As the Russian occupation of Ukraine continues, millions of lives face immediate danger, even thousands of miles away from the battle zones. In our latest Wikistrat Insider episode, Dr. David Laborde explains how the "breadbasket of Europe" serves a major part in feeding Africa and parts of Asia; why sunflower oil plays an underrated role; what countries will be the first victims; how the current policies resemble the COVID-19 model; and most importantly, how this new situation will be a test in solidarity for the entire world.
Dr. David Laborde is a Senior Research Fellow at the International Food Research Institute. His research includes globalization, international trade, and environmental issues.
Full Transcript:
Marina Guimarães:
The war in Ukraine already impacts millions of people, but this number can rise every day. Russia and Ukraine are important raw material and food exporters and their clients are everywhere across the globe.
Marina Guimarães:
Here, we'll discuss how the war in Ukraine impacts global food supply, the consequences of the war in this matter, who will be most affected and possible alternatives to the global supply crisis. David Laborde is a senior research fellow at the International Food Policy Research Institute.
Marina Guimarães:
His research includes globalization, international trade and environmental issues. Welcome to one more episode of Wikistrat Insider, podcast series that focuses on less-discussed angles of the most significant events happening around the world. I'm Marina Guimarães from Wikistrat. Mr. Laborde, thank you so much for being here.
David Laborde:
Thank you for this opportunity. It's pleasure.
Marina Guimarães:
So Russia is the world's largest wheat exporter, accounting for more than 18% of the exports. On March 8th, Putin signed a decree that bans the export of certain commodities and raw materials. Which countries are potential substitutes to this exploitation?
David Laborde:
So yes, Russia is the first wheat exporter. Ukraine is between number three and number five. So the fact that Russia stops to export, or at least, will not export to some countries, is going to create problems. But the fact that Ukraine cannot also export actually is part of this issue.
David Laborde:
So it's mainly a problem on the spot for countries in North Africa or in the Middle East where you start with Morocco, but mainly Tunisia, Libya, Egypt, Lebanon, Syria, up to Yemen. And if you go south, a country of Africa, like Somalia and so on, they depend a lot on this region, meaning the Black Sea. There's a long tradition of saying that the Black Sea is the breadbasket of Europe, but right now it's the breadbasket of both Europe, Africa, and in the part of Asia.
David Laborde:
So now what the countries are doing, especially in the Middle East, is to find an alternative - other suppliers here. Argentina is a country that actually had a bumper harvest last December. So they have some surplus, but also, Argentina has a tradition sometime to put export restrictions, to limit food inflation at home.
David Laborde:
Australia also has some surplus. So we are going to see other countries in the southern hemisphere that have the potential to replace some of this export, but not all. And in this context, it's still important that some countries will try to continue to trade with Russia, maybe not the Western countries, but other countries in the world are going to have a bit more open mind regarding getting product from Russia.
Marina Guimarães:
You mentioned Ukraine and you also mentioned Yemen. And my second question is exactly about that. So Ukraine is one of the world's leading agricultural nations, and just in Yemen, Ukraine accounts for one-third of the country's wheat supplies. And now with the war also in Ukraine and in Yemen, Ukraine will also probably stop exportation. With that said, which countries will be more impacted by this conflict?
David Laborde:
So the conflict has started to create problems even before the invasion. For instance, Russia was conducting military operations in the Black Sea in February and the fact too, Ukraine has not exported grains since early February. So we have already seen this disruption taking place.
David Laborde:
And of course, during the middle of the conflict, there is no ships leaving Ukrainian ports. But even all the Black Sea trade right now is disrupted. So as you said, you have some countries that really rely a lot on this region. And some countries like Yemen that already face famine, face extreme food insecurity, before we were talking, while I was talking about Egypt. Egypt has a problem, but there is no ongoing famine in Egypt, and we are not going to see famine in Egypt in the next five months. In Yemen, the situation is much more extreme.
David Laborde:
Then, you have the private sector that imports a bit of food, you have governments and you have also the World Food Program that conduct humanitarian operation. So some of these, they will still try to continue them. And in this situation, we also discussed that even Russia can be exempted from some sanctions on food trade.
David Laborde:
But what they are doing is to look again to Australia to find alternative. We have talked a lot about wheat. I also want to raise that Ukraine is the first exporter of sunflower oil. So actually, even Yemen consumes a number of vegetable oils, including sunflower oil. WFP for the nutrition program because you cannot just sleep with water and bread.
David Laborde:
If you want to have good nutrition, you need a bit of diversity. And this vegetable fat is actually part of their diversity. So it's not just about finding alternatives for wheat, it's to find alternatives for a number of products. And the extreme situation is really for these countries that are facing an already high level of food insecurity.
