The Russian-Ukrainian war is still going on. In addition to the war, the trend of the global capital market has also attracted attention. When energy and food prices are approaching the ceiling, is the global food crisis imminent?
War disrupts global energy and food prices
Affected by the conflict between Russia and Ukraine, international energy prices have soared. The price of Brent crude oil once exceeded US$135 per barrel, and the benchmark price of natural gas in Europe once soared 79% to 345 euros, a record high. The price of wheat on the Chicago Mercantile Exchange was two weeks ago. It set a new historical record, with an increase of more than 40% at one time, and the price of corn also reached a high level in the past 10 years.
The food crisis, the energy crisis, the inflation crisis and the refugee crisis are deeply intertwined and intertwined.
Now let’s focus on the issue of food prices. It is worth mentioning that Ukraine is known as the “granary of Europe”. The three major black soil distribution areas in the world, Ukraine occupies 40% of the black soil area, mainly in the central and eastern regions. The organic matter content of black soil is about ten times that of loess, and it is the most fertile and most suitable land for farming, which makes Ukraine the second largest exporter of grain in the world.
Specifically, in terms of wheat alone, Russia is the largest exporter of wheat, accounting for about 18% of the world, and Ukraine’s wheat exports also account for 10%. In terms of corn, Ukraine is the fourth largest producer in the world, accounting for more than 15% of world exports. In terms of barley, Ukraine produces only 6%, but exports 15%. In addition, Ukraine is the largest producer and exporter of sunflower seeds.
As the war continues, the Ukrainian government has on March 9 announced a ban on exports of rye, barley, buckwheat, millet, sugar, salt and meat until the end of 2022. The Russian Prime Minister also signed a decree on the 14th to ban the export of white and raw sugar until August 31, and the export of wheat, rye and barley to neighboring Eurasian Economic Union (EEU) countries until June 30. and corn.
To make matters worse, Russia also suspended the export of fertilizers on March 10, and Ukraine also announced a temporary ban on the export of all types of fertilizers on the 12th. Analysts said that Russia and Belarus are the second and third largest producers of potash fertilizers, respectively. In addition, the export of potash fertilizers in Belarus was previously banned, and about 40% of the world‘s total potash fertilizer supply will be affected.
As the main demander of potash fertilizer, the contract price of potash fertilizer in India in 2022 will be locked at US$590/ton, a year-on-year increase of US$343/ton, a new high in 10 years.
In addition, Russia is the largest exporter of nitrogen fertilizers and the third largest exporter of phosphate fertilizers. Nitrogen, phosphate, and potash are the three types of fertilizers that are most in demand for crops. At a time when natural gas, an important raw material for fertilizer production, has soared, the demand for fertilizers for spring ploughing has risen sharply, and the price of fertilizers may also reach the ceiling, which will further drive food prices soaring.
Another analysis pointed out that Brazil, as the largest importer of chemical fertilizers, is the biggest victim of the fertilizer export ban. At the same time, Brazil is also a major exporter of agricultural products. Once Brazil’s crop production decreases, it will further deepen the global food tension.
Russian fertilizer billionaire Andrey Melnichenko has previously warned that the conflict in Ukraine will lead to a world food crisis. One of the victims of this crisis will be agriculture and food, he said. The conflict has sent fertilizer prices soaring that farmers can no longer afford them.
Food prices in many countries have risen sharply, how much does China affect?
Affected by multiple factors, the price of bread in Milan, Italy has risen from 4.25 euros/kg in November last year to the current 8 euros/kg. About 100 major food items in Australia will be hit by up to 20 per cent price hikes, including baked beans and canned pasta.
German grocers have been forced to ration cooking oils, and flour shelves have been emptied in Lebanon and Tunisia. European Union officials have warned against such actions, which could trigger more panic-hoarding.
Qu Dongyu, Director-General of the Food and Agriculture Organization of the United Nations, previously wrote an article suggesting that the global trade in food and fertilizers should be kept open, find new and more diversified sources of food supply, and avoid hasty policy responses.
For China, experts say that fluctuations in international food prices and agricultural product prices have a limited impact on China as a whole. In 2021, China’s imports of soybeans, wheat, corn and barley from Russia will account for less than 1% of China’s total imports. Judging from the inventory of major grains such as corn, barley, and wheat, China has reached more than half of the world‘s, which is enough to ensure food security for the Chinese people for about a year.
Judging from the actual data, China’s food dependence is still relatively large, which is also the main reason for domestic concerns about food security.
Data released by the General Administration of Customs shows that from January to December 2021, China imported 164.539 million tons of grain, accounting for 24.1% of the total grain output of 682.85 million tons, and the foreign dependence of grain was 19.4%. Among them, 96.518 million tons of soybeans were imported, accounting for 58% of the total imports. The rest of the imported grains included corn, barley, wheat, sorghum, etc., but the quantity was not comparable to that of soybeans.
Imported soybeans are mainly used to meet domestic demand for vegetable oil and protein meal, 20% are processed into oil and 80% are processed into soybean meal. Soybean meal is an excellent source of protein, and approximately 85% of soybean meal is used in poultry and pig feeding. The United States and Brazil account for more than 80% of China’s total soybean imports. If these two countries “get stuck”, China will indeed face serious problems.
The recent drought in South America has cut soybean production in Brazil and U.S. soybean prices have climbed to 10-year highs, which could boost domestic meat and oil prices, while soaring energy prices mean higher transportation costs. It will also increase the prices of agricultural products, that is to say, the increase in food prices will also become a factor of imported inflation.
National leaders have recently mentioned the issue of food security quite frequently, and clearly pointed out that food security is the “bigger of the country”. In the context of the raging epidemic and the ongoing war between Russia and Ukraine, the issue of food security should not be overestimated. (Fortune Chinese Network)