Disruption of grain imports from Ukraine and Russia will add to inflation pressure caused by rising energy prices
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Disruption of grain imports from Ukraine and Russia will add to inflation pressure caused by rising energy prices

March 02, 2022 | Chart

Grain Prices

Before the Russo-Ukrainian conflict, grain prices had already began trending upward worldwide as high energy costs, unfavorable weather conditions, and supply chain disruptions caused by the pandemic adversely affected global food production. According to World Bank data, grain prices increased by more than 25 percent in 2021 compared to previous year. Early 2022 data also point to a continuation of this trend. How will the Russia-Ukraine conflict impact the food sector worldwide?

Ukraine and Russia are both vital global suppliers of numerous types of cereals. For as long as the Russian invasion in Ukraine is in full-force, global food supply chains are likely to remain disrupted, leading to further price pressures globally. Europe, Egypt, China, Turkey, and Bangladesh are particularly exposed as they import between 10 and 30 percent of the grain production of Russia and Ukraine. Food inflation disrupts the purchasing power of households, especially in Emerging Markets. In Turkey, food price inflation comes on top of two-digit inflation already observed in 2021. For European countries, rising food prices will add to an inflation spiral already underway with rising energy prices. The continent is particularly exposed as a large importer of gas and oil.

According to data from the United Nations Comtrade Database, Ukraine and Russia account for more than 20 percent of all cereals exported globally. Dampened production due to damage to infrastructure, military operations that halt harvesting, displacement of people, and port closures in Ukraine will likely worsen the mismatch between elevated global demand and subdued supply. This may lead to even stronger pressure on food prices. Sanctions that target financial payments may also affect the possibility to import from Russia.

Such pressure comes on top of pre-existing problems, including lower crop yields last year in key exporting countries, soaring transportation costs, and higher gas and oil prices. These factors could further restrict the grain supply in the near term and put upward pressure on food prices. Companies who source grain from Ukraine and Russia need to plan for higher costs in the coming quarters or consider alternate sourcing, hedging strategies, and substitutions.



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