Food supplies squeezed by Ukraine war and trade bans
16 May 2022|

The impact of the Russia–Ukraine war on global food supplies is being magnified by nations imposing bans on food and fertiliser exports to preserve stocks for their domestic needs.

Since the invasion, 15 nations have imposed restrictions on food and fertiliser exports, including new bans imposed last week by India on wheat exports and Indonesia on sales of palm oil.

As the Financial Times trade columnist Alan Beattie comments: ‘It’s a global prisoners’ dilemma: it’s in everyone’s interest to keep exports flowing, but no one wants to run short by being the only country that does.’

As a major food exporter, Australia could be doing more to alleviate the crisis through food aid. However, there’s currently no mechanism for this given that exports are managed by private trading businesses.

The emerging crisis repeats the experience of 2008, when a panic about food supplies in the wake of the global financial crisis led nations to raise export barriers and create the shortages that had been feared. That led to food riots in many countries, particularly in the Middle East, where they set the conditions for the Arab spring uprisings in 2010–11.

The first social disruption from the Ukraine crisis has emerged in Iran. The government has slashed grain subsidies in the face of soaring budgetary costs, resulting in bread prices tripling, and leading to protests in several cities over the past week.

The United Nations Food and Agriculture Organization highlights the vulnerability of wheat-importing nations including Egypt and Turkey as well as sub-Saharan countries of Congo, Eritrea, Madagascar, Namibia, Somalia and Tanzania. It predicts that the number of people going hungry will rise by 13 million as a result of the conflict.

Russia and Ukraine provide about a third of the world’s wheat and barley, almost two-thirds of traded sunflower oil and a fifth of its maize. In addition, Russia is the largest source of fertilisers.

Although Russia’s food and fertiliser sales have been exempted from sanctions, it’s difficult for buyers to arrange finance and insurance, both of which are sanctioned, as well as shipping. Ukraine’s exports have been largely halted by the war.

The disruptions to Ukrainian and Russian sales come on top of a series of other pressures. Commodity prices globally have been rising over the past year in response to the strong economic recovery from the pandemic and the general inflationary impulse from stimulatory monetary policy. Rising energy prices also contribute to rising farm product prices.

In addition, climatic conditions have resulted in reduced supplies from many countries. The US Department of Agriculture last week forecast the smallest US wheat exports since 1973 because crops have been affected by drought. Global wheat production is expected to fall by 0.6%, mainly due to a 35% fall in Ukraine’s production. India justified its wheat export ban with the damage to crops from extreme heat.

So far this year, the FAO’s measure of prices shows a 20% rise for cereals; 28% for vegetable oils; and 8% to 10% for meat, dairy and sugar. Price increases from general inflationary pressure have resulted in a 30% increase in total traded food costs since April 2021, led by a 46% lift in vegetable oils and a 34% increase in cereal costs.

The squeeze on vegetable oil trade may prove the most damaging, because 40% of global consumption is provided by imports. There are high levels of import dependence—60% or more—across most of South Asia and much of Africa.

An analysis by the US-based International Food Policy Research Institute suggests that Lebanon may be one of the worst affected, because it is already in the midst of a severe financial crisis and it depends on Russia and Ukraine for more than a quarter of the average Lebanese family’s calorie intake. Much of its silo storage was destroyed in the Beirut port explosion of 2020.

The spread of export restrictions follows the pattern evident during the 2008 financial crisis and, to a lesser extent, following the outbreak of Covid-19. IFPRI counts 20 countries imposing export bans, up from five before the invasion. The bans cover a total of 31 products, while a further seven nations have export-licensing requirements on 9 products.

The FAO has proposed establishing a food import finance facility to assist the poorest nations meeting their needs in the face of rising prices and global shortages. The organisation’s Chinese director general, Qu Dongyu, told a meeting of G20 finance ministers last month that eligible countries would be required to increase investments in agricultural resilience and said the FAO believed a fund could be established without further inflaming market prices.

The suggestion is that the fund would be established with an initial US$6 billion which could cover a quarter of the current import costs of eligible countries. Another model would be for the fund to support imports in excess of a base per capita amount.

While the proposal will be considered further at the G20 summit in Bali in November, it is unlikely to be established in time to provide relief over the next year or two.

Australia stands to gain from the global shortage with its agricultural exports expected to rise by a third to $64 billion this financial year. Average rural commodity prices are at record levels, standing 40% higher than at the beginning of last year, according to the federal Department of Agriculture.

There would be scope for the federal government to develop its own food aid program to directly assist poor nations in the region, particularly neighbours in the Pacific. Australia’s aid programs frequently include measures to assist agricultural productivity. Australia also donates relatively small amounts to the UN World Food Programme ($40 million budgeted in 2022–23).

The US has operated a food-aid program since 1954 that both provides technical assistance to help countries improve their own agricultural productivity and delivers direct food donations.

At a time when national income is being boosted by $15 billion from the record prices resulting from the global food shortage, Australia could do more.

The national grain lobby group, Grain Producers Australia, has launched a fundraising appeal, Grain4Ukraine, calling on farmers to donate a share of their proceeds to assist their erstwhile competitors in Ukraine, so there is good will for international assistance in Australian farm communities.