Is Famine Coming? The war in Ukraine is pushing up wheat and corn prices

On February 24, 2022, Russia attacked Ukraine. This day is very easy to spot on the  charts for wheat1, corn and rapeseed3  prices at Euronext MATIF – the leading exchange for agricultural commodities in EuropeIf the rates for grains and oilseeds continue to grow at the current pace, then Africa and the Middle East may be hit by famine.

Social unrest and great revolutions always began when bread and other basic foods were scarce and desperate people took to the streets. It is no different today. The Arab Spring of 2011 was the “bread revolution” following the 2009-2010 escalation in food prices. If the consequences are proportional to the current increase in grain prices, this time the social revolt could spill over to many regions of the world.

War breaks the grain supply chains

The statement that grain prices have been soaring since Russia’s invasion of Ukraine is not an exaggeration at all. Suffice to say that on February 24, 2021, the price of a ton of wheat on the Euronext MATIF exchange was EUR 203. Exactly a year later, you had to pay EUR 315, and on March 7, 2022, it reached EUR 396. There are some fluctuations, but a very strong upward trend continues. The situation is similar with the prices of maize and rapeseed.

This increase in prices is fuelled by anxiety about the war and the disruption of supply chains from Ukraine and Russia. On March 9, 2022, the Ukrainian authorities issued a decision to completely ban the export of rye, barley, buckwheat, millet, sugar, salt and meat. The ban is valid until the end of the year. The reduced supply immediately translated into accelerating price growth. Earlier, grain exports were hampered by the blocking of Ukrainian ports in the Black Sea and insufficient railway transport capacity.

The world’s breadbasket is on fire

In 2019-2022 (until the outbreak of the war), Russia and Ukraine accounted for 28% of the world’s wheat production, 30% of barley, 18% of corn, and over 80% of sunflower oil. It is therefore not surprising that the breaking of supply chains resulted in price growth.

It is likely that the next sharp increase in futures prices will take place when it becomes clear what acreage has been allocated for this year’s sowing. The ongoing war seriously disrupts agricultural work. Ukrainian farmers do not go out to the fields, fearing for their lives. There were also official reports from the Ukrainian government about numerous cases of destruction and seizure of agricultural equipment by the Russian invaders. The supply of diesel oil, spare parts, fertilizers and plant protection products is also becoming a problem.

After the first week of the conflict, it became evident that a lot of areas would not be sown. Particularly drastic reductions concern the area to be sown with sunflower, ​​which will decrease by a third and will be the lowest in the last 13 years. It is caused by the fiercest fights taking place in the regions with the largest cultivation of the sunflower. The situation with rapeseed is similar: half of the cultivation is in the regions of Ukraine where there is fighting going on.

The supply of fertilizers, a large part of which used to come from Russia and Belarus, is also becoming a serious problem. These countries provided about 40% of the global production of potash fertilizers. The war, imposed sanctions and the devastation of transport infrastructure has disrupted the existing supply chains of artificial fertilizers.

The rich will get poorer, the poor will starve

The economy abhors a vacuum, and grains can be grown outside of Russia and Ukraine. The problem is when as it will take a year or two for new wheat suppliers to come onto the market. For wealthy Europe and America, the crisis will mean rising food prices. For the poor countries of the Middle East and North Africa, this may turn out to be famine. They are already struggling with the problem of a significant part of their population suffering from chronic malnutrition. The rise in grain prices will rapidly increase the number of people who are malnourished and starving.