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[                    ]
Briefing | The food system in crisis

A world grain shortage puts tens of millions at risk

War, extreme weather and export controls are all contributing

CHERKSKA LOZOVA, UKRAINE - MAY 14: Ukrainian farm worker Misha stands
near a tractor destroyed by a Russian tank shell on May 14, 2022 in
Cherkska Lozova, Ukraine. He said that Russian forces had destroyed a
grain warehouse and farm equipment while occupying territory outside
of Kharkiv. Ukrainian and Western officials say Russia is withdrawing
forces around Kharkiv, Ukraine's second-largest city, suggesting it
may redirect troops to Ukraine's southeast. (Photo by John Moore/
Getty Images)CHERKSKA LOZOVA, UKRAINE - MAY 14: Ukrainian farm worker
Misha stands near a tractor destroyed by a Russian tank shell on May
14, 2022 in Cherkska Lozova, Ukraine. He said that Russian forces had
destroyed a grain warehouse and farm equipment while occupying
territory outside of Kharkiv. Ukrainian and Western officials say
Russia is withdrawing forces around Kharkiv, Ukraine's second-largest
city, suggesting it may redirect troops to Ukraine's southeast.
(Photo by John Moore/Getty Images)
May 19th 2022 | DHARAULI, KYIV, LUKASHIVKA, RUGBY AND WASHINGTON, DC
Share

In 2001 olena nazarenko's father started farming in Lukashivka, a
small village about 100km north of Kyiv, with three cows and a horse
called Rosa ("Dew" in Ukrainian). In 2020 Mrs Nazarenko and her
husband Andriy inherited the 400-hectare (1,000-acre) farm, now named
Rosa after that founding horse. Early this year they took out a
substantial loan to cover fertiliser for the coming spring-wheat
crop.

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On March 9th, well before they had planted any, Russian troops
occupied the village and the couple fled. On March 31st, when the
invaders had turned tail, they returned. It was a harsh homecoming.
The main farm building was shelled out. Three tractors had been
vandalised and their diesel drained. Of their 117 cows, 42 were dead
and the rest were roaming fields littered with debris, mines, mortar
shells, unexploded cluster bombs and burnt-out trucks. Fifty tonnes
of wheat, sunflower seed and rye had been destroyed, costing them
tens of thousands of dollars. "We have no money left," says Mrs
Nazarenko. "We have nothing to pay salaries and are struggling to pay
interest on the loan."

Lukashivka and the villages around it have seen thousands of tonnes
of grain destroyed or left to rot; much the same is true throughout
the country's war zones. Russian forces have targeted grain elevators
and fertiliser plants, leaving the infrastructure in pieces. The
share of last year's grain harvest still in the country--about 25m
tonnes of grain, a lot of it maize (corn)--is stuck there, because
Odessa's ports, through which 98% of the grain exports normally pass,
are blockaded. Getting the grain to alternative ports in Romania,
Bulgaria and the Baltics is hard. "Before the war Ukraine exported
about 5m tonnes of grain a month," says Mykola Solskiy, the minister
for agriculture. "Last month we managed to get 1.1m tonnes out."

Vikas Kumar Singh, a farmer in Dharauli, a village in Uttar Pradesh
about 700km south-east of Delhi, has no unexploded ordnance to worry
about. But his March, too, was troubled. "It got too hot too early,"
he explains, picking up a handful of recently harvested wheat from a
pile in his shed with a dejected look on his face. "See, the grains
are thinner than they're supposed to be." After being battered by
severe winds and hail in February, the Chandauli district in which
Dharauli sits suffered intense and unseasonable heat, shrivelling the
ears of wheat when they should have been burgeoning. The same
happened across most of the country. "Things are much worse in
Maharashtra," says Awadh Bihari Singh, who farms nearby.

Mr Vikas Singh reckons that his yield is down by about a quarter
compared with last year's. The district as a whole has harvested
around a fifth less wheat than in a normal year, reckons Mr Awadh
Singh. Before the heatwave, when a bumper harvest had seemed on the
cards, the government had looked forward to the rupee being
strengthened by grain exports. When expectations of the harvest's
size tumbled it flip-flopped. Accelerating exports encouraged by high
prices abroad raised worries of a shortage at home.

