Russia and Ukraine together supply almost one-third of the world’s wheat. A file photo of winter wheat near the village of Husachivka in Ukraine.
Photo: Valentyn Ogirenko/REUTERSEven during the pandemic, the world’s food system churned out its usual 11 billion tons of food a year. That consistency is unlikely to survive the war in Ukraine.
International food markets will probably face shortages due to the conflict. Russia and Ukraine together supply almost one-third of the world’s wheat, a quarter of its barley and nearly three-quarters of its sunflower oil, according to the International Food Policy Research Institute.
Commercial activity in Ukraine’s ports has stopped since Russia’s invasion began on Feb. 24, and it will be hard for farmers to harvest their crops later this summer and export grains if fighting cuts them off from the land. Agricultural producers may also face shortages of fuel, which is needed for military use.
Russian farmers don’t face the same physical hurdles, but economic sanctions are already impacting demand for the country’s agricultural goods. Skyrocketing insurance premiums for vessels in the Black Sea are also adding to the cost of grain shipments from the region. Last week, price quotes for Russian wheat were $405 a ton compared with $460 and $539 for European Union and U.S. wheat respectively, according to the U.S. Department of Agriculture.
The latest shock comes on top of two years of disruption related to Covid-19. After panicked shoppers stripped supermarket shelves in the early days of the pandemic, world food supplies got back to normal surprisingly quickly, but they remain stressed. The global stock-to-use ratio for cereals, a measure of inventories as a proportion of annual demand, is forecast to be 29% this year, according to the Food and Agriculture Organization of the United Nations. While stockpiles have been more seriously depleted in the past—the ratio was just 18.8% during the 2008 food-price crisis—today’s level still marks an eight-year low.
Other big grain producers can try to make up some of the Russian and Ukrainian shortfalls. After five consecutive record crops, India’s government has plenty of wheat inventories that could be exported. Australia also had a very good harvest this year but shipping capacity is tight, with slots booked up months in advance. Lack of transport means the country’s producers may struggle to get as much grain to international markets as they would like.
Energy markets will also influence how farmers respond to shortages. Food prices are high, incentivizing production, but so are fuel costs, which squeeze agricultural profit margins. Fertilizer has become much more expensive. Last week, Norwegian fertilizer giant Yara International said its European ammonia and urea production is running at less than half of normal capacity because of record-high natural-gas prices in the region.
The latest threat comes as prices for many important food commodities have already reached unprecedented levels. The U.N. estimates that the crisis in Ukraine could push international food prices up another 22% in its worst-case scenario. This will increase the cost of doing business for global food manufacturers like Nestlé and Kraft Heinz, which will pass it on to shoppers where they can.
Bumper harvests from other countries in the Northern Hemisphere and lower energy prices would help to ease the pain. The latter looks increasingly less likely. Consumers can expect to pay more to put food on the table.
Write to Carol Ryan at carol.ryan@wsj.com
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