Economy

The impact of the war between Ukraine and Russia on food security

Sanan Mammadov Analysis 2 June 2022
The impact of the war between Ukraine and Russia on food security

There are certain reasons and factors for reducing agricultural production and the export of agricultural products from Ukraine and Russia due to war. The ongoing war in Ukraine affects food security, rising food prices, and shortages of crops in different countries. Even before the war in Ukraine, food insecurity around the world was rising.
 
Ukraine and Russia account for 29% of global wheat exports and 62% of sunflower oil. This invasion is likely to exacerbate food price inflation in emerging markets and developing economies and impact some of the poorest and most vulnerable countries.
 
Forty percent of wheat and corn from Ukraine go to the Middle East and Africa, which are already grappling with hunger issues, and where further food shortages or price increases risk pushing millions more people into poverty. For instance, in Egypt, prices of wheat and sunflower oil have escalated because of Egypt’s reliance on Russia and Ukraine for 85 percent of its wheat supply and 73 percent of its sunflower oil. Another country Lebanon imports around 80 percent of its wheat from Russia and Ukraine. The consequences of the bloody war between Ukraine and Russia will hit the economies of many states, and the poorest and vulnerable countries in the world will be affected more, threatening their food security.
 
Hunger has been rising for a number of years, well before the Ukraine crisis and even well before COVID. The number of hungry people in 2020 was already about 800 million and rising, unfortunately and a hundred million more than we had the year before. This is probably because of the impacts of the COVID pandemic, but it's also because of the long-standing drivers of food insecurities, such as conflicts, extreme weather events, and pests and diseases.
 
It is worth mentioning that in 2021, both Russia and Ukraine ranked among the top three global exporters of wheat, maize, sunflower seeds and sunflower oil and Russia only with fertilizers.
 
Ukraine's contribution to the world food market in 2021 was equivalent to providing food for about 400 million people. Actually, wheat is the primary commodity affected by the war. Russia is the world's largest exporter of wheat, accounting for about 18%, nearly one fifth of global exports in 2021 and Ukraine accounts for another one tenth. Now they're both not the largest producers of wheat, that's India and China, but they are the largest exporters. And so, around 35% of the world's population relies on wheat as the primary staple in their diet. So, it's a very significant shock. As of March, the price of wheat on global markets was about a half higher than in February and almost 80% higher than a year ago. Maize prices also increased following the invasion, little rising about 25 to 30%, above February levels and about 37% year on year. So, those two commodities really have gone up. Then there is the impact of the war on fertilizer cost and that's significant because it could really translate into production problems for the next season across crops. If yields crash because the farmers cannot afford or even access enough fertilizer. 
 
We need to understand that Russia and Belarus account for one fifth of global fertilizer exports, and again, fertilizer prices were already very high before the war because of high oil prices and the price of urea, for instance, actually tripled last year already. These are the sort of the two main buckets. It's the wheat export and it's the fertilizer export. The countries with a high share of wheat imports from Ukraine and Russia are the highest immediate risk, such as Egypt which is the world's largest wheat importer, Turkey, Bangladesh, Iran. Disruptions in supplies from Ukraine could hit related industries in Europe as well. Half of Spain's grain imports came from Ukrainian ports. Spain is a principal feed producer in Europe. The disruption of supplies from Ukraine will affect all EU citizens. In fact, as a result of the current war, tens of millions of people will be malnourished. Countries such as Egypt, Yemen, Lebanon, Bangladesh, Madagascar, Ethiopia and Libya will be most affected places. FAO’s simulations suggest that the global number of undernourished people could increase by 8 to 13 million people in 2022/23, with the most pronounced increases taking place in AsiaPacific, followed by sub-Saharan Africa, and the Near East and North Africa. Africa is particularly vulnerable to impacts from the Ukraine war through four main channels - increased food prices, higher fuel prices, lower tourism revenues, and potentially more difficulty accessing international capital markets.
 
