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Russia-Ukraine tension increases volatility in grain markets

11 February 20223 min reading

The tension between major grain producers Russia and Ukraine harms global grain markets. Experts warn that if the current crisis escalates, global grain prices would rise further.

In recent weeks, the Russia-Ukraine tension has been the biggest topic for the world. Diplomatic efforts have been made to reduce the escalating tension on the Russia-Ukraine border. However, these efforts have not yet defused the threat of war.

The current tension has increased supply concerns in agricultural commodities, especially wheat and corn, as Russia and Ukraine are among the most important players in world grain exports. Some experts warn that a possible hot war could cause a global food crisis.

World food prices are already at the peak of the last 10 years due to the pandemic and climate change. A possible conflict between the two major grain-producing giants could disrupt the world's grain supply. This could further increase food prices. “If an invasion is unavoidable, governments around the world must be prepared to react quickly to avoid food insecurity and potential famine, including by sending food aid to needy countries and expediting supply chain shifts to redirect exports to Ukraine’s current customers,” said a Foreign Policy article on the ongoing tensions.

Speaking to Wall Street Journal, Andrey Sizov, head of Russia-based consultancy SovEcon, said that even a limited conflict that doesn’t stray far from the Ukrainian-Russian border and only causes minor damage to Ukraine’s agricultural infrastructure could drive prices up between 10% and 20%. Noting that the risks have decreased in recent days, “It looks more and more like a diplomatic war, not a 'hot' war, and that is good for all parties involved,” Sizov added.

According to the US Department of Agriculture, Russia and Ukraine together account for 29% of global wheat exports. Almost 10 percent of world grain production is produced in Russia, while Ukrainian production accounts for 3 percent of world production. Russia, the world wheat export leader, sold 38.5 million tons of wheat last season. Russia is expected to supply more than 34 million wheat to global markets in the 2021-2022 season. Ukraine, which has climbed up the list of grain exporters in the last decade, aims to be the 3rd exporter in wheat and 4th in corn in the 2021-2022 season.

It’s currently difficult to assess the scale of potential damage as food prices depend on a range of factors, according to Monika Tothova, an economist with the Food and Agriculture Organization of the United Nations (FAO). “Taking into account the input of both nations into the world market of grain, the tensions between them inevitably influence the situation,” the economist said in an interview with TASS. “The actual impact of the tensions will depend on how long the tensions will last and how they will develop. If there is a deterioration in the overall situation with a significant impact on production, export logistics, etc, the impact on the global wheat markets will be sizeable,” she explained.

 


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