OPINION: Don’t blame Russia for global food crisis

OPINION: Don’t blame Russia for global food crisis

Today, some countries are trying to blame Russia for the looming global food crisis, that Kremlin it responsible for all the negative trends in agricultural markets.

The cause of this crisis is widely attributed to so-called Russia’s “actions in Ukraine”.

However, it is well illustrated by a comprehensive and objective analysis of the roots and drivers of this crisis. It is vital to understand them properly, without emotions and political prejudice.

Agricultural production is indeed among the most damaged sectors because of the global economic instability. The key point is that the problems in the global agricultural markets are multifaceted in origin and deeply rooted in long-lasting economic instability.

They are linked to a number of factors, including the COVID19 pandemic and other related disturbances.

The current situation in the food markets is not a result of the last two months of this year but a steady trend for at least the last two years.

Food prices started rising in mid-2020 and reached an all-time high in February 2022. This is a real market shock caused by high demand and rising prices of food, raw materials, and transportation services, including freight, in the post-COVID recovery period.

Cereals

The annual growth rate of wheat prices in 2021 amounted to 25 per cent. By February 2022, they exceeded the average prices for 2017-2021 by 31-62 per cent. The cost of corn for the years 2020-2021 increased by 162 per cent, and for rapeseed, it increased by 175 per cent.

In 2020 and 2021, the WFP repeatedly warned that as the world was dealing with the COVID-19 pandemic, it was also “on the brink of a hunger pandemic” that could lead to “multiple famines of biblical proportions”. Peak electricity prices were reported in 2021.

The crisis phenomena of recent years, particularly in the agricultural market, are associated, first of all, with miscalculations and systemic mistakes in the macroeconomic (including financial and trade), energy (including climate), and food policies of developed countries. The COVID-19 pandemic, followed by the breach of supply and distribution chains as well as the spike in freight and insurance rates, also contributed to this trend.

In developed countries, in 2020–2021, the volume of monetary support to the economy has sharply increased ($5 trillion in the US, 1 trillion EUR in the EU, and $2 trillion in Japan).

Growing budget deficits, coupled with ultra-mild monetary policy, accelerated demand and led to a surge in inflation (including food price spikes).

The trend was aggravated by growing protectionism, trade wars, and persistent acute contradictions in the regulation of agricultural markets, including such issues as government support and subsidies to agricultural production. As a result, food stocks have decreased to hit the lowest level in the last 5 to 10 years.

The accelerated transition of many Western countries to “green energy”, reliance solely on the development of renewable energy sources to the detriment of traditional fuels, low investment in oil and gas processing, as well as abandoning nuclear energy, triggered the growth of energy prices.

In particular, oil prices in the 2020s and 2022 grew by more than 22 per cent. Spot natural gas prices went up in 2021, reaching a three-fourths increase at the peak.

It was $1,000 for 1000 cubic metres as of the end of February, but during winter 2021-2022, prices jumped to a record high of $2,500. As a result, December 2021 marked an unprecedented increase in prices for mineral fertilizers: for urea and saltpetre – by 3-4 times, for other types – by 2-3 times.

Due to restrictions in international transportation, breaches in cargo deliveries, and lower cargo turnover caused by anti-coronavirus measures transportation costs grew enormously. Freight rates nearly doubled.

During the period of the “coronavirus crisis”, Western governments “pulled off” scarce commodity flows and worsened the already difficult situation in developing countries dependent on food imports.

The situation was exacerbated by low levels of food supplies, adverse weather conditions (in particular, prolonged drought in North America) and general underinvestment in the industrial sector.

Amidst rising fuel and fertilizer prices, farmers are reducing crop areas everywhere. Ever-growing demand is not met by supplies of agricultural products.

Measures of economic coercion against Russia exacerbated already existing negative trends in the global food market, energy, and industry.

Payment restrictions and logistical difficulties affected all economic operators, including agricultural companies, who faced difficulties concerning financial and transport services under contracts of food deliveries.

In terms of current uncertainty, farmers doubt if there is a reason to invest in the expansion of agricultural business.

Threats of mass arrests of dry cargo ships and disconnection of Russia from SWIFT contribute to the disruption of the logistic and financial chains with the participation of Russian economic operators.

Restrictions in the transportation sector breach food supplies and made it impossible to deliver Russian and Belarusian fertilisers to agricultural producers. As a result, the global market is on the brink of an inevitable and significant drop in crops around the world.

Meanwhile, Russia intends to continue to fulfil its obligations under international commitments in terms of export deliveries of agricultural products, fertilisers, energy and other vital products.

We are deeply concerned about a possible food crisis and are well aware of the importance of supplying essential goods for the social and economic development of the states of Africa, Asia, Latin America and the Middle East. Food deliveries are also linked to the achievement of food security and the implementation of the SDGs.

The current situation should be viewed by all countries through the lens of their vital national interests. Lifting unilateral coercive measures can significantly downgrade the tensions around transportation-related, logistical, and financial aspects, ensure unimpeded deliveries, and reverse the economics back to seeking stability in global agricultural, energy, and financial markets.

Mutually respectful and constructive dialogue on problems with global ramifications is required. If this is not done urgently, then the consequences could become catastrophic for everyone.

Vladlen Semivolos is the Russian Ambassador to South Sudan. This is an opinion article and The City Review does not share these sentiments.

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