Farmers in Jelno --a village some 300 km away from the Chernobyl Nuclear Power Plant. (Jelno, Ukraine, July 2005)Photo Credit: Petr Pavlicek/IAEA

How the War in Ukraine will Impact Global Food Prices and Food Security Around the World

Ukraine is a major exporter of key food staples around the world. Even before Russia’s invasion of Ukraine, the prices of food commodities like wheat were near all time highs. Since the outbreak of armed conflicted, these prices have soared even higher.

What impact is this war having on global food supply, food prices and food security? I put this question and more to Joe Glauber, Senior Research Fellow at the International Food Policy Research Institute in Washington and formerly the chief economist at the United States Department of Agriculture.

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Transcript lightly edited for clarity 

Why are Wheat, Soybean, and Corn Stockpiles So Low?

Joe Glauber [00:02:34] That area of the world has been a traditional breadbasket dating back centuries, but particularly in the last 30 years since the breakup of the former Soviet Union, Russia, Ukraine have emerged as dominant suppliers to the world wheat market. They are important suppliers to the maize market. They’re important suppliers for other feed grains, such as barley and in the oilseed complex, sunflower seed. Both Russia and Ukraine are big exporters of sunflower seed and sunflower seed oil. A country like Ukraine probably accounts for about 50% of what’s exported in the world so very, very important. And the crisis is coming at a time when food prices generally were higher even prior to this war

Mark Leon Goldberg [00:03:29] Because of like supply chain issues and COVID, I take it?

Joe Glauber [00:03:33] No, actually, COVID has been an issue obviously and supply chain issues have been a problem but the real driver’s area number of factors. One is strong demand: China, for example, which had been suffering because of African swine fever for a number of years. Over the last couple of years, the herds have come back, and feed demand has been very, very strong. So, China is feeding feed grains like corn and barley and sorghum and other products to their hogs and to a degree, poultry and as well as protein meal. So where did they get protein meal? Mainly from soybeans, which they import a lot from North America, primarily the US, and a lot from South America, primarily Brazil, but also Argentina and Paraguay. So, we’ve seen strong demand out of China. We’ve had some supply issues in the wheat market. For example, we’ve had a number of problems last year with the wheat crop in a lot of the major producers in the northern hemisphere. Canada and the U.S. had bad droughts, particularly in the northern part of the US and in Canada. We’ve also had droughts across the Mideast and North Africa, so countries like Morocco have seen a sharp reduction in wheat yields this year. So those have been problems and on top of that, we’ve had problems in South America over the last few months as their soybean crop was developing and that that has been adversely impacted by a La Nina event, that is this caused drought, and so soybean production is off the lot. The result is that we’re coming into this crisis with the lowest stock levels for these commodities with corn and soybeans, you’d have to go back to 2012-13. That was a time when North America had a very large drought. With wheat prices, you have to go all the way back to its 2007-8, which was a time where we had price spikes in the wheat market. And so, these were tight situations that I think most analysts looking forward were thinking, well, stocks would be able to rebuild a little bit if we were to get good crops around the world. But instead, of course, now with this war, we’re seeing one of the major producers to the world market, Ukraine accounts for something like 6% percent of calories that are traded in the world—I mean, just staggering amount in one sense—all of a sudden being shut off from the world.

Which countries most heavily rely on Ukraine’s crop production?

Mark Leon Goldberg [00:06:30] So I mean, it sounds like layered on top of this already precarious situation is this crisis in Ukraine. Where were Ukraine food and wheat being exported to? Are there certain regions or certain countries that, you know, prior to the outbreak of war were particularly reliant on Ukrainian food exports?

Joe Glauber [00:06:56] Sure. This depends a bit by commodity but the wheat in particular, Ukraine supplies a lot to North Africa and the Middle East. I mean in these countries’ wheat is a very important part of their overall diet and they tend to import a lot of their consumption needs. So, wheat as a percent of the overall diet is quite high. In countries like Egypt, it’s like 20 % of the calories are wheat being sourced from imports. And when you look at where they are sourcing those imports, a lot of that’s coming out of the Black Sea, largely because of the close proximity and the fact that again, Russia and Ukraine are such large exporters, but they aren’t the only ones. You can go around into Asian markets, so Indonesia, Bangladesh, countries export a lot. Wheat may not be the primary cereal for consumption, but people do make a lot of, you know, breads, particularly if you go across sub-Saharan Africa. Almost all the wheat there is imported, and it’s largely being made into things like breads that are largely supplying urban areas and everything. So, it’s a global issue, and particularly when you consider that these have impacts on global prices, that it means that wheat prices are high for everyone, not just those who are importing Ukraine wheat.

