The Global Food Crisis
How the Russo-Ukraine War Impacts the World
Ukrainian farmer pulling an abandoned Russian Armored Vehicle
The Russian invasion of Ukraine is causing many significant problems worldwide. While war is horrific and the suffering occurring in Ukraine is immense, the world is starting to feel this war’s impact. Ukraine and Russia are significant exporters of foodstuffs, for example, which are under already existing supply crunches this first half of 2022.
As I explained in the last third of the article above, Russia, Ukraine, and the United States are major exporters of corn and wheat. This conflict in Ukraine will cause some reduction in global exports of these goods from that ultra-fertile steppe region. Russia’s losses won’t affect its ability to produce food exports as substantially as Ukraine’s casualties in terms of human capital in the short term. The way Russia has treated their best and brightest professional soldiers in this conflict will reverberate into the future, however, perhaps causing a political crisis in the short term. Additionally, the traversing of military equipment over farmland has damaged arable land and farming equipment. The resulting refugee crisis displaced important farmhands. Both countries' substantial commitment of resources and material to military ends will impact the civilian economy, further compounding exports.
Practically speaking, the war impacts a substantial portion of the world’s calories. Meanwhile, the United States saw record-high international foodstuffs purchases in the first half of 2022, driving the cost of food up.
See above for some World Bank statistics on major exports by Russia and Ukraine. A common thread looking at the list is that these exports are already facing price tailwinds.
Natural gas is used to produce nitrogen-based fertilizer and is a substantial part of operating costs in producing said fertilizer. This kind of fertilizer is used frequently in corn and wheat production, also a significant operating cost in the production of corn and wheat. This conflict creates a perfect storm of Agricultural softs price increases. The natural price-lag will ensure that prices will continue to increase moving forward.
As expected, other foodstuffs like soybeans also increase in price with increased demand and supply questions. In Bilello’s tweet, 2008 is an important benchmark for us. Remember, in the summer of 2008, we had wild commodity price fluctuations and global uncertainty. In the last week, commodities had their largest weekly price increase on record.
Russia is the world’s largest producer of palladium. Producers use palladium to produce many everyday items, including catalytic converters in cars, medical and surgical equipment, and substantial amounts of consumer electronics.
All eyes are on the developing world whose governments cannot appropriately hedge against price spikes especially given how aggressive Chinese food purchases are this first half of 2022. There are already several regions before this conflict that were facing food shortages this year. If this conflict is protracted, we are potentially on the precipice of a large-scale global humanitarian disaster. In my opinion, it is unlikely that the globe recovers rapidly from the constriction of food supply, food inputs, and commonly used metals.
I’ve been warning about this for weeks. Finally, the Financial Times has brought this issue to the foreground. Between COVID-19 and this conflict, we need to challenge a lot of the post-Cold War consensus (luxury). A perfectly “efficient” globalized market is not ideal for national and international emergencies. Also, we need to understand that the world is returning to what it once was before the Second World War – a contest of nations.
There are three major geopolitical great powers on the planet – the United States and her Anglosphere allies in the tripartite AUSUK pact, the Russian Federation and its satellites, and China and its growing global power base. According to their national interests and historical relations, the rest of the world falls in line. These factions aren’t necessarily at Cold War level animosity either. However, understanding who does what in the world and why is vital for the future disposition and allocation of global resources.
The United States, which has primarily led the world since the Second World War, and the American people, need to understand the reality the world faces in the 21st Century. In a time of unprecedented wealth, declining birthrates in the developed world, and rival global alliances competing in intra-nation political and civil strife, we are in a period of atypical uncertainty.