11.03.2022 |

FAO: Food prices hit a record high as war puts food security at risk

Russia and Ukraine are major wheat exporters (Photo: CC0)

World food prices are skyrocketing: International prices for major agricultural commodities reached a record high in February, the Food and Agriculture Organization of the United Nations (FAO) reported on March 4th. The war in Ukraine could not only lead to severe food shortages in conflict hotspots but also cause food prices to rise even higher as the war is likely to impact wheat and fertilizer exports from the region. This could also threaten food security in other regions, especially in the world’s poorest countries that rely on foodstuffs and fertilizers from Ukraine and Russia. According to a new information note published by the UN food agency, the number of undernourished people could increase by up to 13.1 million people in 2022/23 if the reduction in food exports by Ukraine and Russia and the rise in food prices continue.

In February, the FAO Food Price Index, which measures monthly changes in international prices of a basket of commonly-traded food commodities (cereals, oilseeds, dairy products, meat and sugar), jumped to an all-time high of 140.7 points, up 3.9% or 5.3 points from January and a staggering 20.7% compared to a year earlier. It is the highest price spike in the long history of the FAO index. Last month, food prices even exceeded the previous top of February 2011 when the index averaged 137.6 points. Food prices were also lower during the food price crisis in 2008 when the index peaked at 132.5 points. The bad news is that the new record high does not even depict the consequences of Russia’s invasion of Ukraine because the index averages prices over the whole month. This means that the market effects of the war will not be visible before April when the more up-to-date figures for March will be released. The February rise was led mainly by a large increase in the prices for vegetable oils. The Vegetable Oils Price Index, a sub-index, rose by 8.5% from the previous month, mostly driven by increased prices for palm, soy and sunflower oils. The main reasons were reduced export availabilities of palm oil from Indonesia, lower soybean production prospects in South America and concerns about lower sunflower oil exports due to disruptions in the Black Sea region. The prices could continue to increase because Ukraine and Russia are the world’s main producers and exporters of sunflower seed oil. Between 2016/17 and 2020/21, the two countries together produced just over half of the global output of sunflower oil. In 2020, Russia and Ukraine exported 3.6 and 6.8 million tonnes of sunflower oil respectively. However, in Ukraine, shipments of sunflower seed oil have come to a virtual halt due to conflict-induced logistic bottlenecks at port facilities and the suspension of crushing operations across the country, the FAO writes in its new information note. The consequences will become visible in the next Vegetable Oils Price Index for March.

The FAO Cereal Price Index averaged 144.8 points in February, up 3% from January and 14.8% from one year ago. World wheat prices increased by 2.1%, largely reflecting uncertainty about global supply flows from Black Sea ports. International maize prices rose by 5.1% month-on-month due to a combination of continued concerns over crop conditions in South America, uncertainty about maize exports from Ukraine, and rising wheat export prices. Russia and Ukraine together account for almost 30% of internationally traded wheat. The Russian Federation stood out as the top global wheat exporter in 2021, shipping a total of 32.9 million tonnes or the equivalent of 18% of global shipments. Ukraine was the fifth largest wheat exporter in 2021, exporting 20 million tonnes of wheat and holding a 10% global market share. The two countries also accounted for 19% of the global output of barley in the period between 2016/17 and 2020/21. In 2021, Russia exported 5.15 million tonnes of barley while Ukraine shipped 5.6 million tonnes. Over the course of 2021, international prices of wheat and barley rose 31% over their corresponding levels in 2020, according to FAO, but “concerns over crop conditions and adequate export availabilities explain only a part of the current global food price increases,” said FAO economist Upali Galketi Aratchilage. “A much bigger push for food price inflation comes from outside food production, particularly the energy, fertilizer and feed sectors,” he added. In 2021, Russia was the world’s top exporter of nitrogen fertilizers and the second leading supplier of both potassic (K) and phosphorous (P) fertilizers. Russia’s trade and industry ministry told the country’s fertilizer producers to temporarily stop exports at the beginning of March. Many countries in Eastern Europe and Central Asia have an import dependency of well over 50% on Russian fertilisers, for all three ingredients. The FAO warns that with the prospect of a trade embargo on Russia's exports, or a self-imposed export restriction, the global fertiliser market would be subject to “considerable disruptions”.

There are also deep concerns about the waning ability of families in embattled areas in Ukraine to feed themselves. The war could exponentially increase the number of food insecure households, as farming families and owners of small agricultural operations flee conflict-affected areas. “In 2021, one in four people in Eastern Ukraine were already food insecure as a result of various challenges and the COVID-19 pandemic, with 1.1 million people in need of food and agricultural assistance,” said FAO Director-General QU Dongyu. The current war could further jeopardize peoples’ access to food and cause hunger among affected communities. By directly constraining agricultural production, limiting economic activity, and raising prices, the conflict will further undercut the purchasing power of local populations, with consequent increases in food insecurity and malnutrition. According to FAO, about 30% (12.6 million people) of Ukraine’s population lives in rural areas. Agriculture is key to Ukraine’s economy and livelihoods of rural communities, accounting for 9% of GDP. The coming weeks will be critical as farmers need to prepare their land for sowing vegetables in the middle of March. In addition, between February and May, farmers need to start preparing land for planting wheat, barley, maize and sunflower. The agency’s preliminary assessment suggests that, as a result of the conflict, between 20 and 30% of the areas under winter cereals, maize and sunflower seed in Ukraine will either not be planted or remain unharvested during the 2022/23 season, with the yields of these crops also likely to be adversely affected.

But the war will also have impacts on food security beyond the region as disruption of production and exports from the region could push food prices beyond their current 10-year highs. “This is not just a crisis inside Ukraine. This is going to affect supply chains, and particularly the cost of food,” warned David Beasley, Executive Director of the United Nations World Food Programme (WFP). “Now we’re looking at a price hike that (…) means more people are going to go to bed hungry.” Disruptions to international food markets resulting from the conflict could potentially put pressure on import-reliant countries. Especially countries from the group of Least Developed Country (LDC) and Low-Income Food-Deficit Country (LIFDC) rely on Ukrainian and Russian food supplies to meet their consumption needs. For example, many countries situated in North Africa and Western and Central Asia are highly dependent on wheat imports of from Russia and Ukraine. Overall, almost 50 nations are dependent on both countries for over 30% of their wheat import needs. Eritrea even sourced the entirety of its wheat imports in 2021 from both Russia (53%) and Ukraine (47%). Many of these countries, already prior to the conflict, had been grappling with the negative effects of high international food and fertilizer prices. If the conflict results in a sudden and prolonged reduction in food exports by Ukraine and Russia, it could exert additional pressure on international food commodity prices, according to FAO. The food agency’s simulations suggest that under such a scenario, the global number of undernourished people could increase by 8 to 13 million people in 2022/23, with the most pronounced increases taking place in Asia-Pacific, followed by sub-Saharan Africa, and the Near East and North Africa. “In a year when the world is already facing an unprecedented level of hunger, it’s just tragic to see hunger raising its head in what has long been the breadbasket of Europe,” added Beasley. “The bullets and bombs in Ukraine could take the global hunger crisis to levels beyond anything we’ve seen before.” (ab)

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