Will the Ukraine events lead to the world food crisis? What is really happening in the world grain markets? Who destabilizes them? Let’s find the answers together
A number of world leaders, including US President Joseph Biden, French President Emmanuel Macron and UN Secretary-General António Guterres, continue to say that events in Ukraine risk bringing the world to a global food crisis. Let’s try to find out how correct this is.
The picture painted by the international media and politicians is roughly the following.
Russia has invaded Ukraine and blocked the export of grain from that country. As a result, some 20 million tons remain in storage and cannot be delivered to final consumers. Consequently, there is no one to replace the falling out volumes. As a result, prices on world markets have risen sharply, and a number of grain-importing states are at risk of losing their supplies. Their population may be condemned to starvation.
Also note that this narrative is being promoted exclusively by developed countries. No statement from the leadership of any developing country that is dependent on external supplies of grain is pushing this logic.
In fact, there are several manipulations involved, which we will examine below.
Manipulation with stocks
Firstly, where did the figure of 20 million tons of grain stuck in Ukraine because of the conflict come from? The answer can only be found in statements by politicians who, as we know, should not always be taken at their word. The World Food Programme estimates that the real figure is 4.5 million tons being stored in Ukrainian ports.
But even if we take political statements for granted – how much in fact is 20 million tons of grain?
On the one hand, it is a lot. It is about 400 full bulkers or about 500 thousand railway cars.
On the other hand, if we take the total world production, the picture is different. According to the FAO, the world produces about 2.8 billion tons of grain a year. Ukraine produces about 73.8 million tons, or about 2.5%.
At the same time, according to FAO, grain supply is expected to exceed 3.6 billion tons in 2021-2022. This means that world reserves of grain crops amount to about 800m tons.
It is not difficult to calculate that even if the 20 million tons of Ukrainian grain that world leaders and media are talking about were, by some magic, to fall out of the world market, it would result in a 2.5% reduction in total stocks (only stocks reduction; no consumption limits).
Wheat, grain or manipulation?
There is a regular manipulation in statements and comments on the Ukrainian grain as to what exactly is being referred to.
Ukraine exports only 15-16 million tons of wheat a year out of about 45 million tons of grain. Most of the latter is corn, which is used either as animal feed or for technical purposes, up to production of biofuel, which we regularly encounter at European gas stations. Consequently, the 20 million tons of wheat destined for export are simply not available in Ukraine.
Then, there is no accurate information in the public domain on how much wheat and barley (i.e., grain used for human consumption) is really “stranded” in Ukraine. If we assume the current structure of exports, the figure is approx. 7 million tons. If we rely on the statements of the FAO, but not the media and politicians, we are talking about 1.5 million tons.
Accordingly, considering that the world produces about 775 million tons of wheat per year, that would be about 0.2% of the world’s production. Or less than 1% of world trade. Unlikely to result in a food crisis.
Manipulating the causes of the crisis
Russian invasion of Ukraine has traditionally been blamed for the rise in world grain prices and, in particular, wheat prices in recent months. But if, as has already been figured out, we are talking about only 0.2% of world production, why are the prices still rising?
There was a lot of talk about this before the Ukrainian events. In fact, the cost of grain has risen because of supply chain failures, rising global energy prices, and increasing fertilizer prices.
Admittedly, all three factors have been significantly exacerbated by the action of Western countries against Russia. The very availability of cheap energy resources can now be forgotten. Logistics are broken by restrictions on maritime transport and insurance of supplies and transport linked to Russia. Finally, Russia and Belarus are major producers of fertilizers for the world markets.
A deficit or a manipulation?
Indeed, part of the increase in grain prices was a result of deficit or deficit expectations. However, as we have seen, Ukrainian supplies do not solve this problem. What could really cause shortages?
Firstly, a rise in the cost of fertilisers and fuel. Low-marginal agribusiness has to cut production to avoid losses.
Secondly, climatic factors. Among the latter are the spring and summer droughts in India, the USA and France.
Thirdly (and not paradoxically), sanctions against Russia. The point is that Russia is a larger exporter of wheat than Ukraine (over 30 million tons per year) and wiping it out of the market will create a 20% deficit in global trade. And this is grave.
However, world leaders, for obvious reasons, prefer not to mention restrictions on Russian trade.
Manipulation with exports.
A question also arises – what was the real reason for blocking the export of Ukrainian grain? Alas, the answer is unambiguous – Ukraine did it. Since the beginning of the Russian invasion, Ukraine has mined its ports and blocked all vessels from leaving them. Sea mines are still blocking the way to the port of Odessa.
Exporting grain by rail is a far more costly but still workable option. However, the European Union sanctions against Belarus, imposed at Ukraine’s request, significantly reduce it.
Manipulations around the final destination.
Is it worth hoping that Ukrainian grain will actually reach the end consumer – a hypothetical hungry inhabitant of a Middle Eastern or an African country?
There is no definite answer to this question, since considerable part of food, fodder and industrial grain from Ukraine is sold to Europe and consumed there. But one thing is certain. Kyiv’s revenues from the sale of its grain reserves will be used to repay loans issued by European countries and the USA for the war against Russia.
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So, the main manipulations are perfectly clear. There are a few more minor ones – with supplies, logistics, unsecured debts, artificially created panic etc. However, they do not change the overall picture.
The picture is clear, but gloomy. The current food crisis has been entirely created by the policies of Western countries, which have provoked a full-scale war in Ukraine and are trying now to use this pretext to cover their own political miscalculations and reckless action.