Photo: Getty Images/Anna Koberska
Will Russia’s invasion of Ukraine ignite a global food crisis?
The price of pasta, bread, cereal and other wheat products could soon be climbing at U.S. grocers similar to recent gas pump hikes in another repercussion of Russia’s invasion of Ukraine.
Combined, Russia and Ukraine are estimated to be responsible for almost 30 percent a third of global wheat exports. According to The Economist, wheat prices were already 49 percent higher than their 2017-21 average in mid-February due to a string of poor harvests and hoarding during the pandemic. Since the invasion on February 24, wheat prices have climbed another 30 percent.
Much like the impact on energy prices on the U.S. from the war, the U.S. doesn’t import much grain from Russia or Ukraine, but the disruption will create imbalances in stocks worldwide.
On March 9, Ukraine’s government banned the export of wheat, along with shipments of oats, millet, buckwheat and cattle, to preserve its food stocks amid the intensifying war. Exports from Russia face boycotts or sanction risks as well as turbulence shipping from a war zone.
The region also ranks among the top five exporters of many oilseeds and cereals, from barley and corn to sunflowers. Any low or inaccessible future harvests in Ukraine and Russia will weigh on the world’s food supply in the years ahead.
Another major food concern is access to fertilizer. Russia ranks as the largest supplier of key fertilizers ingredients, including natural gas and potash. Escalating fertilizer and energy costs threaten to further crush farmers’ margins globally.
Food and fertilizer prices had already spiked to all-time highs pre-war, thanks to strong demand, snarled supply chains and unpredictable weather patterns. The Labor Department last week reported annual inflation reached its fastest rate since 1982.
Import-dependent countries in the Middle East, South Asia and sub-Saharan Africa are expected to be particularly threatened by the food crisis, yet developed countries will also feel the pain.
“We’re used to a globalized system of trade to get all kinds of varieties of food,” Johanna Mendelson Forman, a professor at American University who specializes in war and food, told CNN. “People will see it in their pocketbooks, and they’ll see it in the grocery stores.”
- War in Ukraine will cripple global food markets – The Economist
- Russia’s war in Ukraine has driven up gas prices. Will rising oil costs increase food prices next? – USA Today
- World Agricultural Supply and Demand Estimates – USDA
- How will Russia’s invasion of Ukraine affect global food security? – International Food Policy Research Institute (IFPRI)
- The War in Ukraine Is Threatening the Breadbasket of Europe – Wired
- War has brought the world to the brink of a food crisis – CNN
Discussion Questions
DISCUSSION QUESTIONS: What obvious and less obvious fallout do you see on food prices as a result of the Russia/Ukraine war? What steps should grocers and food suppliers be taking to communicate pricing pressures to consumers resulting from Russia’s invasion of Ukraine?
Poll
Loading …BrainTrust
The United States does not import wheat from Ukraine. Nor does it import wheat from Russia. We grow more than enough wheat for our domestic needs. However grain prices are global so a rise in costs – thanks to restricted supply from Ukraine – will drive up the price of our domestic grain. That filters through to an enormous number of products and will end up as yet another contributor to inflation. This is a complex issue so I think grocers need to be honest about price increases – and use tiered ranges to offer a variety of price points – but should stop short of having a thesis on inflation on the shelf edge!
The Ukraine conflict is causing a global crisis and we are already feeling the ripple effect, most notably in gas prices. While food prices may be an obvious impact of the crisis in Ukraine, this is only part of it. Let’s not forget that inflation was already running at historic levels before the conflict in Ukraine, so unfortunately, I think it will only get worse unless there is a dramatic change in course by Russia — which seems unlikely at this point. I think one of the biggest impacts the conflict is having is uncertainty. Uncertainty creates all kinds impacts that are difficult to measure, but are present nonetheless.
Aside from shortages, freight is likely going to continue to increase which will drive inflation all around. Retailers should prepare for increased interest in longer lasting alternatives such as frozen bread as panic buying may set in. Having a game plan in terms of limiting quantities and bulking up on those items where possible is one tactic.
I worked for ConAgra logistics in the 1990s – grain when stored properly has a very long shelf life, up to a year. Transportation, refrigeration, and spoilage costs explain why grain can be collected and transported across continents, and flour mills are concentrated at energy and rail transport hubs, but bread is baked just-in-time at distributed points within major cities – and often at-home. You’d never bake bread now and try to sell it six months in the future – you’d pay more for freezing than you’d ever get back in profit.
