Observations of an expat: Bread

Worried about energy prices? Well, you should start worrying more about the empty bread bin.

Twenty-nine percent of the world’s grain comes from Ukraine and Russia.

Russia, Belarus and Ukraine have banned the export of all grains as a direct consequence of Putin’s War. And, because of our interconnected world, when there is a shortage of one type of grain it has a ripple effect on every other.

Commodity brokers are now predicting shortages and high prices not just for wheat but also for rice, millet, rye, maize, barley, oats and sorghum. This is on top of a 50 percent increase in prices in just six months caused by a 20 percent lower than usual harvest because of climate change issues.

Then there is the impact that less grain will have on livestock production as just about every farm animal needs commercially produced grain. Everything from chicken nuggets to fillet steak is going up.

Vegans and vegetarians will be no better off. Add to the above scenario that all grain and vegetable crops are likely to be hit by a lack of fertiliser as 18 percent of the world’s potash comes from Belarus. That means lower yields and higher prices for everything that grows in the ground.

Then finally, there is sunflower oil. Eighty percent of the world’s sunflower oil comes from Ukraine and is widely used in a number of processed foods.

In short, the war in Ukraine is bad news for food prices and the cost of living crisis. The only ones who will see a silver lining might be palm and olive oil growers and a few farmers, but they face higher energy prices for producing and transporting their produce.

People in the developed world will be hit. They will be made uncomfortable. Difficult and painful household decisions are required. But their discomfort is nothing compared to the impact of Putin’s War on the roughly 6.8 billion people who live in the developing world.

According to the Food and Agricultural Organisation (FAO) 24 low and middle income countries imported more than 50 kilogrammes of wheat per person and this wheat provides their populations with an average of 500 calories a day for each individual. The households in these same countries spent 45 percent of their income on food last year.

Ukraine and Russia is almost the sole source of wheat for Turkey, North Africa and the Middle East. In Egypt the government has responded to the crisis by imposing a cap on wheat prices. It is a short-term unsustainable measure. In virtually bankrupt Lebanon they are simply going without and the same is the case in most North African countries.

Empty bellies create discontent which in turn leads to political instability, riots and war. This in turn leads to more refugees and economic migrants which puts pressure on political institutions in developed countries. The last time there was a major worldwide spike in grain prices was in 2007-2008. The result was food riots in 40 countries.

The developed world can help to ease the problems of 85 percent of the rest of the global population. Developed world governments will face pressure to hoard food supplies. Hungary and Moldova have already banned the export of wheat and corn. Bulgaria is said to be considering doing the same. Hungary’s Viktor Orban – who is in the middle of an election campaign – said: “We must think of our own first.”

The EU has a Common Agricultural Policy (CAP) which takes up a big slice of its budget and is designed to support farmers. It has been gradually reforming itself. In 1980, for instance the CAP was 65 percent of the EU budget. In 2021 it was 35 percent. But the amount spent on agricultural support in 2021 ($185 billion) was still more than the EU’s aid budget ($161 billion). The EU is the world’s largest grain producer – about half of the global total – with ten percent of the world’s grain coming from France. Lower EU subsidies would increase grain produce and lower prices for bread, pasta….

In the US – which produces 16 percent of the world’s grain – crop prices are kept artificially high by something called the Agricultural Adjustment Act (AAA). This 1930s piece of legislation allows the federal government to pay farmers NOT to grow certain crops in order to prevent a surplus which would drive prices down. Scrapping, or at least adjusting the AAA, would encourage American farmers to grow more which would help to make up for the loss of grain from Eastern Europe.

America also provides a significant amount of food aid to the developing world, but the cost of that aid is kept artificially high by Washington’s insistence that all the food is carried in US-registered ships and that those ships can only carry American-produced wheat and food products.

It is in the interests of the developed world that the developing world is fed and stable. The difficulty that Western world governments will face is persuading their voters.

* Tom Arms is foreign editor of Liberal Democrat Voice and the author of “The Encyclopedia of the Cold War” and the recently published “America Made in Britain” that has sold out in the US after six weeks but is still available in the UK.

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16 Comments

  • Simon McGrath 26th Mar '22 - 10:49am

    These are very interesting and worrying points -its surprising how little discussion there has been of them

  • Tristan Ward 26th Mar '22 - 1:29pm

    These are serious issues. The oil/gas crisis interlinks: nitrogen fertilisers can be thought of as pure energy in that the raw material is extracted from the air and converted to ammonia for onward conversion to urea etc with significant energy and hydrogen (from natural gas) input by the Haber process.

    Personally I doubt lowering EU subsidies would increase production: all other things being equal more marginal land would come out of production as it becomes less profitable without the subsidy. Certainly here in the UK where post Brexit the EU subsides are being phased out we are seeing land being turned over other uses: biodiversity, renewable energy production, leisure use, carbon and other sequestration and offset etc as landowners look to replace subsidy income and indeed trading income for exporters whose products go to the EU. There is merit in these of course, but we will see how far these policies survive galloping food inflation in the UK as part of the wider cost of living crisis.

    Also problematic is that in the northern hemisphere much of the 2022 harvest is already sown, so scope for rapid ramping up of production by more sowings for this harvest year is limited, even if there is land available. Producing red meat and dairy takes even longer.

