Ukraine War Pushing Food Prices Even Higher

By Steve Baragona March 23, 2022

The world is feeling the effects of the war in Ukraine from the gas pump all the way to the dinner table.

Food prices are climbing just about everywhere, raising the risk of civil unrest, especially in countries dependent on imported wheat from Russia and Ukraine. That includes much of the Middle East and North Africa.

Experts say the food price increases are happening at an especially bad time.

"It's kind of a perfect storm," said Cornell University economics professor Chris Barrett. "It's not just a matter of, food prices are going high. It's food prices are going high at a moment when many places are already crippled by the challenges posed by COVID, by political disruptions elsewhere, by droughts and floods and other natural disasters."

"And there's only so much that people can take before they grow displeased with their political leadership if it's failing to take care of them," he added. "So, unrest is, unfortunately, increasingly likely right now."

Conflict worsens inflation

Russia is the world's leading wheat exporter. Ukraine is number five. Together, they grow up to a third of the world's wheat exports.

But when war broke out, the Black Sea became a combat zone. Some cargo ships took fire. It didn't take sanctions to cut off exports.

"There wasn't a ban on grain trade, but in effect the ports were closed. And so shipment has stopped," said Texas A&M University economist Mark Welch.

"Countries that import from Ukraine and Russia have suddenly found their contracts canceled and they're not getting food shipments they were expecting, which forces them into the market to pay a premium to replace food shipments that just aren't going to arrive," Barrett said. "And that bids up the price of food around the world."

But food prices have been rising for almost two years.

Bad weather cut harvests in some of the world's breadbaskets. Reserves are low.

That's helped push prices to record highs even before the conflict started.

"We've tipped over that edge where every change, every little thing, has a very large impact," University of Illinois economist Joe Janzen said.

More problems coming

Now, Ukraine's next harvest is in doubt. Farmers should be getting ready for the next growing season. But that's hard to do right now.

"Logistical lines are obviously heavily disrupted right now," Barrett said. "Seeds aren't arriving. Fuel isn't arriving. Fertilizer isn't arriving."

Russia's farmers are getting hit, too. They're not under sanctions. But Russia's banks are. That basically shuts Russian farmers out of the financial system.

"We're not going to say, 'You can't ship grain,'" Welch said. "But will they ship it if they can't get paid?"

Then there's the sharp increase in energy prices that makes shipping everything more expensive.

Also, natural gas is a main ingredient in fertilizers commonly used to boost grain yields. So fertilizer costs more to make.

"Fertilizer prices last year were already quite high. They had come down somewhat in the last few months and now are very high again," Janzen said, "in part because Russia and its ally Belarus are major fertilizer exporters."

And Russia and Belarus are both under sanctions for the Ukraine invasion.

But those are problems for the next crop. People in parts of the Middle East and North Africa are feeling the effects now.