Russia’s invasion is tearing apart the global food system

The UN has warned that already record global food costs could surge another 22% as war stifles trade and slashes future harvests

Fertiliser prices have been soaring worldwide amid supply snags and production woes

The global food system is under threat as Russia’s invasion of Ukraine puts one of the world’s major breadbaskets in jeopardy, which means escalating food prices that have already been plaguing consumers around the world could get worse.

The United Nations last week warned that already record global food costs could surge another 22% as war stifles trade and slashes future harvests.

Grains are the staples that feed the world, with wheat, corn and rice accounting for more than 40% of all calories consumed. 

Higher shipping costs, energy inflation, extreme weather, and labour shortages have made it harder to produce food. 

And supply is shrinking: Grain stockpiles are poised for a fifth straight annual decline, according to the International Grains Council. 

The war in Ukraine stands to only push prices up further, sending hunger to unprecedented levels.

On brink of famine

Global food prices are at all-time highs, with a benchmark UN index soaring more than 40% over the past two years. 

Food insecurity has doubled in that period, and 45 million people are estimated to be on the brink of famine. 

Agricultural markets are also soaring. Wheat hit an all-time record on markets, and corn and soybeans are trading near multiyear highs.

Governments are taking steps to keep food supplies closer to home, a move likely to prolong food inflation.

Hungary, Indonesia and Argentina are among a cluster of countries that have imposed trade barriers on agricultural exports ranging from wheat to cooking oil in an attempt to suppress domestic prices and safeguard local food supplies after Russia’s invasion led to widespread panic about shortages. 

Trade of raw materials

Russia added to this spate of protectionism when it signaled plans to restrict trade of some raw materials. A major Ukraine food exporter, MHP, pivoted to supplying the Ukrainian army and civilians in bombed-out cities.

Trade restrictions could cause international prices to rise even higher due to tightening global supplies, according to Steve Mathews, head of strategy at Gro Intelligence. 

“It adds greatly to the inflationary concerns,” he said.

Other global suppliers may take strides to fill stockpile shortfalls. India, for example, has increased wheat shipments in recent years and could boost exports to a record if the conflict drags on. 

But many nations that could typically offset shortages are themselves facing production problems. In Brazil, a major supplier of corn and soybeans, crippling drought has parched crops. 

Dry weather also wilted fields in Canada and parts of the US last year. North American farmers could see current prices as a reason to plant more in the coming weeks, but it will be months before those acres get harvested. 

Everything that goes into growing food is getting pricier. Russia, a big supplier of every major type of crop nutrient, urged domestic fertiliser producers to cut exports earlier this month, stoking fears of shortages of crop inputs that are vital to growers.

Market uncertainty

Russia’s move adds uncertainty to the global market when farmers in Brazil — the world’s largest fertiliser importer — are already having trouble getting nutrients for crops. 

Russian president Vladimir Putin said his country will supply fertilisers to nations that have “friendly relations” with Russia, though it first needs to guarantee fertiliser supplies for the domestic market. 

Fertiliser prices have been soaring worldwide amid supply snags and production woes. Across Europe, soaring prices for natural gas — a key input for the production of nitrogen fertilisers — has already forced some facilities to curtail production. 

Adding to the stress are sanctions against Russia with the US and UK moving to ban imports of Russian crude and other oil products. 

“In the current high-priced environment, farmers will face difficulties paying for and/or acquiring the credit they need to purchase inputs,” Alexis Maxwell, an analyst for Bloomberg's Green Markets, said. 

“Any scarcity risks curbing grain yields and quality, adding pressure to crop prices.” 

Ships carrying grain appear to be moving again out of the Azov Sea, the waterway that’s straddled by Russia and Ukraine and connected to the Black Sea. 

Russia’s attack had initially thrown the world’s wheat and vegetable oil supplies into chaos as vessel traffic came to a halt in the region.  

• Bloomberg