  • @ tristan I am afraid that I do not believe that the problems of Russia and Ukraine are a short term problem. I think they will be with us for at least several more years even if the fighting stops. Therefore, I think that developed countries should construct a short, medium and long-term answer to the problem of food security. We can drive our cars less. We can turn down the thermostats on our central heating. But we cannot not eat.

  • Joseph Bourke 26th Mar '22 - 2:35pm

    There will be no winners in this war between Russia and Ukraine. The economies of both counties will be destroyed and much of the global supply chains for both food and energy disrupted. Every country in the world will feel the effects of high energy and food prices and the decline in economic growth on their living standards.
    The war in Yemen has been raging for seven years and caused a vast humanitarian crisis in that country. Yemen gets 80% of its wheat from Ukraine.
    Whatever the ultimate outcome of Russia’s war in Ukraine, the security situation of neither country will be improved. Russia will be seen as a belligerent aggressor and a pariah state that requires the ramping up of Nato defence budgets and possible incorporation of Sweden and Finland into the alliance with the acelarated rollout of anti-ballistic missile defences across Eastern Europe.
    That part of Ukraine that is not occupied by Russian troops will remain a neutral country for the forseeable future always menaced by its larger neighbour, regardless of what security guarantees it might get on paper.
    We seem destined to return to a world of great power competion where Geopolitics are governed by Hartford J. Mackinders Heartland theory.

  • Tom Seelye Arms 26th Mar '22 - 4:20pm

    @ Martin. The CAP was actually designed to protect the inefficient French agricultural sector. If you reduce CAP support you will push the French to become more efficient which in turn will increase food production. Using the principle of supply and demand, the more food that is produced the lower the price.

  • nigel hunter 26th Mar '22 - 4:43pm

    It does not help that the Overseas Budget has been cut.That could have helped via its redistribution to food support.As far as energy is concerned onshore wind power, small ‘propeller ‘ less generators using the Faraday principal can be used to offset our energy needs.

  • Tristan Ward 26th Mar '22 - 5:51pm

    I remember food mountains under the “old” CAP which rewarded food production regardless of cost of that production. It’s not the same as “efficiency” but we might be glad of a food mountain or two now.

  • Just as with Brexit and Trump with China, we are discovering just how interconnected and interdependent the world has become in a few decades, with much being due to our own actions here in the west.

  • Will McLean 27th Mar '22 - 7:23am

    “Subsidy breeds inefficiency” as the critics say, “subsidies provides food security and cheaper food at the point of use” as it its advocates will. I’m sure that debate has played out several times on this site over the years.

    The EU should be commended that they are taking the issue seriously and being proactive about it, announcing last week that they have allowed derogation of fallow land for growing food and (livestock) feed, while maintaining greening payments for 2022. Effectively bringing potentially 4 million extra hectares into play. As has been commented earlier, it is difficult to assess the impact this will have as we are late into the sowing season so only relevant to certain crops.

    Closer to home in Britain I think it is safe to say the Government is being complacent, DEFRA minister being aptly dubbed George Useless making ill informed comments around synthetic fertilizer. The silver lining is agriculture is being pushed up the agenda which it rarely is. And as its being seen as a vote winner for us in rural areas, I am confident our Lib Dem MPs will hold their feet to the fire.

  • Tom Seelye Arms 27th Mar '22 - 12:20pm

    @ Mohammed you are right and wrong about the inaccuracies., which I underline the journalist’s perpetual problem of explaining complex issues in a finite space. But in this case I did say that the shortage of Ukrainian wheat would have a ripple effect on the price of other grains. This is obvious because consumers will substitute those grains for wheat. While we are on the subject of my inadequacies, I also failed to mention that Ukraine and Russia are also big producers of barley and rye.

  • Yesterday I was talking to a very senior manager in the wholsale food sector…His statement that he expects ‘overall food prices to rise by up to 20% over the next 12 months’ is a prophecy of disaster for very many in the UK and in the wider world..j

  • Peter Hirst 27th Mar '22 - 6:27pm

    Less wheat means less fertiliser and pesticides that are oil dependent in the ground. This is a wake up call for the world to be more self sufficient in essential food ingredients. Low inputs of fossil fuel dependents for food such as organic will wean us off our addiction to these harmful chemicals.

  • Tristan Ward 27th Mar '22 - 9:16pm

    @ Peter H

    Yes, provided people have enough to eat at an affordable price. When people value quality food and understand it comes at a price that means (for example) they find it harder to afford to go on holiday, it should become a lot easier to get traction for this approach.

  • Tristan Ward 28th Mar '22 - 5:59pm

    People may be interested to see this assessment of the (current) economics of ploughing up grass to put the land down to arable crops instead. It overlooks the (probable) loss of sequestered carbon as a factor

    For those who don’t know (and apologies to those who do) Countryside Stwardship is a 5 or 10 year contract between landowner and government underwhich the landlord gets money in exchange for managing the land in a certain way. The landowner can tear it up but if s/he does, then the payment (obviously) is stopped and often money already paid as to be repaid in full.

    https://www.fwi.co.uk/business/business-management/business-clinic/business-clinic-should-i-plough-grass-for-cereals

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