Surprising predictions part 4

 The Real Cost of the Ukraine Conflict: Higher Grain Prices

The Ukraine conflict has the potential to raise grain prices in the long term, according to a new report by agricultural experts.

What are the real world consequences?

-Increased costs of production for grains may lead to higher food prices on a global scale, which will disproportionately affect people in developing countries. The United States imports much of its grain supply, so domestic prices are likely to be impacted as well.

-Ukraine's large wheat export market will likely dwindle while they focus their efforts on internal stability. This has major ramifications for global demand and supply. Countries like Brazil and Russia have already benefited from Ukraine's troubles with Russia adding an extra million tons of wheat onto world markets in order to build up buffer stocks before bad weather set in this summer. 

-It is unclear whether or not Western countries like Canada would want to fill the void left by Ukrainian exporters or if other exporters such as Argentina or Australia would step up to meet demand that Ukrainian exports would have met. 

-Given these uncertainties, it is not possible at this time for economists to predict how long-term pricing for grains could change due to this conflict. However, given the current circumstances and the uncertainty of Ukraine's future involvement in trade negotiations, there is potential for significant price hikes over the next few years. One study predicts a 7% increase in grain prices just because of the Eastern European crisis. Economists warn that these increases are largely dependent on how long the crisis lasts and if more countries get involved. For now, many economic analysts agree that the best thing we can do is hope for peace in the region so that Ukrainians can put their energy back into agriculture instead of defense. Other reports show that since 2007, global grain reserves have been declining at a steady rate of 1.5% each year. Any disruption in agricultural production means the international community will need to prepare for an unpredictable future for prices and availability. Developing countries that depend heavily on imported goods will be most affected by increased grain prices, but all populations will experience less access to affordable produce. With increasing population trends and growing reliance on cereal crops for staple food supplies, the consequences of decreasing global crop production will only worsen. Meanwhile, arable land will continue to shrink as urbanization grows. All evidence points to one conclusion--the world needs a greater investment in farmland conservation so that crops remain bountiful and accessible to everyone who needs them

U.S. drought, Russia’s grain ban, and other factors

Ukraine’s conflict is not only causing turmoil in that region but also has implications for global food markets. The country exports about 2 million tons of grain to other countries each year, about one-third the volume traded by Russia. Russia's ban on grain exports has forced it to rely more heavily on its own supplies. Meanwhile, drought conditions in North America have depleted stored supply and prompted an earlier than usual harvest there. This combination is exacerbating a situation where rising demand from emerging economies - and projected rapid population growth in Africa - are expected to eat away at shrinking global grains stocks in coming decades. Such circumstances could be very costly in the long run if prices rise much higher. What we're seeing now is probably just a taste of what will happen if current trends continue, said U.N. Food and Agriculture Organization economist Abdolreza Abbassian. We're looking at a period when no major exporting country is able to export significant amounts. Although some analysts see this as a short-term issue, others believe the trend will persist. Many consumers may find their options limited when they go shopping because they'll be unable to buy imported foods, like wheat flour from Canada or corn from Brazil. In addition to being expensive, such imported foods may not always be available in sufficient quantities. Experts say these difficulties highlight the need for nations to diversify their sources of food so that any disruption in a particular area does not become catastrophic. One solution would be to grow crops locally so shortages do not lead to panic buying and empty shelves. Investing in infrastructure, including irrigation systems and roads, is essential to making this possible. Otherwise the consequences can be dire - especially if extreme weather events occur elsewhere in the world. Indeed, experts believe that climate change can play a role in driving up prices even further. While high food prices are hurting people around the world today, food scarcity can hurt people tomorrow - especially those who can't afford good nutrition. Yet hunger still goes largely unnoticed by the majority of citizens, with little appetite for action. If governments want to meet their obligations under international law to address hunger, which was recently reaffirmed by the United Nations General Assembly Declaration on Social Justice for a Fair Globalization, then action is urgently needed before another global food crisis hits. Hunger is already a humanitarian disaster and can be transformed into a global crisis. 

If governments want to meet their obligations under international law to address hunger, which was recently reaffirmed by the United Nations General Assembly Declaration on Social Justice for a Fair Globalization, then action is urgently needed before another global food crisis hits. Hunger is already a humanitarian disaster and can be transformed into a global crisis. Governments need to act quickly and comprehensively to avoid famine and malnutrition. Actions include setting clear goals for sustainable food production, encouraging the use of modern technology in agriculture, supporting smallholder farmers, expanding social safety nets for those most vulnerable to hunger, and investing in rural communities.

Can high crop prices help farmers?

What are the benefits and negatives of high crop prices?

Some people argue that this is beneficial to farmers, because they make a higher profit. As we've seen before, however, high food prices can cause financial crises in developing nations. Ultimately, it is difficult to see how or why this might benefit farmers in any way. Even if you think that higher profits would help them out in the long run, these profits will be eaten up by increased input costs for fertilizers and seeds. For example, urea fertilizer costs have risen 20% since last year due to global instability caused by conflict. 

In addition to hurting farmers in developed countries like America, conflict also hurts those who rely on food aid from governments and charities. When crops become more expensive due to insecurity around their production (as we have been seeing with wheat), government agencies have less money to buy foods locally so they can ship them into areas where there is conflict. The USAID budget has already been cut by $111 million this fiscal year, which means many families may not get the help they need. We cannot forget about those outside our borders when we are thinking about food security. From Russia to Syria, unrest in other parts of the world directly affects our ability to provide sustenance to those most vulnerable. American citizens must work together in order to create change and ensure that all populations have access to safe and nutritious food.