On May 13th, the Indian government imposed an export ban on wheat,
though it says it will make exceptions for specific countries in
need; on May 15th a 500,000-tonne deal with Egypt was reported. There
are currently 26 countries implementing severe restrictions on food
exports. In most cases they are outright bans. The various measures
cover 15% of the calories traded worldwide.

It takes a world to feed a world, and the way the world does it is
through trade. By some estimates four-fifths of the global population
live in countries which are net importers of food. More than 20% of
the world's calories, and more than 18% of its grain, crosses at
least one border on the journey from plough to plate.

[20220521_F]

At the beginning of 2022 the world-spanning system which makes this
possible was already in a ropey state. The number of people with
access to food so poor that their lives or livelihoods were at
immediate risk had risen from 108m to 193m over the past five years,
according to the un's World Food Programme (wfp). A lot of that
near-doubling of "acute food insecurity" was due to the covid-19
pandemic, which reduced incomes and disrupted both farm work and
supply chains; a good bit more was down to rising prices of energy
and shipping as the effects of the pandemic wore off. Things were
made worse by swine flu in China and a series of bad harvests in
exporting countries, some of which were due to La Nina conditions
that began in the middle of 2020. La Nina is a recurrent pattern of
currents and wind patterns in and over the equatorial Pacific which
has worldwide effects, just as its also-troublesome counterpart El
Nino does.

Global grain stocks were, admittedly, quite high. But they were
mostly in the hands of well-off importing nations, not those of
exporters keen to sell them or poor importers likely to need them.
"If we do not address the situation immediately," David Beasley, who
runs the wfp, told the Munich Security Conference in February, "over
the next nine months we will see famine, we will see destabilisation
of nations and we will see mass migration."

Just six days after he spoke those words Russia rammed a rifle barrel
into the already creaking machinery. In 2021 Russia and Ukraine were
the world's first and fifth biggest exporters of wheat, shipping 39m
tonnes and 17m tonnes respectively--28% of the world market. They also
grow a lot of grain used to feed animals, such as maize and barley,
and are the number one (Ukraine) and number two (Russia) producers of
sunflower seeds, which means they have 11.5% of the vegetable-oil
market. All told, they provide almost an eighth of the calories
traded worldwide.

Ukrainian food exports were promptly throttled by the war; Russian
ones were dented by the indirect effects of sanctions. Grain prices
shot up. Having fallen back a little as the shock wore off, they are
now on the rise again. On May 16th, the first day of trading after
India imposed its restrictions, wheat prices in Chicago, the global
benchmark, rose by 6%; on May 18th they were 39% higher than they
were when Russia launched its invasion.

America's department of agriculture (usda) reckons that war and bad
weather mean global wheat production is likely to fall for the first
time in four years, which is bad. What is worse is that wheat is not
really traded globally. Buyers often have long-standing bilateral
relationships with exporters and set channels of trade which make
switching suppliers hard. According to the un's Food and Agriculture
Organisation (fao) nearly 50 countries depend on either Russia or
Ukraine, or both, for more than 30% of their wheat imports; for 26 of
them the figure is over 50%.

That it should come to this

East Asian countries which import a lot of Black Sea wheat, such as
Indonesia, can fairly easily switch to rice. For most other big
importers cutting off wheat would involve drastic changes in diet.
Many countries in the Persian Gulf and north Africa eat at least
twice as much bread per person as gluten-loving Americans. Some grain
can be diverted from other markets, at the right price, and European
farming interests say that governments are coming to them actively
seeking deals: "Everything is on the table", says a big French
producer.

[20220521_FBC911]

Still, shortfalls seem certain. The wfp, on which more than 115m
people depend, and last year got 50% of its wheat from Ukraine, says
the crisis could drive 47m more people into acute food insecurity.

