Russia-Ukraine war has razed global agriculture system, once sold as the magic formula. It led to concentration of food production in a few countries, making others net importers, and has now fuelled a historic price rise.
Photograph: Vikas Choudhary Russia’s Ukraine invasion has dragged on. Most of the world has taken sides on who the aggressor and the victim is. But there is one front where the world seems united as a victim — the globalised agriculture system, which has been severely hit.
The food market is intricately interconnected. “One of every five calories people eat has crossed at least one international border,” wrote Maximo Torero Cullen, chief economist of the United Nation’s Food and Agriculture Organization (FAO), in a blog on the FAO website.
The food market is also extremely fragile, with just six food baskets supplying the major chunk of the world’s staple food. It is also highly unequal in terms of production and supply — the poor countries are net importers and the high income countries net exporters, irrespective of their food production potential.
Worse, the advanced economies spend just 17 per cent of their earning on food while Sub-Saharan Africa forks out 40 per cent on the same, according to FAO data. As a result, even a slight disturbance in the system leads to a major food crisis in the poor countries, as is happening now.
The Black Sea region, which includes Russia, Ukraine and Kazakhstan, is one of the world’s six food baskets. Russia is the world’s largest wheat exporter while Ukraine is sixth on the list.
Together, the two warring countries produce 12 per cent of all food calories traded globally; control 29 per cent of global wheat exports, 19 per cent of maize exports, and 78 per cent of sunflower oil exports.
Russia is also the world’s top exporter of nitrogen fertilisers, the second-leading supplier of potassium fertilisers and the third-largest exporter of phosphorus fertilisers.
Some 50 countries depend on Russia-Ukraine for their food supply, particularly for wheat, maize and sunflower oils. The majority of these are poor and import-dependent countries in Asia and Africa.
Of the 53 countries or territories that faced food crisis last year, 36 depended on Ukrainian and Russian exports for more than 10 per cent of their total wheat imports, as per an analysis by Washington DC-based International Food Policy Research Institute (IFPRI).
In terms of food supply, in 2019 wheat and wheat products represented 408 kilocalories per capita per day in the countries facing food crisis.
In east Africa, where wheat and wheat products account for a third of the average cereal consumption, 90 per cent of the wheat imports come from Russia and Ukraine, the UN World Food Programme (WFP) noted.
Earlly situation
When the war broke out in February, Ukraine had standing winter crops and was preparing to sow the spring crops in April. Most of the farms stand abandoned today.
Various estimates indicate that 20-30 per cent of areas under winter crops will remain unharvested, while sowing for the next crop lags.
The Seed Association of Ukraine May 7 said:
This sowing campaign is, without a doubt, the most difficult one. Farmers face many challenges — from logistics and fuel supply to the physical safety of their workers...”
Inputs for farming have been curtailed. Both in Russia and Ukraine, fuels have been diverted for military use. As per Ukraine’s Ministry of Agrarian Policy and Food, the country could plant 14 million hectares of spring wheat by the first week of May, which is 3 million hectares less than normal or a year before.
In February, both the countries had 16 million tonnes of maize and 13.5 million tonnes of wheat packed for export by the end of the month. That stock never moved out. Before the war, nearly all of Ukraine’s agricultural exports — about 5 million tonnes a month — were through the Black Sea, but Russia has blocked all the harbours.
On the other hand, international sanctions against Russia have made shipping impossible. For west Asia and Africa, importing from Ukraine and Russia is the best option because wheat is cheaper from these two countries and shipping through the Black Sea costs less.
Even for the countries importing now, the special war time insurance rates have dramatically increased and added to the costs.
Nicolas Denis, partner with McKinsey’s Chemicals and Agriculture Practices, in a podcast in April, estimated that “between 19 million and 34 million tonnes of export production could disappear this year”.
He foresees that even in 2023 there would be 10 million tonnes to 43 million tonnes of global wheat shortage due to the restricted supply from Russia-Ukraine. “To translate, that represents caloric intake for 60 million to 150 million people”, he said.
With this supply stream abruptly stopped, food and energy prices have leaped to historic levels. Wheat prices are forecast to increase by 40 per cent, reaching an all-time high this year.
Such is the impact of inflation that WFP, currently running one of its most expansive food relief operations, has made a desperate appeal for funds. Food inflation has significantly increased its running costs and it is spending $71 million (Rs 544 crore) more per month now for the same operation level.
“Commodity markets are experiencing one of the largest supply shocks in decades because of the war in Ukraine,” said Ayhan Kose, director of the World Bank’s Prospects Group, during the release of the Commodity Markets Outlook April 2022 report April 26. It forecast food price rise to continue till the end of 2024.
Three-domensional crisis
A preliminary assessment by the UN Task Team for the Global Crisis Response Group says the war has led to a “three-dimensional” crisis — rising food prices, rising energy prices and tightening finance.
Some 1.7 billion people in 107 countries (41 in Africa, 38 in Asia and the Pacific and 28 in Latin America and the Caribbean) are exposed to at least one of the dimensions, said the assessment released April 13.