How are global food prices being affected by the war in Ukraine?

Mark Leon Goldberg [00:08:40] So that was actually my next question. I mean, we are two weeks into this conflict. Have you seen a discernable impact of this conflict on the price of wheat or other food commodities that are sourced to Ukraine or the region more broadly?

Joe Glauber [00:09:03] If you look at global prices, I think you know, one measure is futures prices and granted, futures prices have a lot of volatility in them, but futures prices in nearby contracts are up 50-60%. I mean, they’ve been highly volatile and very much with big price swings, given whatever new news hits the market that day. But just to say that that prices for wheat have been up in the 50 to 70% range for nearby delivery and maize prices have been up on those futures exchanges by about 20%, and soybean prices have been up 10%. And again, these are coming off levels which were quite high. If you look at the FAO food price index that came out last week, the food price index was already at a record level. Now these are commodity prices. These aren’t retail food prices, for example, but still underlying commodity prices at record levels, so it’s important. And if I had talked about wheat, Ukraine is an important exporter of barley, they’re a very important exporter of corn, a lot of which goes to the EU and China. So, you know, they are supplying supplies for things like maize and sunflower seed oil in a lot of different areas that go beyond just the North Africa and Mid East. We tend to focus on there because wheat is so important to those countries in their consumption. But it’s just to say that that again, this region provides a lot of commodities to the world.

How is the war waged by Russia in Ukraine affecting planting and harvesting?

Mark Leon Goldberg [00:10:48] And so it’s fair to say, as you explained, that thus far, just two weeks into this conflict, we have seen hikes in food prices on top of already very high food prices. So that’s like a very immediate discernable effect.

Joe Glauber [00:11:05] Yeah, that’s right. And I should hasten to add that if you look at futures contracts for delivery later in the year, those prices moderate a bit. But they largely reflect just the uncertainty that no one really knows. I mean, the big questions in Ukraine, obviously, one is that remember that the crops that were harvested last year have been marketed, but not all of it. So, in the case of wheat, for example, about 70% of the wheat that was harvested last fall has been marketed, so the rest is in storage. Normally it would be exported but unclear what the status will be with the ports currently blocked and a lot of the rail lines, which are key infrastructure for moving grain to the ports, also contested. And then for maize, it’s roughly 50 to 55% is typically marketed by February and so again, a lot of maize that still has to be marketed. And we’re talking mainly about last year’s crop so we’re not even talking yet about the wheat that was planted last fall that will be harvested in June-July. It’s unclear whether or not that will be harvested, whether or not that will be exported. And let me just say the last thing, and then we can dive into this in more detail. But then the next thing obviously, is spring plantings that will begin in April for critical crops like barley, maize, and sunflower seed.

Mark Leon Goldberg [00:12:57] So if that planting season in Ukraine is disrupted, what do you expect to see?

Joe Glauber [00:13:04] Well, higher prices. I think in one sense, that’s the uncertainty that’s already been built into the market. You know, the question is once the market actually realizes what the impacts are, does that mean prices go higher? I guess that’s unclear, and I hate to speculate on that because hopefully this all gets resolved. But the reality is that again, losing a Ukraine crop is not unlike a major global downturn in production that we see. In 2007-8, for example, the reduction in yields in production that year in the wheat crop was similar to this sort of magnitude of wheat that comes out of the Ukraine in a given year. But remember that in 2007-8 they actually came in with high stocks so to absorb this, I keep getting back to the fact that we start this with a very tight situation. And so, preventing the grain that was harvested last year from being exported and then potential disruptions in the current crop will be very, very hard to make up.

How does the war in Ukraine affect fertilizer and food production?

Mark Leon Goldberg [00:14:24] Can I also have you explain the significance of fertilizer from Belarus and Russia to global food systems? I take it from reading your research paper that in particular, Belarus supplies a lot of fertilizer to countries in sub-Saharan Africa and that the potential disruption of the export of that Belarussian fertilizer to sub-Saharan Africa could have significant downstream effects on food availability, food supplies, and food prices in certain countries, particularly in West Africa.