The war is also having effects on the things farmers need to grow
food in the first place--and thus on how much they will plant in the
seasons to come. Farms run on fuel. With Russia the world's biggest
natural-gas exporter and its second-biggest oil exporter, fuel prices
have risen. Farms also need fertiliser. Of the three main types of
industrial fertiliser Russia is the biggest exporter in one market
(nitrogen-based fertilisers, the only expensive ingredient of which
is natural gas), the second biggest in another (potash, which
provides potassium) and the third in the third (phosphates).
Pesticides and herbicides, often produced from hydrocarbons, have
also gone up in price.

There is a lengthening shadow over another of the farmers'
prerequisites, too--one which predates the war and will outlast it.
Good harvests need good, or at least moderate, weather. They are not
well served by extremes. But climate change means extremes are
increasingly what they get. Analysis by Britain's Met Office shows
that global warming has made an extreme Indian heatwave like this
year's 100 times more likely.

And global markets mean the effects of these extremes can add up in a
way that goes beyond the globally correlated patterns of disruption
brought on by the see-sawing of La Nina and El Nino. The deluge which
forced Chinese farmers to delay planting winter wheat last year, thus
reducing this year's expected harvest, and India's subsequent
stem-shrivelling heat may not have any direct connection. But when
the probability of extremes goes up worldwide, so too does the
probability of multiple regions suffering from one sort of extreme or
another at the same time, or in the same time frame.

[20220521_FBM907]

And time frames matter. Although many commodities can be produced
year round, crops depend on the seasons. Miss the window for certain
crucial steps, such as planting, fertilising or harvesting, and much
of a year's work can be lost in a matter of weeks.

This is the worry when it comes to Ukraine's winter wheat. Sown last
year, it will be ready for harvest come June. Mr Solskiy expects this
year's harvest to be 20-30% smaller than expected. Roughly half the
winter-wheat fields are in the part-occupied, part-fought-over
south-east. Many fields are scattered with explosives. Infrastructure
has been destroyed. Water, power and fuel are sure to be in short
supply.

Yields in the fields which do get harvested will be down by 10%,
according to the fao: fertiliser applications have been missed; pests
and diseases have run amok. And as long as Odessa is blockaded, the
harvest will have no route to market. Nor can it be stored away. The
blockade means that the country's silos are still more than half full
with last year's crop. Unless exports through the Black Sea start
again millions of tonnes could simply rot.

Things rank and gross in nature

The crops now nodding their heads in Russian fields should fare
better. International sanctions do not target food exports directly,
and though they make the trade more difficult, ways through and
around the problems they create can be contrived. Though exports have
dropped by a few million tonnes, Russia has managed to sell more
grain since the war began than experts expected, with Egypt, Iran,
Syria and Turkey the main buyers. When this summer's harvest is
brought home most of it will get to market. But that will not set
right the shortfall in Ukraine.

Nor is the rest of the world well placed to make good the lack. China
has warned that last year's floods mean its winter-wheat crop could
be "the worst in history". Much of America's grain belt is undergoing
a drought as bad as the one which it saw in 2012-13. Around 40% of
the wheat growing in America's parched plains was recently deemed in
poor or very poor condition (15-20% is average). On May 12th the usda
predicted that the country's production of hard red winter wheat, the
main kind grown in the plains, would fall by 21% compared with 2021.
Europe is getting too little rain at a point in the season when wheat
is most vulnerable to dryness. A little late rain may be enough to
revive the crops. But it seems certain that production will come up
alarmingly short this year.

There are still stocks in exporting countries that could make up some
of the difference. Nick Schaefer, who works at a grain elevator in
Rugby, North Dakota, says he sees 40 to 50 trucks a day dropping off
grain to be loaded onto trains heading west. And he knows there's
more where that came from. "It seems like whenever they sold, [the
price] keeps going higher. So definitely, what they've got left in
the bin, they're probably going to hold on, just to see what
happens."

Normally the farmers would have an incentive to run down stocks
before the harvest, when prices typically drop. But this year that
looks unlikely to hold. Futures markets expect wheat and maize prices
to stay at today's extortionate levels until mid-2023. Mr Solskiy
says that it will be when the harvest fails to change things that the
world will start to feel the true impact of the crisis.