David Laborde:
So Yemen, Somalia, Eritrea, part of Ethiopia, Sudan, South Sudan, all these countries are really linked to this part of the world. And they are already in a very difficult situation. So that can be the first victims after, of course, the people in Ukraine, the first victims today, including in terms of food insecurity.
Marina Guimarães:
And how should countries act in order to tackle this future or already-happening crisis?
David Laborde:
So each individual country is going to try to protect their own consumers. In some cases, by trying to subsidize food or subsidize a household that needs to pay for their food when the food prices go up. And to some extent, that's a continuation of some of the types of policy we have seen during COVID-19, where basically, you had to help your population to deal with the shock.
David Laborde:
Now, at the more higher level, especially for countries, once again, in the Middle East, where a lot of the food trade is actually managed by the government in Egypt. About half of the wheat is bought by the government, not by private operators, as we can think trade take place in other location. So here they try to diversify their source of supplies. But the problem we face is in terms of crisis, everyone is a bit selfish.
David Laborde:
So you are going to see a lot of countries that are going to try to buy what they can from where they can, and countries that have more money are going to buy more. So obviously, if you are China, or even if you are Iraq today, because with the oil money, with the price of oil going up, you have a lot of oil money. So you're going to be able to buy this. If you are Lebanon, right now, you don't get any money from anywhere. So you are not going to be able to really compete.
David Laborde:
And at the same time, we can see countries on the other side that want to keep grains at home, that want to maintain low prices at home, that can put, what we call, this export restriction, these export bans. So Russia can do it both to punish countries they don't like but also to maintain the low price at home in a situation where their own economy collapses. And so keeping food around is important for them. But Argentina will also have to deal with this food inflation and they can put export restrictions. And what we don't want is to see other countries panicking.
David Laborde:
And with the worst thing that can happen today is if in Asia, for instance, are not going to export wheat anymore. Because in this case, you have people that are panicking, rushing to buy. And you have people that say 'I don't want to sell', prices just explode. But also a lot of countries that rely on a more regular basis on food markets for their food supply. And that's not a bad thing. Interdependency, actually, is a good way to manage risk, but what you just want to make sure is not to see this wave of selfishness that will bring a lot of misery around.
David Laborde:
Now, we can just call for more cooperation. Actually, in the beginning of the COVID-19 crisis when some countries tried to put export restrictions on food, the global community has relatively well-reacted. And so most of these export restrictions have been removed. And that was a big difference with the 2007, 2008 crises, or the 2010 and '11.
David Laborde:
But at the same time, if you remember what has happened a couple of years ago, when it was about medical equipment, here a lot of countries say, "I'm not going to share my medical equipment with you." Or the same thing for vaccines, "My population first." And really, that's how you manage this kind of global solidarity. Not talking about charity, I'm just talking about solidarity. That's going to be a key test for the world again.
Marina Guimarães:
And you talked about prices exploding. When will the average person see the results of food prices increase?
David Laborde:
So actually, it depends a bit where you are, because if you are in the US or if you are in Italy and you go and buy your bread, just 5% of the price of bread is linked to the price of wheat. Everything else is services, transportation, and so on.
David Laborde:
Now, if you are starting to move to countries where this value chain is shorter, or where you start also to buy products that are less processed, this link between the commodity price, what people produce on the farm and what is traded, and the food price, what you see, is much shorter.
David Laborde:
For some products, like vegetable oil, where there is actually less processing or even less marketing because sometimes when you buy your food product, you also buy advertisements, not just the contents. This is different. So I will say that for very basic commodities and in particular, I think if you are in North Africa and you buy couscous and next month is going to be Ramadan, so here people are going to see already a price increase very fast.
David Laborde:
Now, if you are in another part of the world, it's going to take several months actually to notice. And in some cases, you may not even really notice an increase in the price of commodity. But much more the price of energy, for example, of oil. Because to move grains from one country to another, you need ships. It costs money. To process it, it costs money to have trucks moving around oil, once again, money.
David Laborde:
So you see this overall situation can take really different shape. And just maybe a small parenthesis, the food price increase has actually started in April 2021, if you look at the price dynamics. So crisis is just creating a spike, but there was already a big wave of increase in prices. But depending on which country you are in, for example, in January, in some places, the overall food inflation was at 3% in Europe. When, if you were in Venezuela, you were dealing with a 40% price increase or even more.
David Laborde:
So local context matters or also your macro-economic situation matters. The last point I want to make is because we also have a crisis on the fertilizer side, this high level of food prices are not going to disappear on the spot. Even if tomorrow, there is peace, we'll see it go from the energy market, to the fertilizer market. And so we are entering in a period of high food prices I will say at least for six months, if not for 18.