One of the main risks is logistical risk for the Ukrainian export is blocking ports in the Black Sea as well as the destruction of ports in the Azov Sea by the Russian Navy. It should be emphasized that around 60 percent of Ukraine's agricultural products are exported by sea. Railway connections have been damaged by the war and almost a half of available wheat was stored on elevators and farms where active fighting is taking place. Another very important risk related to the war in Ukraine is the shortage of energy and high energy prices. After the war campaign, fuel supplies from Belarus and Russia to Ukraine were stopped. It should be noted that the production and cost of fertilizers depend on energy sources. According to various analysis, war-induced damages to Ukraine's productive capacities and infrastructure are expected to entail very high recovery and reconstruction costs. A lasting ruble depreciation would negatively affect investment and productivity growth prospects in Russia.
 
Furthermore, Indonesia has banned exports of palm oil to foreign markets amid steep domestic oil prices. This will hit oil prices worldwide, which have already risen because of the war in Ukraine. Since Indonesia accounts for more than half of the world’s palm oil production, the prices of cosmetics, baby food, sweets and other products will soar.
 
As of Azerbaijan, while the country’s non-energy exports are relatively small, Russia is the main destination for these exports, accounting for roughly one third of country’s total non-oil/gas sector exports in 2021, or 4% of total exports (2.5 percent of GDP). The vast majority of these exports are food products and this trade has picked up significantly in the past five years. While there may be opportunities to expand market share on the Russian market if it closes to other exporters, Russian demand may be driven down by the loss of value of the ruble. On the imports side, the country is reliant on wheat imports from Russia and Ukraine which poses potential risks to food security, especially among the poor. In addition, surging global food prices will add to already elevated domestic food inflation. The war and sanctions will also likely erode the value of Azerbaijani investments in Russia and Ukraine, although these do not represent a significant share of GDP. The economy is expected to be adversely impacted by the war between Russia and Ukraine through potential loss of market for Azerbaijan’s non-energy exports, access to vital imports, inflation, and the loss of assets.
 
Azerbaijan's food supply relies heavily on imports from Russia and Ukraine. The country imported goods worth roughly $470 million from Ukraine and $2.74 billion from Russia in 2021. Food supplies is one of the most common commodities traded between Azerbaijan and Ukraine besides tobacco and medications. Last year, Azerbaijan imported nearly $300 million of wheat from Russia, as well as vegetable oils worth $46 million, according to the State Statistical Committee of the Republic of Azerbaijan. Those three items account for more than one fifth of imported goods from Russia. Regarding the first quarter of 2022 food inflation have climbed 18%, overall inflation has been 12.2% and inflated food products account for more than 60% of inflation. With the backdrop of Russia's war in Ukraine, prices have reached an all-time high, particularly for grain.
 
The Russia-Ukraine conflict could jeopardize Azerbaijan's food security as Russia is the country's largest source of wheat imports, accounting for 90% of overall imports. Azerbaijan imports 1.35 million tons of wheat from Russia per year and other products, such as butter and dairy products, mainly from Ukraine. Probably, Azerbaijan would not be able to replace Russian and Ukrainian products with imports from other countries in the near future. Because each country, first of all, tries to satisfy its needs. Countries are also considering building food stockpiles, unlike in previous years. Because everyone is trying to hedge against food shortages.
 
On average, we can say that the population of Azerbaijan spends a half of their income on food. People with higher incomes spend one fifth of their income on food and medicine, while people with low incomes spend up to 90% on food and medicine. If the law of supply and demand is violated, of course, this affects prices. Today, the government of Azerbaijan unequivocally prioritizes the issue of increasing domestic production. There are enough opportunities for small and medium businesses. Furthermore, Azerbaijan should transition from extensive to intensive development as soon as possible.
 
Moreover, thanks to its strategic importance the opening of Zangazur Corridor would have a significant positive impact on food security by linking mainland Azerbaijan with Nakhchivan region and Turkey which helps in reduction of transportation costs that in its turn leading to lower cost of goods as a result.
 
Above-mentioned risks and consequences clearly show that the war in Ukraine must be stopped as soon as possible, and the international community should help Ukraine with crop sowing campaign. Azerbaijan as a strategic partner of Ukraine has already offered help in this campaign however, ongoing clashes are a serious danger for the cultivation and harvesting of wheat crops.
 
Disrupting agricultural production and trade from Ukraine and Russia threatens global food security by rising food prices and creating scarcity, especially for countries highly dependent on exports. To sum up, the war proved that countries should diversify not only energy supply sources but also food supply sources. Therefore, it should be key priority for many countries to increase domestic sources and support farmers by offering high buying prices for domestic agricultural commodities.

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