Winter wheat which is maturing now across Texas and the southern tier is either harvested for immediate sale, or used as grazing stock for cattle which will be slaughtered later in the year – commodity pricing will determine how farmers divert that crop. Today the signals tell them to harvest the wheat and put it on the market. This will substantially dampen wheat price spikes outside of the most-directly affected export markets dependent on Black Sea shipping, such as Lebanon and Egypt.
Finally, let’s not disregard day-trading chatter and press releases designed to push pricing up – the Robinhood platform used for grain trading today is susceptible to “Game Stop” style manipulation. It’s even possible that some of the actors causing suffering in Ukraine may be also trying to subvert the markets themselves.
Interesting insights Scott, which provide a detailed look inside the industry. I’m speaking from a consumer’s perspective, that if customers anticipate shortages and price hikes, they will likely look at long term options like frozen items.
Domestic inflation will have a larger impact on food prices than the Russian invasion of a free and sovereign Ukraine, and the result will be a continued escalation of food prices across the board. When inflation is at a 40-year high, it’s nearly impossible for any manufacturer or retailer to avoid passing these price increases on to consumers. Retailers can promote in-house brands as a means to offer more attractive price points than select national brands.
We have become used to there being a worldwide global economy. What happens one place can cause ripple effects in many different places. While we don’t import wheat from Ukraine or Russia, many countries do. While there may no be a direct impact on food prices in the U.S. there may be an indirect one.
As the price of these commodities goes up it is more likely that the wheat and grain we grow will be exported and that will cause a ripple effect on their prices domestically. If that occurs, it will cause a rise in the cost of food products here.
As Europe’s breadbasket, Ukraine even honors its wheat fields on its flag. A war on Ukraine is tantamount to a war on global food security.
Now fertilizer is even more expensive, wheat futures hit an all-time high and Ukrainian farmers are trying to salvage this year’s prime planting season in a war zone.
These factors add more inflationary pressure to food prices worldwide. Lower grain exports from Ukraine will fuel product shortages in Europe and increase the risk of malnutrition in less developed countries.
North American grocers and food suppliers will likely explain that, even with local and domestic suppliers, rising food prices are inescapable.
There will be an indirect effect on increased food prices and decreased availability from the invasion of Ukraine.
Although the U.S. is not a direct importer of the major crops, there are follow-on effects that we’ll feel here. As countries importing Ukrainian and Russian wheat, buckwheat, sunflower oil, etc. lose their sources and global shortages arise, global prices will follow. Markets will open for increased U.S. exports of multiple products creating demand pressures. Oil is another factor that affects supply chain costs as well. And — many U.S. businesses that see an opportunity to leverage perceptions to inflate prices will.
Not good news for U.S. consumers.
We absolutely have the capability to increase our wheat production, to support not just us, but to improve our balance of trade. I sincerely hope our “agribusiness” partners meet the challenge.
We forget how big this country really is, and our potential to grow grain. It’s just a little early in the season, so there may be some temporary price increases, but I would expect by summer, it turns out to be good for our economy.
To a city boy with little exposure to farming, the bad news here seems to be the worldwide reduction in fertilizer, and that this year’s crop yield is going to be either down, or grown with very expensive fertilizer. Short term pain in all the supply chain disruptions and cost, longer term pain in basic food costs — crisis? No doubt it will be shared unevenly with poorer countries facing the brunt of shortages.
Most certainly there has to be an effect, but that effect will be driven as well and fueled by speculation of many; and that will affect all of us.
The real problem will be in countries that import wheat from Ukraine and Russia. A number of analysts are speculating about potential famine in Africa as a result of this insane war.
This is a succinct overview, Tom. Clearly the invasion of Ukraine by Russia is affecting food prices, supply chains and food security around the world. To keep consumers aware of food shortages and rising prices, grocers, food suppliers and owners/operators of restaurants can use their social channels that most likely grew much more personalized through the COVID-19 crisis to keep consumers informed. Today’s consumer is adaptive and resourceful and they appreciate time-saving information as well as an honest update on the status of the businesses they rely on.
The CEO of one of the largest retailers in the UK said that food inflation this year could reach 15 percent. The Resolution Foundation, a think tank, says that all inflation could reach over 10 percent. These may be worst case scenarios but what is certain is that food inflation is going to be the highest we have seen for many years. Russia and Ukraine account for a very large share of wheat and cereal crops in Europe, and as it is a world market that pressure will also impact the rest of the world.