Some 69 economies with 1.2 billion of the world’s people are “severely or significantly” exposed to the three-dimensional crisis.
Consequently, thousands of kilometres from the war zone, some 70 per cent of Africa’s economies are at risk of collapsing, putting millions on the verge of food scarcity.
Egypt, for instance, depends on Ukraine and Russia for 60 per cent of its food imports. Its food inflation rose to 26 per cent in April. Angola — a country that does not produce wheat traditionally but consumes 0.65 million tonnes of it annually — meets 30 per cent of its demands from Russia-Ukraine.
With the war curbing supply, wheat price at the consumer level has increased by 40 per cent in recent weeks, says the Association of Wheat Flour Producers of Angola.
Lebanon, a country that has not registered growth in the last four years, sources up to 25 per cent of its average calorie consumption from wheat and sunflower oil imported from Russia-Ukraine.
Up to 90 per cent of its wheat demand is met via imports from Russia and Ukraine. As its food inflation got out of control — it was 1,000 per cent last month — the government deployed over 90 inspectors to check if the retailers were hoarding.
Abebe Aemro Selassie, director of the International Monetary Fund (IMF) African department, and Peter Kovacs, an economist in the Regional Studies division of the department, blogged April 28 that:
Prices for food, which accounts for about 40 per cent of consumer spending in the region, are rising rapidly. Around 85 per cent of the region’s wheat supplies are imported. Higher fuel and fertilizer prices also affect domestic food production. Together, these factors will disproportionately hurt the poor, especially in urban areas, and will increase food insecurity.
Near future: Shut economies
In the immediate future, the overall global availability of foodgrains will be further reduced. The rise in prices of energy and fertilisers is likely to reduce yield, as per IFPRI’S report.
The fertiliser shortfall comes at the start of planting seasons in many countries, including India. The report said “food-crisis countries”, such as Honduras, Cameroon, Guatemala, Sierra Leone, Nigeria, Mozambique and Kenya, depend on Russian and Ukraine for 10-50 per cent of their fertiliser imports.
As countries substitute the commodities that are in short supply with others, the prices of the substitutes will go up.
Rice is being used to fill the gap in cereal imports, and its price has increased by 12 per cent globally since the beginning of the year.
The Government of India May 5 suddenly stopped wheat purchase from Punjab, procuring only 56 per cent of its 44 million tonnes target.
When the wheat stock dwindled, the government replaced 5.5 million tonnes of wheat with rice for its pandemic-relief programme, the Pradhan Mantri Garib Kalyan Yojana.
As countries start sourcing food, fuel and fertilisers from countries other than Russia and Ukraine, it will add to the overall costs, ultimately adding to the cost of the produce.
This is also where the true character of a “globalised world” can come to fore: Countries have already resorted to hoarding staple foods that till recently they exported for profits.
Russia, for instance, has banned sales of fertiliser, sugar and grains. Indonesia, which produces more than half the world’s palm oil, has halted outgoing shipments.
Turkey has stopped exports of butter, beef, lamb, goats, maize and vegetable oils. India joined this group when it banned wheat export on May 14. This was while negotiating export to at least 12 countries that depended on Russia-Ukraine for wheat.
India has also had a break in its five-year bumper harvest of wheat, as a severe and long heatwave brought down the yield. India is traditionally not a wheat exporter, but in a surprise declaration it committed to export 10 million tonnes of wheat before the ban on wheat export.
This offered a hope to the surging wheat prices that have gone up in the country by 60 per cent this year. This decision has not only crashed wheat prices in Indian wholesale markets but also drawn condemnation from the Group of Seven (G7).
“If everyone starts to impose export restrictions or to close markets, that would worsen the crisis,” German food and agriculture minister Cem Ozdemir said in a statement May 14.
Recently India also restricted sugar exports until October.
Export restrictions
Since the February 24 Russian invasion of Ukraine, the number of countries imposing export restrictions on food has risen from three to 17. Those restrictions include export bans implemented by 16 countries and export licensing requirements implemented by seven countries, according to IFPRI’s Export Restrictions Tracker. It indicated that about 43 per cent of vegetable oils in global markets is affected by export restriction.
The export ban hits the food market severely as it is not just limited to a few commodities but also to their production and export held by a handful of countries.
According to IFPRI, five agricultural products account for almost 90 per cent of imported calories:
All these are impacted by the current export ban. Export restrictions affect nearly 36 per cent of wheat exports; 55 per cent of palm oil; 17.2 per cent of corn, 78.2 per cent of sunflower oil exports; and 5.8 per cent of soyabean oil.
‘70% of top 10 crops will not be used to directly feed the hungry’By 2030, we estimate that processing, export and industrial-use crops will likely account for 50 per cent of harvested calories worldwide. When we add the calories locked in crops used as animal feed, we calculate that by 2030, roughly 70 per cent of all harvested calories of these top 10 crops will go to uses other than directly feeding hungry people. By 2030, the world will be harvesting enough calories to feed its projected population, but it won’t be using most of those crops for direct food consumption.- Deepak Ray, senior scientist, University of Minnesota
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Curbs on export make availability of food grains difficult for deficit geographies. In an unprecedented joint appeal on April 13, the heads of the World Bank, International Monetary Fund, WFP, and World Trade Organization gave a call:
We also urge all countries to keep trade open and avoid restrictive measures such as export bans on food or fertilizer that further exacerbate the suffering of the most vulnerable people.
