The resumption of shipments from Ukraine is helping drive down the cost of grain, with wheat prices expected to stabilize should trade continue to flow smoothly from the country’s Black Sea ports, World Bank Senior Agriculture Economist John Baffes told The Japan Times in an interview.
“We believe food prices reached their highest level in the second quarter of 2022,” Baffes said, noting that the World Bank does not expect food prices to increase for the rest of the year, given that most global food markets are adequately supplied.
While prices are still 14% higher than a year ago, the World Bank’s food price index is down 12% since its April 2022 high, he added.
At least 18 ships have left Ukraine's Black Sea ports since early August, including one carrying humanitarian food assistance, under a deal reached between Kyiv and Moscow in July.
The agreement, brokered by the United Nations and Turkey, is part of a program allowing grain shipments to break through a monthslong Russian blockade and help bridge a global food supply gap while reducing pressure on record-level prices.
Before the war, Ukraine and Russia accounted for 29% of global wheat exports and 62% of sunflower oil. Moreover, Ukrainian grain fed 400 million people around the world last year, the U.N.’s World Food Program (WFP) reported, adding that it sourced about 40% of its wheat supplies from the Eastern European country.
As part of the pact, the U.N. also agreed to facilitate the unimpeded export of Russian food and fertilizers, including raw materials needed to produce the fertilizers. Russia and Belarus are major fertilizer exporters, accounting for 38% of potassic fertilizers, 17% of compound fertilizers and 15% of nitrogenous fertilizers.
Most of the ships currently leaving Ukraine have not been heading to countries facing food shortages but rather to those that purchased grain under commercial contracts. Despite this, U.N. officials have been quoted as saying that commercial trade is playing a role in stabilizing the market.
One exception is the ship Brave Commander, which has been chartered by the U.N. to bring wheat to people on the brink of famine in the Horn of Africa. The vessel left the Ukrainian port of Yuzhne on Sunday loaded with 23,000 metric tons of wheat.
The shipment, which the U.N. hopes will be the first of many, will be discharged in Djibouti and make its way to Ethiopia, where the WFP is coordinating operations to counter the threat of famine affecting drought-hit regions in the Horn of Africa.
A severe drought caused by four consecutive failed rainy seasons in these areas has left over 18 million people facing severe hunger, according to the U.N.
That said, the Horn of Africa is just one of many areas around the world where the near complete halt of Ukrainian grain and food on the global market has made life even harder for the families already struggling with rising hunger, the WFP said.
According to Baffes, food prices began increasing around mid-2021 in response to pandemic-related supply chain disruptions and adverse weather conditions in various locations, especially South America and North America, where soybeans and maize were affected, respectively.
The rising prices have had a greater impact on people in low- and middle-income countries, since they spend a larger share of their earnings on food than people in high-income countries.
“Lower food availability has already pushed food price inflation up in almost all countries across the globe, especially Middle East, North Africa, sub-Saharan Africa and Latin America regions,” Baffes said.
Globally, the number of people affected by hunger rose to as many as 828 million in 2021, an increase of about 46 million since 2020 and 150 million since the outbreak of the COVID-19 pandemic, according to the U.N’s Food and Agriculture Organization.
Although a further increase in food prices is not expected over the coming months, Baffes doesn’t rule out another price increase if adverse weather conditions take place. Given the unpredictable nature of the conflict in Ukraine, some analysts remain skeptical about Black Sea trade making a more meaningful return.
Critical in this regard, Baffes said, is that countries should not engage in trade restrictions such as export bans.
“Unfortunately, some countries have been engaging in trade restrictions, which is not the best way to address the impact of high prices. Countries often react to these trade measures, which in turn increase food prices even further,” he said.
Instead, he called on wealthier nations to help low-income countries with investment opportunities that can increase agricultural production in a sustainable manner.
This comes as Japan seeks to deepen its long-term engagement with African countries, including during the eighth iteration of the Tokyo International Conference on African Development, which is set to be held from Aug. 27 to 28 in Tunisia.
According to Kyodo News, Tokyo will pledge at the conference to assist the continent in doubling rice production in response to the global food crisis exacerbated by Russia’s war in Ukraine. It will also urge African countries to ensure transparency when they raise funds for development in light of China’s so-called debt-trap diplomacy.
Food price increases not expected in rest of 2022, World Bank economist says
Below is the full interview with Baffes, who manages the Commodity Markets Outlook, a World Bank publication focusing on commodity market analysis and price forecasts:
How much have food prices risen globally recently, and how much are they expected to rise this year?
Food prices began increasing during mid-2021 in response to some adverse weather conditions in various places, especially South America (affecting soybeans) and North America (affecting maize).
A second increase came after the Ukraine war, which affected mostly wheat and some other grains. The World Bank’s food price index is down 12% since its April 2022 high, but still 14% higher than a year ago. We do not expect food prices to increase for the rest of the year, given that most global food markets are adequately supplied.
How many people worldwide are being affected?
According to the Food and Agriculture Organization of the United Nations, the number of people affected by hunger globally rose to as many as 828 million in 2021, an increase of about 46 million since 2020 and 150 million since the outbreak of the COVID-19 pandemic.
What are the major factors behind this rapid rise?
The major factors include supply chain disruptions, adverse weather (including La Nina in the case of South America) and the war in Ukraine.
You mentioned the war in Ukraine. The first grain shipment since Russia’s invasion of Ukraine sailed from the Black Sea port of Odesa earlier this month. Will this ultimately help bring down food prices?
Indeed, resumption of wheat exports from Ukraine have already had an impact on grain prices. If regular trade from the Black Sea resumes, wheat prices are expected to stabilize.
Which food products/commodities have been among the most affected?
The most affected commodities are wheat and — less so — edible oils and maize.
What impact are record-high food prices having on developing countries?
Lower food availability has already pushed food price inflation up in almost all countries across the globe, especially the Middle East/North Africa, sub-Saharan Africa and Latin America regions.
Which areas and countries are the most affected by this?
Countries in the Middle East and North Africa are the most affected because they are most exposed to trade using the Black Sea.
What socioeconomic and security implications could this have for these countries?
This could impact the food security in these countries, because of high prices and, often, nonavailability of bread and other wheat products.
How long do you reckon the high food prices will last?
We believe food prices reached their highest level in the second quarter of 2022. However, if adverse weather conditions take place, we could experience another price spike.
What can the most affected countries do about this?
Unfortunately, some countries have been engaging in trade restrictions, which is not the best way to address the impact of high prices — countries often react to these trade measures, which in turn increase food prices even further.
What can or should be done at the international level to help these developing countries, particularly African countries?
Investment to increase agricultural productivity should be a priority.
What role do you think Japan could play in this regard?
From a policy perspective, Japan, along with other high-income countries, should stress the fact that countries should not be engaging in trade restrictions such as export bans. On the investment side, as mentioned above, helping low-income countries with investment opportunities to increase agricultural production in a sustainable manner would be a desirable goal.
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