sovereignty.
“We are shifting from a world in which economic considerations determine how resources are allocated to a world in which ideologies and politics determine how resources are allocated. Ideological and political wars lead to much less cost-efficient resource allocations, which is inflationary” said Ray Dalio, the billionaire founder of Bridgewater, recently.
DISCLAIMER: The statements, views and opinions expressed in this article are solely those of the author and may not necessarily represent those of Equinox.