The World Bank has warned that each percentage point increase in food prices would push an additional 10 million people into extreme poverty.
The Washington-based Center for Global Development estimates at least 40 million people around the world will be pushed into extreme poverty — defined as living on less than $1.90 a day — because of the price spike caused by the war.
By the 100th day of the Russia-Ukraine war, the food crisis emerged as the top agenda in all the efforts to stop it.
G7 foreign ministers meeting in Germany on May 14 made an “appeal” to Russia to lift naval blockade on Ukrainian foodgrains export.
Changes in food production
This is the third global food crisis (after the crises of 2007-08 and 2010-11) in the past 15 years, but the worst-ever in severity and spread.
In all the crises, the world saw how agriculture and food production systems became concentrated on just a few commodities and in a few countries.
This made production efficient and drew advantage of scale. But it also made food production vulnerable. It changed how and what we eat, adding to the food system’s vulnerability.
First, our diet majorly comes from just four grains — rice, wheat, corn and soy. These grains account for 50 per cent of the average daily calories consumption, globally, with wheat and rice contributing a major chunk.
Five countries — China, India, Russia, Brazil and the US — control 60 per cent of the global food production. Within these countries, production is further concentrated to a few regions. For example, India is a major wheat producer but more than four-fifths of it comes from five north Indian states.
In the last five decades, there is a swift change in the way food is produced and distributed across the world. When agriculture trade becomes free, or globalised, inflation comes down. This thrives on outsourcing production and processing at mass to cheap labour areas in the world. But the character of consumption changes.
In the world, four-fifths of total food consumption is still produced locally. But the share of internationally traded commodities in total food trade is constantly increasing: from 10 per cent in 1985 to 14 per cent in 2017.
This coincides with the trend of mostly developing countries becoming increasingly import dependent. The demand for imported food products in low- and middle-income countries is not only increasing, but will go up 2-3.5 times by 2050, the FAO estimated.
In 2020 the demand for imported food commodities in lower-income countries made up 80 per cent of the annual rise in the world’s total food import bill.
This is both a good and a bad development. Food is available to most vulnerable countries and people, but at the same time it is conditional to situations in countries that process it before it reaches the destination.
Ngozi Okonjo-Iweala, director-general of the World Trade Organization, said in a recent event on the impending food crisis that the global trading system has helped drive global growth and provided countries with important goods even during the pandemic.
A paper published in Nature Food on May 12, 2022:
Spatially, the shift in the harvested area from food and feed towards processing in the United States is reflective of the evolving role of the country in global crop production and renewable energy targets. Similar but less dramatic changes have occurred in Europe.
The changes observed in Latin America from a region oriented to food production, to harvesting feed and processing crops, have been observed since the late 1990s with the expansion of maize and soybean harvests pushed by commodity prices and exchange rate and at the cost of tropical ecosystems.
China’s movement away from harvesting crops for direct food utilization to processing and feed crops has been mainly driven by the changes in its consumption structure due to rising incomes and population where people demand high-value food products,” states .
The food sector has been polarised around who eats what that is driving a fundamental change in the food production priority.
Among the middle- and upper-income people (both in advanced and developing economies) consumption of eggs, meat and milk has gone up drastically. On the other hand, poor populations still depend on rice, corn, bread and vegetable oil.
The Nature Food paper examines seven uses of crop production — food, feed, processing, export, industrial, seed and losses — over 50 years (1964-2013) to find out how produced food is being used.
“I estimate that in 2030, only 29 per cent of the global harvests of 10 major crops may be directly consumed as food in the countries where they were produced, down from about 51 per cent in the 1960s. We also project that, because of this trend, the world is unlikely to achieve a top sustainable development goal: ending hunger by 2030,” wrote lead author, Deepak Ray, in The Conversation.
The study underscored that produced food has competing uses like “making biofuels; converting crops into processing ingredients, such as livestock meal, hydrogenated oils and starches; and selling them on global markets to countries that can afford to pay for them.”
It claimed the calorie production in these crops increased by more than 200 per cent between the 1960s and the 2010s. But this would not be used directly for feeding the food-deficit population; rather to meet the feed requirement of livestock that caters to the food demand of middle- and higher-income populations.
“According to our analysis, 48 countries will not produce enough calories within their borders to feed their populations. Most of these countries are in sub-Saharan Africa, but they also include Asian nations such as Afghanistan and Pakistan and Caribbean countries such as Haiti,” the paper stated.
“Growth in harvests of crops meant for exports, processing and industrial use, together with their higher yields and faster yield gains, stands out globally; at a more granular level, this was driven by specific global regions that are getting increasingly specialized in harvesting crops for these usages,” it added.
Read the second part here.
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