Joe Glauber [00:15:02] Yeah. Great point, Mark. The fertilizer market, much like the agricultural market was very tight prior to this crisis and for similar reasons. One, we’ve had very, very high natural gas prices, particularly in Europe, but also around the world. Why is that important? Because natural gas is a feedstock for nitrogen-based fertilizers like urea and ammonia. And so, nitrogen is one of the three critical fertilizer components that increase productivity around the world and the other two being, as you mentioned, potash. Russia is a big exporter of potash, so is Belarus in typical years. And Russia is a big exporter of potassium as well. Russia also is a big exporter of ammonia and natural gas. So, you add the crisis on top of that, you’ve seen with natural gas prices really going very, very high. And remember that natural gas, unlike wheat, that you can ship around the world, natural gas is tougher. You really have to move that, for the most part, by pipeline. Although there are exports of liquefied natural gas. The U.S., for example, has started exporting liquid natural gas. But those aren’t easy adjustments to make so the markets aren’t as well integrated. So, if you look at natural gas prices in the US, they’ve gone up considerably but the natural gas prices in the EU, for example, have gone up by even more. And I think they’re directly affected because of the pipelines from Russia.

Could sanctions on Russia and Belarus affect global food prices?

Mark Leon Goldberg [00:16:58] So one added variable is the impact of sanctions on Russia, and I guess to a certain extent, Belarus as well by the United States and much of Europe and the rest of the world. Have these sanctions had an impact on global food prices to your knowledge, or do you expect that they might?

Joe Glauber [00:17:23] Well, again, I think we have to sort of sort through the level of sanctions and what actually is being affected. And again, we’re just beginning to see this happen. So, food exports, at least to my knowledge, have not been directly affected. The problem that I see that may occur for a lot of these transactions for example, for wheat or a lot of government transactions to countries in North Africa and other places where I think those purchases can occur, that that will be less of an issue. But if you’re talking about a small milling operation in Turkey, for example, that may be buying flour from Russia, then I think all of these actions on swift payment things—they complicate all those transactions and add costs ultimately. So, it’s a little unclear. I think the natural gas issue and energy price effects are real critical here. And just in the sense that for food, we also have to remember it’s not just the price of the commodity, but that commodity has to get shipped so fuel costs are important. That commodity has to be processed and so other energy costs are involved with that. Even the general macroeconomic impacts like labor and other things as inflation rates are going up oftentimes, labor wage rates are as well and so those all add to the overall cost. But the sanctions themselves, at least thus far, aren’t directly affecting, say, wheat exports out of Russia. I think what does need to be watched very closely is that countries don’t put on the sort of restrictions that we saw back in the 2007, 2008 or 2010-11 where a number of countries put on restrictions on exports of products like wheat, and at the time, rice also was caught up in that.

Mark Leon Goldberg [00:19:41] And that why is that problematic?

Joe Glauber [00:19:43] Well, because it just exacerbates the situation. You can understand it from the narrow view of the individual country because they’re thinking ‘prices are going up. We’re going to keep that grain home. That way we’ll keep our prices lower at home.’ The problem, of course, is that that just shorts the market even more. And so, prices in the rest of the world are bid up even higher. And what happens is like what we did in 2007-08 when we got a domino effect. I mean, the analogy is being at the football pitch, when the row in front of you stands up, you can’t see, so you stand up as well. And that’s exactly what we saw in the wheat market in the sense that other countries put on restrictions. That may be great for that individual country, but there are a lot of countries that are large importers, and they’re the ones who are going to shoulder the burden of these sorts of restrictions. And it’s particularly onerous for poor developing countries or poorer countries who all of a sudden are finding that the price of grain isn’t just because of Ukraine, but because of some other country that’s decided not to export because they want to keep the grain at home.

What will inflated food costs do to politics worldwide?

Mark Leon Goldberg [00:21:07] Well, following on that thread, you know, assuming current trends continue and that prices for wheat and other food keeps increasing and under the assumption that countries do what they did last time and restrict exports against your advice, what political implications do you see around the world for staggeringly high costs of food?

Joe Glauber [00:21:38] So let’s now back up to talk about food prices because there’s obviously an important link between the price of a ton of wheat and what some consumer pays at the grocery store for a loaf of bread. But typically, the underlying commodity price is a small portion of the overall price of food. So even though wheat prices may double, the impact on the price of bread may be just a fraction of that—not insignificant and I don’t mean to minimize that. A lot depends on whether or not, for example, if you’re in the U.S., most estimates say that the price of the wheat itself is only about 5% of the price of a loaf of bread. So, if you translate that, you’d see only a 5% increase for a doubling of the price of wheat. It’s very crude, obviously, and a lot more factors there. But if you’re in a developed country that margin, if you will, between a retail price and the underlying price of wheat may be much greater. And certainly, we’ve seen bread prices and other sorts of wheat product prices already increase across places like North Africa, which means that to keep prices lower governments have to intervene with price subsidies or consumption subsidies, consumer subsidies, that help those because something like wheat and bread is such an important part of those diets.