"There is no room for any weather issue in the northern hemisphere
this season," says an executive at one of the world's largest
traders. While Ukraine's output remains inaccessible, "every single
tonne in the market will be needed," says Michael Magdovitz of
Rabobank, a Dutch lender. That tight coupling of supply and demand
means that prices will be very volatile, too, moving on the slightest
bit of news; further shocks could send them much higher.

What of harvests after that of this year's winter wheat? In Ukraine
and elsewhere a smaller wheat crop is also planted in the spring,
along with other things. For Mr Nazarenko this meant first uprooting
the aftermath of war. With a number of employees, friends and
relatives he walked the fields, removing spent shell cases and some
unexploded shells, marking unexploded mines, pulling a "Smerch"
rocket from the mud in which it was entombed with a tractor. "It was
scary, but we did not have a choice," he says.

In the end, he managed to sow most of his fields, barring the one
still taken up by burnt-out Russian trucks. That puts him ahead of
many. Some lack seeds. Some must plant at night to avoid air raids.
Some are planting potatoes for home consumption rather than grain for
export. A recent survey by Ukraine's agriculture ministry suggests
30-50% of the country's spring-wheat fields could end up not being
planted. Yields may also suffer. Fertiliser is not yet scarce but
some may well be repurposed to make explosives; ammonium nitrate
serves well in both offices. Diesel is twice the price it was before
the war, and it is hard to get hold of even if you can pay.
Pesticides look set to be scarce.

Grown by what it fed on

Russian farmers do not face the problems of bombing, but they too
will be short of inputs. The country's large farms, which specialise
in supplying global markets with grain, require a lot of them. Last
year Russia imported $870m-worth of pesticides and $410m-worth of
seeds--mostly from the eu. Elusive bank financing, payment headaches
and a lack of willing shippers are making such purchases much more
difficult. Most big Western seed and chemicals companies have pulled
out of Russia, or are in the process of doing so (Chinese ones have
stayed). Some may return after the war ends, but some may stay away.

Fertiliser will not be in short supply for the Russians. But it will
be in most other places. In 2021, 25 countries got more than 30% of
their fertilisers from Russia. In Europe energy-security concerns are
restricting the use of natural gas to make nitrogen-based fertiliser,
so the continent will need to import more, adding extra demand to a
market where the natural-gas price has already increased most
manufacturers' costs. Nigeria and Qatar, flush with natural gas, are
opening new nitrogen plants; there also seems to be some room for
increasing Canada's potash production. But prices will stay high.

More costly energy and fertilisers drive up prices across all sorts
of agriculture. The farmers in Chandauli say high prices for
fertiliser, diesel and labour have pushed their costs up by 20-25% so
far this year. And wheat prices have effects across the market, too.
If the cost of a commodity goes up, consumers look for alternatives.
That is why food-price inflation is being seen in commodities that
are not directly affected by the war, says Seth Meyer, the usda's
chief economist. Indicators of price volatility compiled by the
International Food Policy Research Institute in Washington, dc, are
flashing bright red for all major grains--including, for the past
couple of months, rice, for which there are currently no supply
concerns.

Flat and unprofitable

This all serves to blunt a seemingly natural response to high grain
prices: for farmers to grow more grain. When input prices go up more
than the grain prices, farmers' margins fall. Josef Schmidhuber of
the fao reckons the price of cereals, and food more generally, as
perceived by farmers--that is, taking into account the costs of
inputs--reached a peak in March 2021. Since then they have fallen by
27%.

(220430) -- JAMMU, April 30, 2022 (Xinhua) -- Farmers harvest wheat
on the outskirts of Jammu, the winter capital of India-controlled
Kashmir, April 30, 2022. Recent heat wave have impacted on the yield
of India's wheat. (Str/Xinhua)

Rather than rushing to plant more grain because the sale price looks
high, farmers are looking at switching to crops with lower input
costs. In March a usda survey found many American growers intending
to move from maize to soyabeans this season. Grain prices may yet
climb higher, tempting farmers back in. But they are also likely to
remain highly volatile, depriving growers of the certainty they need
to plan a big expansion one year in advance.

