Ukraine is conflict to bring higher food prices
The Agricultural Market Information System (AMIS), an inter-agency platform to improve food market transparency and the food security policy response launched by the G20, issued a clear message this week. Putting it bluntly, the farm organization said the “sharp escalation” of the conflict between Russia and Ukraine poses a significant threat to global food security.
“As well as causing humanitarian hardship in the region itself, the crisis threatens to compromise the food security of millions of people around the world who depend on affordable food from international markets for their daily subsistence”Adriana Herrera, president of AMIS, wrote.
As major grain producers and exporters, Russia and Ukraine are “crucial players” in safeguarding global food security, Herrera stressed. Russia and Ukraine together account for almost a third of global wheat exports, 19% of exported corn and 80% of sunflower oil exports – the third most traded vegetable oil internationally.
With much of the world – from the EU and US to Japan and South Korea – implementing sanctions designed to squeeze the Russian economy in response to the country’s military action in Ukraine, the AMIS urges restraint by “all parties” from any movement that leaves food and agricultural markets exposed to the wider consequences of conflict.
“As Chair of the G20 Agricultural Market Information System (AMIS), which includes all parties involved in this dispute, I urge all members to: (i) refrain from any action that would adversely affect global food trade flows, including trade sanctions, blockades and restrictions; and (ii) ensure that the world’s food and agricultural markets have sufficient access to global supplies, particularly those low-income countries importing countries food imports,”Herrera wrote.
Likely disruption of food supplies
However, even if trade in food and agriculture can be shielded from the rapidly unfolding conflict and ensuing sanctions, global food security is likely to suffer.
“Key to food prices will be spring plantings in Ukraine, Belarus and Russia, and the trading patterns that emerge after that”Shorecapital analyst Clive Black explained. “If Ukraine is at war and agriculture cannot function we can only wait for the price of bread, cattle and sunflower oil (to name but three) to rise.”
How far and for how long? “Only time and events will tell”Black says. “Current events could be a notable turning point in global food prices.”
Compounding existing inflationary pressures
Food inflation was already a significant challenge in various markets. While AMIS’s Herrera observed: “The crisis comes at a time when international food markets are already struggling with soaring prices and the continued fallout from the Covid-19 pandemic.”
Ended last year, global food prices hit a new ten-year high after surging more than 30% in 2021, the UN Food and Agriculture Organization (FAO) has revealed .
This upward trajectory continued in 2022. European Commission data showed food prices rose 4.9% year-on-year to January across the EU27. Meanwhile, the UK Consumer Price Index indicated that the cost of food and drink rose 4.4% year-on-year in the same month.
For the remainder of 2022, it seems likely that food prices will only move in one direction. Shore Capital raised its 2022 expectation for UK food inflation from 3.5% to 4.5% today, with a peak of around 5% expected in April-May. This matches statements by Tesco chairman John Allan that food inflation in the UK will hit 5% by spring.
Food shortages have also become a global problem, although they are more acute in some markets than in others. YOUGOV data from the UK has revealed that the supply chain crisis – brought in by Covid-19 and, many suggest, exasperated by Brexit – has resulted in 56% of UK consumers saying they have experienced food shortages in stores. This compares to 6-18% in European countries.
Poorest communities most at risk
These trends are already hitting the poorest the hardest, with low-income countries hardest hit by soaring commodity prices.
In its recent report on the global economic outlook, published well before the arrival of Russian troops in Ukraine, the World Bank stated:the [COVID-19] The pandemic has not only reversed gains in global poverty reduction for the first time in a generation, but has also compounded the challenges of food insecurity and rising food prices for many millions of people.
Even in wealthier countries, poverty campaigners warn that poorer consumers are hit harder by inflation in food prices and the cost of living. For example, Britain’s Food Foundation revealed last month that food insecurity had reached 8.8% of households (or 4.7 million adults) in February.
“Food insecurity is a vital measure if we are to control severe material deprivation. It not only contributes to health inequalities and life expectancy, but also to social well-being,”said the Foundation’s Executive Director, Anna Taylor.
How is the industry handling the challenge?
This inflationary prospect – and the impact on consumers around the world – was highlighted at a recent media event hosted by Unilever at the Hive, its innovation hub based on the campus of Wageningen University in the Netherlands. Low.
Commenting on the developing conflict in Eastern Europe, Unilever Food and Refreshment President Hanneke Faber stressed that Unilever’s top priority is the safety of its Ukrainian workforce, which consists of in 146 people.
Faber confirmed that the CPG giant expects an impact on input costs, although the magnitude remains to be seen. She said the maker of Knorr at Magnum does not believe rising food prices are “over yet” and added that “events in Ukraine are not going to help”.
“Ukraine is the balance bar of the world. That’s another thing we’re working on to see if we can get food in and out,”She said during the media briefing.
The company responds with innovation, reformulation and price segmentation.
Inflation is a recurring problem for consumers in Latin American markets. To help shoppers manage turnover costs, the Knorr brand has rolled out Rinde Más, a plant-based protein and seasoning mix that can be used to bulk recipes like meatballs. Combining a packet of Rinde Más with half a kg of minced meat can increase the number of meatballs a consumer rolls at home from 14 to 21, making meat more expensive longer.
Faber said Unilever was also taking advantage of reformulation “to get products as cheap as possible”.
At the same time, the Company employs a “Robin Hood” premium strategy with brands such as Ben & Jerry’s, alongside the development of more affordable options, which Faber characterized as “going high, low.”
“We are trying to limit the price increases that we have to take”,She says.