Can government subsidies help people access food as global food prices rise?

Mark Leon Goldberg [00:23:33] So you would expect if the cost of food increases at such a rate in order to avoid political instability countries in North Africa in particular, will increase their subsidies to prevent the consumer from feeling the burden of that and limit its political impact?

Joe Glauber [00:23:54] No, Mark, I think that’s exactly it. There’s good evidence that we’ve seen in past episodes where there’s been political unrest and other things. So, I think countries want to make sure that they can absorb that. But that means having resources, and I think that’s important to remember. So, a middle-income country may be a lot better positioned to be able to help their consumers than, say, a poor country that is highly dependent on wheat. The other thing I would add is remember that that wheat is largely denominated, traded on world markets, is largely denominated in dollars. In the past when we’ve seen really high prices for commodities, the dollar actually has tended to be pretty weak. That’s not the case this time around. The dollar’s very strong against local currencies, so that has additional costs, at least here in the short run. Now, currencies can change a lot but particularly if you’re talking about an organization like the World Food Program that’s trying to supply grain to needy populations, that means their bill is going to go up and it’s going to go up for a number of factors. Let alone the underlying cost of wheat, but also transportation costs, other things that are really important. And you know, at a time when prices are so high, additional funds are going to be needed to meet those needs.

How might rising food prices affect countries like Yemen and Madagascar where there are already famine emergencies?

Mark Leon Goldberg [00:25:34] You’ve read my mind and answered my next question before I asked it, which was to be the impact of these rising prices on global humanitarian operations. You know, places like Yemen, which are dependent on the World Food Program and others from using their resources to prevent famine or places like southern Madagascar and other places that currently have like acute food emergencies. How might this increased cost globally impact their current and very acute food emergencies?

Joe Glauber [00:26:12] Yeah, no, Yemen is a great case in point because they have gone through one, a number of years of internal disruption, they import a large proportion, I mean, close to almost 100% of their wheat needs in some years, and yet they have very little resources to actually make purchases themselves. Even things like flour, which they do import a lot of but remember, the flour that they’re importing is coming from mills in Egypt or the Emirates or Turkey that are also importing wheat from Ukraine, so it’s just to say that that’s the particular concern to me: the vulnerability that we’re seeing in countries. And of course, you can extend that to start talking about availability of fertilizer and other things. To get the sort of production response that one is going to need to try to alleviate this situation, at least in the near to medium term, you know, the high input cost means that’s also a challenge to increase yields and other things.

Mark Leon Goldberg [00:27:34] And, Joe, lastly, in the coming months, I suppose, or even weeks, are there any variables you’ll be looking towards or indicators you’ll be looking towards that will suggest to you what we might expect in terms of food prices?

Joe Glauber [00:27:52] Yeah, I think in the near term, as much as I talk about energy prices and other costs that are associated with high food costs, I think most of the focus is going to be on crops. Here, I’m talking basically outside of Ukraine because I think obviously the real focus will be on what was going on with the tragedy there and you know what’s happening—whether or not farmers are actually able to get into the fields and harvest crops and other sorts of things—but if you look outside then I think that we’ll be looking at plantings around the world to see if we’re going to see a production response. Typically, we see farmers respond to high prices by planting more. The problem, I think, for a commodity like wheat, however, is the fact that one, most of the wheat, you know, about 60% of the wheat produced in the world is actually fall seeded. So already the response that we’re looking for in the near term is really restricted to spring planted wheat and what will be planted in the southern hemisphere, in particular, Argentina and Australia. So, the plantings will be really important, that we’ll be looking. As this wheat around the world and particularly, northern hemisphere wheat comes out of dormancy in the EU and Russia and North America, the condition of that wheat crop will be closely followed. In the U.S., for example, a lot of the winter wheat has been in dry conditions for a lot of the winter that isn’t as critical as what the next couple of months will mean, so we’ll need to follow that very closely. But that will be one of the key things. And then we’re right back into looking at crop conditions around the world, and hopefully we will see good weather and not have more issues piled on top of this with a serious drought somewhere.

Mark Leon Goldberg [00:30:14] Well, Joe, thank you so much for your time. This is very helpful. You’re the perfect person to interview. I appreciate it. All right, thank you all for listening. Thank you to Joe Glauber for spending some time to speak with me about this very hot topic in the news right now. And I do recommend that folks read a blog post he wrote on IFPRI website, and I’ll post a link to it in the show notes. All right, we’ll see you next time. Thanks, bye!

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