Is Russia responsible for global food crisis?

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

We see that today a number of countries are trying to accuse Russia of the looming food crisis and make our country responsible for all the negative trends in agricultural markets, gloomy prospects in terms of access to food and huge losses of farmers. The cause of this crisis is widely attributed to Russia’s “actions in Ukraine”.

However, the truth is absolutely different, and it is well-illustrated by 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 injured sectors because of global economic instability. The key point is that the problems in the global agricultural markets are multifaceted in origin and deep-rooted in the long-lasting economic instability. They are linked to a number of factors, including the COVID-19 pandemic and related disturbances.

The current situation in the food markets is not a result of two months of this year, but a steady trend of 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 on food, raw materials and transportation services, including freight in the post-COVID recovery period.

According to the data of the stock exchanges, the current situation in the food market is not a result of two months of this year, but a steady trend of at least the last two years. The annual growth rate of wheat prices in 2021 amounted to 25%. By February 2022, they exceeded the average prices for 2017-2021 by 31-62%. The cost of corn for the years of 2020-2021 increased by 162%, for rapeseed – by 175%. In 2020 and 2021 the WFP has repeatedly warned that as the world was dealing with the coronavirus pandemic, it was also “on the brink of a hunger pandemic” that could lead to “multiple famines of biblical proportions”. Peak energy prices were reported in 2021. 

Ref. As of March 31, 2022, the prices for food were the following: wheat – 375 USD/t, corn – 295 USD/t, barley – 422 USD/t, rapeseed – 1027 USD/t.

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 spike of 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 in the EU, 2 trillion in Japan). Growing budget deficits, coupled with ultra-mild monetary policy, accelerated demand and led to a surge of inflation (including food prices spike). The trend was aggravated by growing protectionism, trade wars, 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 for the last 5 to 10 years.
• The accelerated transition of a number of 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 growth of energy prices. In particular, oil prices in 2020-2022 grew by more than 22%. Spot natural gas prices went up in 2021, reaching a three-four times increase at the peak ($ 1,000 for 1,000 cubic metres as of the end of February, during winter 2021-22 prices jumped to a record high of $ 2,500). As a result December 2021 marked an unprecedented increase in prices for mineral fertilisers: for urea and saltpeter – 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-COVID measures transportation costs grew enormously. Freight rates nearly doubled.

• During the period of the “corona 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 fertiliser prices, farmers are reducing crops areas everywhere. Ever-growing demand is not met by supplies of agricultural products.

Western 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 with regard to financial and transport services under contracts of food deliveries. In terms of current uncertainty farmers doubt if there is a reason to invest in expansion of agricultural business.

Threats of mass arrests of dry cargo ships and disconnection of Russia from SWIFT contribute to disruption of the logistic and financial chains with the participation of Russian economic operators. Restrictions in the transportation sector (including prohibited entry of Russian ships into ports) 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.

The Russian Federation, as a responsible participant of the global food market, 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 Asia, Africa, Latin America and the Middle East. Food deliveries are also linked to the successful achievement of food security and the implementation of the SDGs.

Certain restrictive economic measures of the Russian Federation, affecting export of agricultural and raw materials, are temporary and are directed solely at minimising the consequences of sanctions pressure and adapting the national economy and businesses to the conditions of external restrictions.

The current situation should be viewed by all countries through the lens of their vital national interests. All stakeholders are therefore called upon to voice their firm position. 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 of global agricultural, energy and financial markets. Mutually respectful and constructive dialogue on problems with global ramifications is required. If this is not done in an urgent manner, then the consequences can become catastrophic for everyone.

(The writer is the Ambassador of Russia.)