Marina Guimarães:
And how does the banning from importation of Russian gas affect the global food industry? And will this impact on investments in green energy as well?
David Laborde:
So yes, the price of oil goes up and the price of natural gas goes up. Now, this natural gas market is actually very segmented across countries because you need a pipeline to move gas, or you need to liquefy it. And the liquefaction of gas has a cost, there is more limited capacity.
David Laborde:
So as of today, for instance, the price of natural gas in Continental Europe is six times higher than in the US because the US has a lot of natural gas, they have done fracking. So even making fertilizer because the link after between natural gas and the food system is really going through fertilizer.
David Laborde:
So the cost of making fertilizer right now is totally prohibited in Europe when it's relatively still cheap to do in the US. So that's going to be one key channel on this energy market. And for example, Europe can bring more natural gas from Algeria. But they are not going to be able to be connected if you want the distribution system of North America or even some part of Africa tomorrow.
David Laborde:
Now, the question on what it means for the future of energy and the necessary action that have to be taken to change energy pattern and/or dependency to fulfill fuel. Clearly, in Western Europe, people are going to accelerate their energy transition because we don't have an alternative. We don't want tomorrow to depend more on the Middle East for oil than to depend from Russia.
David Laborde:
Just this question about leaving the fossil fuel era as to be accelerated, it has already started. And to some extent, some can be done with renewable. I think the nuclear question is going to be back on the table for some countries. In another part of the world, it's going to be more ambiguous. First, the US has a lot of fossil fuels at home. So they may still... Some of the US policymakers, I say their feedback or their action was, "Drill, baby, drill."
David Laborde: When also what can happen is Russia is going to have a lot of oil that Europe doesn't want to buy. So they will sell at a discount price to China, to other countries that will find these cheap energy fuels. And will say, "Okay, why do we need to do more transition now?" Because Russia has all this oil and they have lost many customers. So now we have cheap energy.
David Laborde:
We are going to see this kind of indigenous response to this shock on the energy market coming from Russia. Something that can still happen is actually Russia uses a lot of foreign technology to exploit their oil. And without this technology, actually, their capacity to produce oil may also decline. That's something we have seen with Venezuela, for instance, in the last 15 years.
Marina Guimarães:
One of the biggest consequences of the Ukraine war is migration. And how does migration relate to the global food supply crisis?
David Laborde:
So just in a very simple way, if we have global food insecurity in the world today, there are three drivers: conflict and with the movement of population, a link to that; climate change and global economic inequality. So anything that impacts one of these drivers is creating hunger somewhere. The migration part and the conflict part is a big one.
David Laborde:
Now, when you start to move millions of people in Africa, for example, in Sudan, what you are displacing is actually a lot of farmers. And you are moving poor people from, in many cases, neighboring countries that are also poor. In the case of the Ukraine migration right now, it's a bit different. You are dealing with a relatively upper-middle-income economy.
David Laborde:
So it means that the number of farmers we are displacing is still limited. Most of the people we are seeing migrating is family leaving cities that are going to be bombed. It's not really rural areas that are running away from their farms. And they're moving to a rich area. Europe can take care of five million people. 40 million people, maybe not so easily because that will be 10% of the population.
David Laborde:
But in the past, we have also seen other regions of the world doing huge efforts to deal with original crisis. Colombia has accepted a lot of people from Venezuela, Latin America has done something. And that was a big, big refugee crisis to some extent. So that's where I will say the humanitarian crisis coming from the Ukrainian refugees, it's not going to be a direct impact on global food security.
David Laborde:
That's something of importance for them, but Europe can take care of this. Now, we still want that at one point, people in Ukraine can go back to their town, go back to their houses, that farmers in Ukraine can go back to their field.
David Laborde:
Then people in Odesa, or even Mariupol, their port activity has to reopen. Because if you want, at one point, to get wheat from Ukraine, you have a lot of people that need to bring the wheat from a farm in Ukraine to the world market. So if this doesn't happen, then clearly we have a problem of food supply at the global level, not a big one.
David Laborde:
If we just kind of lose Ukraine, it will be a bit of tension this year, but the world will survive. But maybe something that will be more insidious is the fact that because the European Union and European countries are big providers of international aid, including food aid or economic support to what's happened in Yemen, what's happened in a lot of places.
What Europe is doing with this aid, Money Matters. And tomorrow this aid money is still going to take care of a crisis, but it will be not Afghanistan anymore, it will not be Syria anymore. It will be Ukraine.