Consumers will look for alternatives but bread is such a staple part of most diets it is hard to see how this impact can be mitigated. One of the major impacts this will have is to focus attention once again on the fact that “local is best.” If you can maintain good local supply you are more likely to avoid the impact of worldwide events.
Doesn’t some of this depend on what U.S. wheat exporters do? We’re only looking at one side of the issue. If a third of the global market suddenly disappears might it not be tempting to redirect domestic wheat or sell of wheat surpluses? And, if that happens and Putin is allowed to continue to run wild through Ukraine, U.S. producers may well start shipping wheat abroad for profit and/or humanitarian reasons. Now, I know we have huge grain surpluses, but the longer this war goes on the more tempting it is going to be to offload them into markets formerly supplied by Ukraine and Russia.
According to the Food and Agriculture Organization of the United Nations the world produces more than one-and-a-half times enough food to feed every person on the planet. Yet we have almost a billion people starving. And to make matters worse, about a third of food production is wasted, with the U.S. leading the way wasting 40 percent+ of the food produced. That is hard to fathom.
If we cannot solve the famine problem without the war, despite having plenty of food, how can we possibly solve the shortage problem when a major producer is taken out of the equation? If there are winners in this disaster, it will be the speculators.
Impact to the markets will be perception based. We engage in about $23B of imports to the US from Russia, and little of it is in food. About $1B does go into fertilizer imports. Russia is not a critical market for the US overall. Russia’s overall GDP is about $1.6T, which is at least 13x smaller than the US GDP, and smaller than many other countries.
Globally, countries outside the US that had relied upon Russia will be looking elsewhere for their grain shipments, so demand for food is expected to increase, driving prices up overall. Most suppliers have adequate supply and reserves, so any substantial change immediately will be price gouging more than actual demand-driven price change. However, the most pressing impact might be from global increase in oil prices — which drives up transportation and shipping costs. However, these impacts are not immediate — we won’t see these for months.
The real issue will be just plain uncertainty and market panic. Grocers can outline the real price issues from suppliers instead of making up reasons. The fact is that since 2020, the prices of many food commodities have been rising slowly. For instance, milk price per gallon has been rising from $3.19 (Feb 20) to $3.87 (Feb 22). These pressures are normal based on the pandemic constraints for many suppliers and manufacturers, especially of processed foods.
A great resource is The Office of the United States Trade Representative, for those interested.
Prices are going up. They typically do. Sometimes faster than normal. We’re already seeing it, and it will continue. This is where buyers who understand futures and commodities earn their keep. As for communication to the consumer … Educate the consumer on the reasons for certain rising food costs. Transparency and communication will lead to trust. Trust is essential for times like this. We want our customers to be confident about who they do business with.
There’s no denying that we’re seeing an unusual increase in inflation. However I do not believe the Russia/Ukraine war will cause a food crisis. Despite growing prices, consumers are able to meet their basic needs. But too much of a rise may mean customers cease spending money on wants, which will impact brands who sell products in this category. Even in the undeveloped nations, that are expected to be the most hit by the food crisis, people are capable of producing their own food. In the worst-case scenario, if these countries are unable to do so, resourceful countries should come to the rescue. This will be the ultimate test of their humanitarian concerns.
Businesses are infamous for profiting from people’s misery. It is my sincere view that they make the necessary price adjustments to operate on a reasonable margin and are transparent about this to customers. However raising prices simply because the war situation justifies it, is brutal beyond belief.
At the time of the Chernobyl accident in 1986, I remember Ukraine being described as “the breadbasket of Russia.” Years later and Ukraine is still a major producer. Russia and Ukraine are both in the list of top five producers of wheat in the world – accounting for as much as 30 percent of global exports.
This is incredibly worrying for all food prices across the globe. Add further to this the involvement oil has in overall agriculture (equipment fuel, fertilizers…) and the outlook looks very bleak.
Retailers may take an opportunity to start communicating with consumers now in a similar way to how B2C organizations have done over the course of the pandemic. Advising customers that there could be “disruption” associated with geo-political factors but they are working hard to minimize the impact on customers could be a possible step to take – via signage in stores or on websites. Equally it could be that the impact is slow – yet progressive – which could mean retailers are reluctant to panic consumers.
Retailers and consumer goods companies must use this as sign that they must double-down on technology investments in areas like hyper-automation and AI streamlining in order to reduce cost and waste and thus ensure that consumer, and shareholder, impact is minimized.