Russia’s invasion of Ukraine in the early hours of Thursday reverberated across energy markets, drove oil past $105 a barrel to a-seven year high and sent global stockmarkets crashing. But that is not all.
The price of wheat climbed to a nine-year high, with experts warning food prices are likely to be the next casualty.
Russian troops launched attacks on Ukraine from three sides – from its northern border with Belarus, its eastern border with Russia, and in the south from Crimea, reports the Financial Times.
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What has Russia’s invasion got to do with food prices?
Food prices have been rising sharply already
Food prices have been on the rise for some time as inflation soars, and agricultural commodities are no exception.
UK consumer price inflation hit an annual rate of 5.5% in January. Food prices rose by 2.7%, but the price of some staple products such as bread, eggs and peas rose by more than 10%, exacerbating a cost of living crisis.
John Allan, chairman of Tesco – the UK’s biggest supermarket chain – warned earlier this month that the “worst is yet to come” and he expects food price inflation to hit 5%.
On Thursday, the National Federation of Fish Friers, an official body that represents the UK’s fish and chip shops warned that a fish supper may soon cost £10 (on a side note, we know how much Britons love their fish and chips), as cod is are now 75% more expensive than it was in October.
Why does Russia’s invasion affect food prices?
So why would Russia’s invasion further exert pressure on food prices?
Ukraine and Russia are, respectively, the third and eighth largest wheat producers in the world, says the United Nations Food and Agriculture Organisation.
“If the situation escalates, it could impact the export of food from Russia. Russia and Ukraine make up 29% of wheat exports, 19% of exported corn and 80% of sunflower oil exports, says Sarah Coles, senior personal finance analyst at platform Hargreaves Lansdown.
The tensions between the two countries pushed wheat prices at the Chicago Board of Trade to levels not seen since 2012 on Thursday – $9.35 a bushel. The price of corn, soybeans and palm oil also surged in value.
There are concerns that Russia’s invasion may worsen existing food shortages. A drought in South America has already reduced soy supplies, while labour shortages in Malaysia are already limiting the production of palm oil. Palm oil is a key ingredient in the production of several consumer goods including chocolate, shampoo and biscuits.
Rising costs of fertilisers will also hit food supply and drive inflation higher, says Bloomberg. “The market is already feeling the pinch due to reduced potash supplies from Belarus after US sanctions, and any reduction of crop-nutrient exports from Russia will fuel the squeeze.”
Food prices may also rise due to disruption at ships in the Black Sea, says the Daily Mail: “A war could lead to significant disruption to ship movements around the Black Sea, which would fuel higher food inflation given that Ukraine, Russia, Kazakhstan and Romania all ship grain from ports in the area.”
While the UK isn’t among the main markets for these exports, food prices will rise here too: lower exports will drive global food prices higher.
The UK also imports Russian chemicals for fertilisers “which could hit UK harvest,” says Coles, “and the rising cost of energy is going to make every step in food processing and transportation more expensive”.
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