Prices of agricultural commodities are falling, but as production also falls, hunger threatens to become an increasing problem. Even before the agreement between Ukraine and Russia on the transportation of grain across the Black Sea, agricultural commodity prices were under pressure, helped by fears of recession, a good harvest in Russia and hopes of resuming grain exports from Ukraine. Yet the underlying factors that drove prices upward are unchanged. The war in Ukraine is just one of many factors influencing food prices. Besides war, climate change is also playing an increasing role.
Because of the war, Ukraine exported 40% less grain in June than in the same month in 2021. When farmers cannot sell their grain, they do not have the means to buy new seeds and fertilise the land. However, high grain prices are leading to more production outside Ukraine, although some farmers are skipping a year because of high energy and fertiliser prices.
After the previous sharp rise in grain prices, the prices of rice are now rising too. There are still sufficient stocks of rice in countries such as India, Thailand and Vietnam, but there are fears of new export restrictions on grain, so more people are choosing rice as an alternative. In 2007 and 2008, export bans on rice by India and Vietnam caused prices to double.
The pandemic, droughts caused by the La Nina effect and regional conflicts have increased the number of hungry people to 770 million by 2021, the highest number since 2006. There will be 13 million more this year and 17 million next year. For every one per cent increase in food prices, 10 million more will be living in extreme poverty (and therefore risk hunger). Now some governments and also supranational organisations see this as an argument to ensure that prices must remain low. They forget that prices are the only signal to ensure that things will be better in the future. Those who deliberately want to keep prices low ensure that less (and not more) is produced. Intervening in the market increases the risk of hunger in the world.
Today, people in Africa and the Middle East in particular spend a large part of their income on raw agricultural commodities. This makes them much more sensitive to rising commodity prices, also because in the Western world the actual cost of food is only a modest percentage of the total price. We have seen the consequences in Sri Lanka, among other countries. In Turkey, inflation is at 80%. Egypt wants support from the IMF and the situation in Lebanon is extremely bad. But in countries like Bulgaria and Hungary, too, food prices are starting to rise sharply, even above average inflation.
Food prices are likely to remain high for some time. This is partly due to higher input prices, but again simply due to supply and demand. The war in Ukraine has also disrupted several food chains. Furthermore, the Horn of Africa is unprecedentedly dry, while in Las Vegas and Yellowstone there is flooding. Heat waves in southern Europe, India and Pakistan, temperatures of 40 degrees Celsius in London, an extreme hurricane season in the United States, and excessive rainfall in Australia. The Po Valley, where 50 per cent of Risotto rice is grown, is extremely dry. It seems that 2022 will be just as extreme as 2021, with all the consequences for food production. The risk is mainly in the series of years; we have not seen several droughts in a row in the last 50 years. For that, we have to go back to the Dust Bowl of the 1930s, not an appealing prospect.
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