‘It’s going to have a ripple effect’: How the war in Ukraine affects food prices everywhere

Click to play video: 'Russia-Ukraine conflict: New fears war could bring global food shortages'
Russia-Ukraine conflict: New fears war could bring global food shortages
WATCH: Together, Russia and Ukraine are responsible for more than a quarter of the world’s wheat exports. As the war stretches into its fourth week, implications for the global food supply are becoming all too clear, with some warning potentially catastrophic consequences. Dan Spector tells us about these fears of worldwide food shortages – Mar 19, 2022

As the Russian army tightens its grip in Ukraine, fears grow of an unintended consequence of the war: a food-security crisis.

Some of the biggest – and hungriest – nations are dependent on shipments of grain from countries like Ukraine and Russia, which together account for a quarter of the world’s entire wheat exports.

The war has also sent fuel prices soaring, which will have an effect on the cost of producing and transporting food. Fertilizer, a critical component of agriculture, has also become more expensive.

One particularly vulnerable country is Egypt. A nation of over 100 million people, it spends $4 billion a year importing food to feed its population, and 70 per cent of its wheat demand comes from Ukraine and Russia.

The fact that exports from Ukraine are cut off entirely presents a terrifying dilemma for Egypt or Turkey, which also depends heavily on wheat from the region.

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“This shortage really matters,” says Tymofiy Mylovanov, a former Minister of Economic Development, Trade and Agriculture of Ukraine. “There will be hunger in certain countries,” he told Global News.

Click to play video: 'Food supplies shrinking in Ukrainian cities at risk of Russian siege'
Food supplies shrinking in Ukrainian cities at risk of Russian siege

As the world continues to endure the impact of the COVID-19 pandemic, a war in Europe is only adding to a sense of economic insecurity.

Stock markets have been on a rollercoaster ride in recent weeks, as investors grapple with the potential long-term economic consequences of Russia’s invasion of Ukraine.

In the past, disruptions to supplies have led to political instability in countries that are food insecure at the best of times, and experts fear that the same could happen as supplies from Ukraine and Russia are cut off.

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Click to play video: 'Fighting fuels famine: The disastrous domino effects of Ukraine’s war'
Fighting fuels famine: The disastrous domino effects of Ukraine’s war

The immediate impacts will be felt in the Middle East, Africa and Southeast Asia, says Mylovanov, who returned to Kyiv from the United States just days before Russia’s invasion, out of a sense of duty to his country.

Large countries like Egypt, he says, will start looking to other suppliers, and that will drive prices up for everyone.

“If you have five people to feed, and you have six pieces of bread, the price of bread is zero, because you have extra. But if you have four pieces, then the price of bread is everything they’ve got.”

Canadians won’t feel the effects of the crisis right away, but the ripple effect of a global food shortage will eventually lead to higher prices here.

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“We rely on the global trade market so that we can have food in our kitchen, in our fridges and on the shelves in grocery stores,” says Dean Dias, the CEO of Cereals Canada, which represents Canadian grain farmers, processors and exporters.

“This shows that what happens in one part of the world has an impact on other parts of the world.”

Click to play video: 'How the war in Ukraine will affect food supplies, prices'
How the war in Ukraine will affect food supplies, prices

Wheat prices soaring

The conflict in Ukraine is sending wheat prices soaring. On Monday, the price of a bushel of wheat rose to US$12.94, more than 50 per cent more expensive than it was at the start of 2022.

In the midst of a war, it’s unclear whether farmers in Ukraine will be willing to spend whatever working capital they have to plant the next harvest, or even if they will even be in a position to do so.

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This week, Ukraine announced it is banning all exports of wheat, oats and other food basics in order to prevent a major food emergency inside its borders.

Canada, which produces about 12 per cent of the global wheat supply, isn’t in much of a position right now to make up for any shortfall either.

Last year’s drought on the Prairies cut Canadian production significantly, from a typical volume of 26.5 million tonnes down to just 19 million tonnes of production. Most farmers have sold whatever wheat they had remaining from last year’s harvest, and the lack of supply from Canada is putting even more of a pinch on global supply.

“To fill the demand that’s out there is going to be difficult with Canadian wheat,” says Dias. “The biggest concern right now is for the current year, we do not have enough supply to meet the demand that is out there.”

Click to play video: 'Heat and drought decimating crops, impacting Canada’s food supply'
Heat and drought decimating crops, impacting Canada’s food supply

Unlike oil, which impacts gas prices almost immediately, grain prices take weeks if not months to trickle down to consumers. That’s because raw grain needs to be shipped to processing facilities to make bread, pasta and other staples – and that takes time.

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The Canadian Food Inspection Agency, the government entity responsible for managing food levels, says Canadians need not be concerned about the supply of food in this country.

In an email to Global News, it said the government is constantly monitoring international agricultural markets for disruptions to the food supply chain.

That’s not to say there won’t be any impact.

If the war drags out, Canadians can expect to see higher prices for baked goods and other staples, which, according to Statistics Canada, were already getting expensive at a faster clip than overall food inflation.

“Given we are in a world with global supply chains, the shortage of grains from Russia (and Ukraine) implies that European countries will be willing to pay more for grain, which would increase the price of wheat all around the world,” says Opher Baron, professor at the University of Toronto’s Rotman School of Management.

It’s not just Europe or Egypt that will snap up supplies from other regions. China, the world’s most populous country, is already scooping up more food staples, including more soybean and corn from the U.S.

Food, fuel and fertilizer 

The war in Europe is also threatening the global supply of fertilizer. Russia is a significant producer of nitrogen, potassium and phosphorus fertilizers.

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Fertilizer is a critical component for agriculture, but it too requires energy to produce. Russia is a major exporter of fertilizer, but widespread sanctions on its economy are creating uncertainty for farmers around the world as to the availability and cost of fertilizer.

Russia’s invasion of Ukraine sent fertilizer prices soaring by more than $200 a ton overnight, observed Sylvain Charlebois, Senior Director of Dalhousie University’s Agri-Food Analytics lab.

“Fertilizers were already quite expensive before the conflict in Ukraine,” he wrote in a research note. “Prohibitively expensive fertilizer prices could impact agricultural output in the Northern Hemisphere, including Canada. If Mother Nature doesn’t cooperate yet again, this could be another challenging year for our farmers,” he added.

Click to play video: 'Record high fertilizer prices impacting Alberta farmers'
Record high fertilizer prices impacting Alberta farmers

The stock price of Nutrien, a Canadian fertilizer company, has risen significantly since the war in Ukraine began. One day before the war, its stock price was around $95. It’s now sitting at $130.

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Then there are energy costs. The global price of oil has already rebounded and is well over $100 a barrel. That’s putting significant pressure on the cost of shipping food around the world, as well the cost of producing food.

Farmers, including those in Canada, are feeling the pinch. They pay close attention to the price of energy which, in turn, has a significant impact on the cost of production and transportation.

This includes cattle and dairy farmers. Costlier grain goes into the feed they use for their animals, putting upward pressure on meat and dairy prices.

“Farmers have to keep an eye on energy prices, and […] as every person in Canada is noticing, gas prices have gone up,” says Dias. “That’s going to play a huge factor.”

Fears of further disruption to supplies – be those of oil, food or fertilizer – are only going to destabilize the markets further, and lead to even more insecurity around the world, experts warn.

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“When there is a shortage of food in the world, history suggests that more and more regimes may find themselves going to war, because it helps to dilute the attention of people (…) and you can always blame someone else,” says Baron.

“This is something that can deteriorate the global peace even further and would have an impact on Canada as well.”

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