David Laborde:
So that's where we can see actually, you see this much more indirect effect where basically, European solidarity is going to go to Ukrainians first. And that can create pockets of gaps around the world where normally, countries were benefiting from the support of Europe. So what other countries in the world are going to do to fill this gap, will be quite important.
Marina Guimarães:
And over the last years, we've seen a pandemic, climate disasters, increasing European gas prices and all of these impacted the food system. Does this mean we have a fragile food system?
David Laborde:
I would say yes and no, in the sense that we are still living in a world where all these shocks have not led to hundreds of million people dying of hunger. 200 years ago, you had famine that was killing in Europe significantly, last year of the population.
David Laborde:
Even the Irish famine lead to a lot of migration, people leaving their country to go to the other side of the world. So today we are basically feeding eight billion people. Not everyone. We still have 800 million of people. So 10% of the global population doesn't have enough even basic calories to live a normal life.
David Laborde:
But the world today is still a much better place than it was 200 years ago or even 50 years ago. And actually, in the '70s, for instance, half of the cereal trade was coming from the US alone. So every time there was a problem in the US, the world was starting to panic. Now you have the US, you have Canada, you have Australia, you have the European Union. But you have Argentina, you have Brazil, you have South Africa, you have Kazakhstan, you have Russia, you have Ukraine.
David Laborde:
So yes, we have shocks, but we have much more options to deal with a shock than in the past. And we have even more drought and that's a problem. We have more floods. Actually, we have many more floods than droughts, actually, when you look at globally.
David Laborde:
And this impacts the system, but still in the past, we received these pictures in Africa when you have locusts, then you have huge famine. That every two or three years, when you are thinking about Ethiopia or other part, people were dying or they were suffering extremely.
David Laborde:
Now, we have, even with what has happened in recent years, most of these pictures have disappeared. When we really see people impacted by this famine, in many cases, it's because there is a war. So the overall system is more resilient, facing more challenges.
David Laborde:
The system still works, but we need to make it more resistant. We need also to help it. And not just to think that, yes, all the problems will be solved by themselves. Everyone has a role to play in that. It's just about how we collectively manage that, to make sure that a shock doesn't lead to a tragedy.
Marina Guimarães:
And the last question, looking ahead, what can we expect in the next three months?
David Laborde:
So in the next three months, we are going to see either very good news or very bad news, in the sense that right now, Ukraine is suffering a lot. People are displaced, some of the infrastructure is destroyed. There is very little probability that in the next couple of weeks peace happen.
David Laborde:
Meaning that the planting season that normally takes place in Ukraine in March, that is about the new prediction of corn, of sunflower oil, and so on will happen. So clearly, Ukraine is not going to have good crops for this specific product this year. But one of the big deadlines is what's going to happen in July, August when the next wheat that has been planted during the fall should have been harvested.
David Laborde:
Because here, we are talking about 20 million tons of wheat that normally the world has access to, and may not have access to it. So depending on if we manage to solve this conflict in the next couple of months, and we can start to see a way back to normal for the summer, then the market will relax, people may panic less. And so we will be, step by step, in a better situation.
David Laborde:
Not perfect because the fertilizer crisis is not going to be solved, even if Russia is going back in the market. But in any case, the sanctions are going to stay here for some time. And the sanction are going to also disrupt this energy market.
David Laborde:
So we still have a bumpy road ahead. But now let's say that things actually get worse and the conflict in Ukraine start to go on again and again, that we see more sanctions, that we see also countries starting to use food as a diplomatic weapon. Basically, if you are my friend, I will trade food with you, if you're not my friend, I will not trade with you. Or if the Western countries say, "Please don't buy from Russia because we don't want to make them money this year," that can really create significant disruption for the long term.
David Laborde:
Once again, markets will adjust, people will start to redirect. Maybe Russia will send more to China and less to the Middle East when Europe, Argentina and the US will try to sell more to the Middle East. So we can see a number of reorganizations, but this will have a cost and this will take time.
David Laborde:
So let's hope for the best and hoping that the conflict can be solved in a relatively diplomatic way in the next couple of weeks. But also let's plan for the worst and make sure that farmers around the world will have access to the input we need for the next harvest.
David Laborde:
I don't want people to think that we have to rush to a supermarket to store flour and rice because actually, that will create a problem when there is no problem. But in order to make sure that in the next 18 months food inflation is under control, that we are not depleting inventories, more than necessary. We need to make sure that the food sector can operate properly in the next month. And we just also hope that no major weather event will take place.
Marina Guimarães:
Mr. Laborde, thank you so much for your contribution.
David Laborde:
Thank you for having me.
Marina Guimarães:
This is Marina Guimarães from Wikistrat.