Tuesday December 06, 2022

A major crisis

By Joe Stork
April 04, 2022

The crisis provoked by Russia’s invasion of Ukraine is upending the global political order and underlying trade structures. A good part of the trade disruption stems from the leading roles of Russia and Ukraine as exporters of wheat and other food staples.

According to the UN Trade and Development Agency, the two countries account for 27 percent of wheat exports and 53 percent of sunflower oil and seeds worldwide. Russia is also a key global supplier of fertilizers and hydrocarbons.

The UN Food and Agricultural Organization has expressed concern that the war will disrupt Ukraine’s spring harvest and planting season, with consequences for global grain supplies beyond the coming few months. Rising costs for importing food and fuel will affect household as well as national budgets already stressed by the Covid-19 pandemic.

The military conflict has largely cut off Ukraine’s access to its Black Sea ports, and the Ukrainian government banned grain and other food exports in early March to ensure domestic supplies. The country’s limited rail capacity to export overland has been further impaired by the demands of war mobilization.

The fighting threatens to interfere with Ukraine’s spring planting season, impacting the labor and resources available for food production over the medium term. For Russia, heavy and comprehensive financial and trade sanctions have disrupted its ability to export and import. And the Ukraine war erupted at a time when food prices were already climbing as a result of rising energy, and thus fertilizer and feedstock, costs.

Arab countries get just over half of their wheat imports from Russia and Ukraine. For several countries the ratio is much higher – 96 percent for Lebanon; 92 percent for Sudan; 80 percent for Egypt. Shipping and transport costs have increased as a result of rising fuel prices, and will increase further if supplies of wheat and other staples have to be imported from a greater distance. According to the Paris-based Arab Reform Initiative, per capita wheat consumption in Arab countries (128 kg per year) is nearly twice the world average (65 kg per year).

Armed conflicts and economic mismanagement in importing countries have amplified the impact of soaring prices and supply disruptions, and drought has lowered production of wheat and other grains in several countries. In Yemen, where Russia and Ukraine supplied about 40 percent of the country’s wheat imports, well over half of the country’s 30 million people are already experiencing a high level of food insecurity as a result of the war there now in its seventh year. A mid-March UN donor conference for Yemen met only a third of its goal, which a World Food Program spokesperson attributed to the ‘shadow’ cast by the Ukraine war.

Syria’s economic crisis, the result of persistent drought and destruction of infrastructure from more than 11 years of war, has left the country with a severe wheat shortage. Russia, a main source of Syria’s wheat imports, recently suspended a December 2021 agreement to supply a million metric tons of wheat. The areas outside of Syrian government control in northwest Syria procure wheat and flour from Turkey, but Ukraine and Russia are important suppliers of wheat to Turkey, whose own production has been affected by drought.

Lebanon’s near-total dependence on Ukraine and Russia for wheat supplies is likely to worsen food security in a country whose corrupt and incompetent elites have precipitated one of the worst economic crises of modern times and forced more than three-quarters of the population into poverty. The country lost much of its grain storage capacity in the devastating August 2020 explosion that levelled Beirut’s port area.

The food-supply impact of the Ukraine war in the Middle East region is best seen in Egypt, the region’s most populous country. Egypt is the world’s largest importer of wheat, about 80 percent of which has come from Russia and Ukraine, and one of the largest importers of sunflower oil, 73 percent of which comes from Russia and Ukraine. Egypt’s tourism sector, an important source of foreign exchange, is also taking a hit; Russian and Ukrainian tourists have comprised a sizeable portion of visitors to Egypt’s Red Sea shores.

Egypt imported more than 13 million metric tons of wheat in 2020, 11.3 million of which came from Russia and Ukraine. Prime Minister Mustafa Madbuly said in late February that the country had a four-month supply available, and that the domestic harvest beginning in April would extend supplies to nine months. In March the government banned for three months all exports of wheat and other staples and started talks with Argentina, India, and the United States as alternative sources.

Egypt spends $3 billion annually to subsidize bread prices for 70 million people, roughly two out of every three, Egyptians. Even before the Ukraine war erupted, budgetary pressures, rising prices, and austerity “reforms” imposed by the International Monetary Fund and other international lenders had led to increased prices for staples.

The government reduced subsidies for sunflower, soybean, and other vegetable oils in July 2021.

Excerpted: ‘There Is a Major Food Crisis Looming in the Middle East’.