In order to achieve this goal, we must start by supporting fair trade agreements for agricultural goods. These agreements protect small-scale farmers as well as consumers from exploitation - ensuring safe jobs and sustainable incomes. If enough people support fair trade agreements, then countries will not feel the pressure of exporting their crops at lower prices than what is needed domestically. When the products come from a country with high human rights standards, it gives us an assurance that we are doing business responsibly. The UN Food and Agriculture Organization (FAO) estimates that nearly one billion people go hungry every day - 800 million of whom live in Sub-Saharan Africa. It's time for us to act now, before our inaction becomes fatal. Hunger knows no boundaries. While the United States hasn't experienced hunger to such a level in recent years, much of the world still suffers from it each day. Agricultural markets and social stability are inseparable; when price volatility puts undue strain on agriculture markets, it leads to reduced investment levels and greater instability in rural economies. On top of that, severe droughts across Russia have led Vladimir Putin to ban grain exports while Russian stockpiles shrink—a surefire sign that tensions over Ukrainian territory could very well lead to higher grain prices going forward. At home, soaring corn and soybean prices mean trouble for livestock producers raising feedstock cattle and poultry. On behalf of all farmers affected by this crisis: thank you for reading!

Are higher crop prices bad for food security?

Higher crop prices are problematic for food security. Many middle- and low-income countries have not recovered from the last crisis, and many more are now at risk for falling into poverty as food prices continue to rise. Additionally, increasing grain prices have implications for nutritional needs. The amount a family can spend on food will likely be reduced by about ten percent each time there is a 10% increase in grain prices. If this trend continues, an additional 150 million people could fall below the international poverty line. In order to help offset the impact of higher prices on vulnerable populations, governments should develop programs that provide access to affordable nutrition through targeted subsidies or agricultural insurance schemes. Countries should also invest in agriculture research so they can produce crops with improved yields and resistances to climate change and pests. Agricultural investments such as these would allow farmers to maintain their livelihoods while providing nutritious foods at a reasonable cost. Higher food prices may affect global hunger rates, malnutrition rates and undernutrition rates in a negative way if these policies are not implemented. It's imperative that world leaders work together to mitigate this problem before it spirals out of control. For example, China and the United States need to cooperate to create large-scale grain reserves that would stabilize markets. The EU has had success implementing such a system; its reserve stockpile was able to limit the number of adverse effects caused by Russia’s ban on exports of certain products in response to sanctions placed on them. Overall, high levels of conflict can lead to significantly higher levels of hunger across the globe. There were two major contributing factors to the current crisis that started in 2008. These factors were rising oil prices and a weak global financial sector. Oil increased by 54%, which led to higher fuel costs, which affected all aspects of life including farming and shipping goods around the world. Plus, since we don't know when oil prices will come back down again, we won't know when food production levels will go back up. With increasingly limited resources available to trade (due to less money), the situation doesn't look too good going forward either.

Will increased demand push up prices even more?

All else being equal, as a commodity's price increases, farmers and merchants will tend to switch from producing this commodity to producing something that is more profitable. This could shift supply in one direction or another. Additionally, when prices are high, producers may want to increase production in order to make better profits while they can. This can put more supply on the market and cause an even bigger surplus. It has been suggested that food crops might have to be sacrificed if there is enough geopolitical unrest which causes shortages in other areas. If so, then it might not matter what crops people choose to grow since everyone would need them. The second concern would be higher costs for imported grains (e.g., corn) which would mean more expensive feed for livestock and dairy products for humans. However, at least some experts believe that because most countries rely on trade with other countries for their grain imports there will not be any major disruptions caused by increased tariffs or changes in import/export agreements. For example, though Russia may cut back on its exports to Europe, it still needs these exports to pay for the oil and gas it buys from those same countries. So Europe would likely still import Russian grains. In addition, international law prohibits cutting off all trade to certain regions. The United States cannot stop trading with Cuba due to sanctions imposed in 1962, for example. In general, global demand will determine how much long-term grain prices rise. Increasing demand means higher prices--especially if there isn't an equivalent increase in global supply. Historically, world grain prices rise about 3% for every 1% decline in global crop output. Today, however, analysts expect higher prices because the Ukrainian conflict has disrupted production and transportation routes. Ukraine produces about 20% of the world’s wheat and nearly 50% of its barley according to USDA estimates. Thus, Ukraine’s ability to produce these grains is critical for meeting global demand. Wheat prices have risen over 30% in recent months largely because drought conditions worsened across North America and Eastern Europe earlier this year according to Reuters. Demand also played a role but weather conditions have generally been wetter than usual during the past few months. As a result, some analysts now estimate that wheat prices could average around $300 per tonne over the next six months compared to $250 per tonne before the Ukraine conflict erupted according to Reuters reports published last week. At the current rates, this would equate to an annualized cost of $2.5 billion. Other commodities like maize and sugar cane have also seen significant spikes in prices. Maize futures jumped 6% last week after heavy rains throughout Brazil slowed down harvest rates. This led traders to fear that record levels of sugar cane were going unharvested. Sugar cane yields in Brazil were expected to reach 9 million tonnes - lower than last year's record yield of 11 million tonnes according to Bloomberg.

Is there anything else I should know?

Over 80 percent of Russian grain exports go to Western European countries, which could see wheat prices increase by as much as 20 percent if Russia's supply is interrupted. Additionally, the decline in grain prices that has helped make food more affordable for many people may be reversed by this increase. While some analysts are predicting that Russia might not suffer long-term disruptions, there is still a possibility of additional sanctions and what was already an unstable situation could be exacerbated with long-term trade issues. This is yet another reminder that global markets are interconnected and disruptions in one area can have significant repercussions throughout the world.