If it is hard to increase supply, what about decreasing demand? In
theory there are low-hanging fruit where crops are used to feed cars
or cattle rather than people. Gro Intelligence, a data firm,
calculates that the calories diverted by current biofuel production
and new commitments could soon be equivalent to the yearly needs of
1.9bn people. Biofuel production has increased markedly in America,
Brazil and Europe as the oil price has risen; expensive crude makes
the sector more profitable. Repealing biofuel mandates could lessen
the damage.

The amount of food eaten by animals is even more vast. Last year
China imported a record 28m tonnes of maize--more than what Ukraine
normally exports in a year--to feed its immense hog herd. About 40% of
the wheat grown in the eu is eaten by cows. About a third of
America's maize is devoured by cattle. If the amount of such feed is
reduced, though--or if, by using substitutes such as grass, maize
stalks and silage, its energy content is lowered--the animals grow
less, or more slowly, or both. That drives up the price of the end
product. In the food-price crisis of 2007-08 changes to animal feed,
together with culls and production cut-backs, caused meat and dairy
prices to rocket.

No countries are immune to the effects of this crisis. Lamentably,
people go hungry even in the richest economies. The countries hit
worst, though, are poor ones, because poor people spend a greater
share of their income on food. In most emerging markets food consumes
something like a quarter of household budgets, as opposed to less
than a fifth in advanced economies. In sub-Saharan Africa the figure
is 40%. And grain makes up a larger part of those budgets than it
does in richer places.

Many of these economies were in poor shape well before the food
crisis hit. Across sub-Saharan Africa, output remains substantially
below the level that they would have reached had pre-pandemic trends
continued. The debt burdens of more than half of the region's
low-income economies are either judged to be unsustainable or may
soon become so, according to the imf. Governments in such straits are
poorly placed to help their citizens weather a food-price shock.

Reactions to higher food prices in rich countries are making things
even harder. Food prices account for about 1.3 percentage points of
America's 8.3% inflation rate, and about 1.0 percentage points of the
euro area's 7.4% rate. They are thus one of the factors driving more
aggressive monetary policies. The higher rich-world interest rates
which ensue drag down currencies and tighten financial conditions in
emerging economies. Falling currencies make food imports costlier
still.

To bolster their currencies such countries need either to increase
interest rates, to intervene with their often scant hard-currency
reserves, or to do a bit of both. All the options come with costs
that can exacerbate food insecurity. Putting up interest rates, as
many have done over the past year, has in most cases merely slowed
the pace of depreciation and has driven up the cost of credit--which
hurts farmers, especially when inputs are expensive. Using up
currency reserves, on the other hand, means they cannot be used to
buy food. Choosing not to subsidise food and not to prop up the
currency may preserve reserves, but it greatly increases the risks of
social unrest.

It is possible to have the currency slide and to lose reserves at the
same time. Egypt chose to allow the Egyptian pound to depreciate by
14% in March rather than run down its reserves to prop the currency
up. Even so, it saw its hard-currency reserves drop by about 10%, to
$37bn, from February to March, in part because, as the depreciating
pound made it harder for people to buy food, the state was buying
more for them. Turkey, too, has experienced both a drop in its
reserves and in the value of its currency since the beginning of the
year. Its inflation rate has surged to nearly 70%. Iran has
experienced demonstrations of public anger since reducing grain
subsidies. Trouble seems certain to spread.

The World Bank sees the war's effects on trade and welfare as
representing a reduction in global real income of about 0.74%, or
$600bn. In low-income economies the figure rises to 1.0%--which given
their low incomes represents only about $5bn. That sounds rather
small. But the concentration of those losses in places wracked by
hunger looks set to bring with it spectacularly disproportionate
social, political and human damage.#

Read more of our recent coverage of the Ukraine crisis

This article appeared in the Briefing section of the print edition
under the headline "After the pestilence, after the war..."

The coming food catastropheThe coming food catastrophe

From the May 21st 2022 edition

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