The Russia-Ukraine conflict has shaken the agriculture markets over the past three months, bringing food inflation concerns and a rise in global famine. Even before the conflict, the world hunger rate had already broken all previous records last year, with about 193 million people across 53 countries and territories experiencing acute food crisis and in need of immediate aid.
In the context of Covid-19, the conflict and governments’ responses are driving up global food prices, increasing the risk of increased poverty, hunger, and malnutrition. These factors might trigger a “hurricane of hunger,” as UN Secretary-General Antonio Guterres has described it, with the size and severity of the storm being heavily influenced by developments in the Ukraine conflict.
Eurasia Group expects the conflict will devolve into a lengthy stalemate over the next three months (a 70% probability). Alternatively, diplomatic attempts could result in a climbdown (with a 5% chance), or the war could escalate into a scorched-earth campaign (a 25% probability).
Both scenarios would damage Ukrainian infrastructure and agricultural production and a blockade of Ukrainian shipments via the Black Sea until the end of the year or beyond.
The Rise in Food Insecurity
As per World Bank and World Food Programme (WFP) standards, Gro Intelligence has assessed the income-implied number of individuals worldwide who are vulnerable to food insecurity, at risk of extreme poverty, and on the verge of famine based on these scenarios.
When combined with the Eurasia Group’s scenario probabilities, the study predicts a 95% possibility that people facing food crisis will climb from around 1.6 billion in mid-May to add 142 million-243 million more by November.
From under 1.1 billion people now, the number of people living in extreme poverty (on less than 2.29 per day USD) might rise from 103 million to 201 million. Finally, from around 49 million people, the number of people on the verge of famine, or those facing the worst degree of deprivation, might rise by 3.5 million-6.9 million.
Even in an optimistic scenario of a near-term cease-fire in Ukraine, Gro Intelligence expects the number of people at risk to drop only slightly in the next five months.
The war is already impacting food commodities, and the report outlined many significant transmission mechanisms.
- Reduced exports for commodities, including wheat and vegetable oil, from the Black Sea region
- Food and fertilizer sales from Belarus and Russia are being hampered by various policy actions, including export restrictions, bans, and countersanctions
- Volatile fuel prices can drive up food prices due to higher expenses for farmers and agricultural operations, as well as increased transportation and input expenditures for agricultural products
- Shipping operations were already strained, but the conflict has added new complexities
Most MENA, Middle Eastern, and North African countries are net food importers, and droughts exacerbate their import needs. Yemen, Syria, Lebanon, the Levant, Egypt, and North Africa would most certainly be affected. Rising food prices and other socioeconomic difficulties in Sub-Saharan Africa may become problematic; Kenya, where national elections are scheduled for August, will be a crucial watchpoint.
Given Indonesia’s dependency on wheat imports from Russia and Ukraine, the country is most likely affected in Southeast Asia. Sri Lanka and Pakistan are already experiencing political instability due to food inflation and economic stagnation in South Asia.
India also imports a lot of fertilizers, vegetable oils, and a few other food items from Russia and Ukraine.
Coronavirus outbreaks in China are putting a strain on the country’s food production capacity. It may push the government to increase imports while maintaining low export volumes, putting upward pressure on global pricing.
In Latin America, acute price pressures produce political rumblings, particularly in Central America and the Dominican Republic, which are big net importers of food and oil. High input costs and rising prices are harming major agricultural producers in South America, such as Brazil, and several countries are attempting to protect consumers as much as possible.