By Felipe Hernández Badilla
El día 24 de febrero de 2022, el presidente de Rusia, Vladimir Putin, ordenó la invasión del ejército ruso a Ucrania en toda su frontera oriental. Luego, las naciones de occidente concordaron en aplicar una serie de sanciones económicas cuyo objetivo era frenar la belicosa ofensiva rusa. No obstante, el conflicto se ha sostenido, generando escenarios donde los costos de esta incursión militar se proyectan en la economía mundial, particularmente a través de una incipiente crisis alimentaria.
On February 24, 2022, Russian President Vladimir Putin ordered the Russian army to invade Ukraine along its eastern border. Subsequently, Western nations agreed to impose a series of economic sanctions aimed at restraining the hostile Russian offensive. Nevertheless, the conflict has continued, generating situations where the costs of this military incursion are inflicting onto the world economy, specially through an incipient food crisis.
For those of us who participate in international politics as passive stakeholders, it is common knowledge the onslaught that the Russian army has carried out since February. Notwithstanding, this article describes and foresees the damaging effects of President Putin's expansionist strategy on the world economy, focusing on the detrimental effects on the production and marketing of basic supplies.
Once belligerency actions started over Ukraine, the United Nations General Assembly, after an emergency special session, overwhelmingly adopted a resolution deploring the Russian aggression and reaffirming Ukrainian sovereignty, political independence, and territorial integrity (UN, 2022). Based on this resolution, developed countries around the world agreed to impose a series of financial and economic sanctions on Russian entities to stop the advance of the invading troops in Ukraine (Toh, et al., 2022), among which we can mention (ALADI, 2022):
In the financial field:
- Exclusion of Russian banks from the SWIFT international payment system.
- Freezing of Russian reserves and other assets abroad.
- Suspension of purchases of Russian bonds.
- Suspension of Russia's access to IMF and World Bank resources.
Likewise, the trade sanctions considered:
- The withdrawal of Russia from "Most-Favored-Nation (MFN)" treatment.
- The import ban on Russian oil and gas.
- The U.S. export ban on key technologies.
- The import ban on Russian iron and steel products.
- The ban on export of luxury goods to Russia.
To better understand the magnitude of these sanctions, it is necessary to specify the commercial interaction of the Russian Federation with the world (see figure 1).
This map shows Russia's economic dependence, particularly 25% of imports from China, but mostly imports from the United States, Germany, France, and Italy; countries that, as mentioned, agreed to impose economic sanctions to rebuke the military aggression against Ukraine.
Figure 2: (TradeMap, 2022)
Likewise, figure 2 shows the top 10 import markets for goods traded by the Russian Federation: again, it shows its dependence on the Chinese market with 14% of Russian exports; however, 32% is concentrated in countries opposed to President Putin's invasion, such as The Netherlands (8.56%), Germany (6.02%), Turkey (5.37%), the United Kingdom (4.52%), Italy (3.92%) and the United States (3.6%).
On the other hand, the region corresponding to the current war scenario is a vital hub for global food production and trade. Russia and Ukraine account for 29 percent of global wheat exports, 19 percent of global corn, and 80 percent of the world´s sunflower seed oil exports. (Puma & Konar, 2022) Digging a little deeper, Kondalamahanty et al. (2022) accounted, via S&P Global, for a production of 5.9 million mt3 of sunflower oil in 2020-21 for Ukraine and 5. 1 million mt3 for Russia; an increase in wheat production by Ukraine in the current year (from 25.4 million mt3 in 2020-21 to 33 million mt3 in 2021-22) and a production of 79.1 million mt3 of wheat by Russia; in the case of corn, a 30% increase in Ukraine's production, reaching 42 million mt3.
Notwithstanding this, the blockade of sealines of communication (SLOCS) across the Black Sea is holding back about 25 million tons of corn and wheat in Ukrainian ports. Ukrainian forces have heavily mined its waters to prevent a Russian amphibious assault (The Economist, 2022). Furthermore, on June 4th of this year, Russia shelled the city of Mykolaiv, Ukraine's second largest grain export seaport, damaging critical infrastructure such as silos and storage barns at the Nika-Tera terminal. This contributed to the decrease of 16 million mt3 of grain exports from the Black Sea (Bobylov & Bland, 2022).
Finally, an essential element in the agricultural business is the fertilizer used during sowing. In this case, the Russian Federation ranks first in the world as the main exporter of fertilizers, with 15.2% of total exports (see figure 3), whose main importers are Brazil (28.43%), the United States (8.21%) and China (7.12%) (TradeMap, 2022). The shortage of these fertilizers and the consequent rise in market prices will weaken production which, so far, is intended to make up for the shortage in the Ukrainian grain export market.
Figure 3. (TradeMap, 2022).
Since Russia is viewed as an influential economic player and Ukraine as the breadbasket of the world, we can begin to see the surge of economic consequences of this military confrontation. Mario Cimoli (2022), acting Executive Secretary of ECLAC, in a lecture delivered on June 6, 2022 entitled Repercussions in Latin America and the Caribbean of the war in Ukraine: How should the region face this crisis?, claimed that the impact of the decrease in the production and export of grains, vegetable oil and fertilizers from Russia and Ukraine would raise the consumer price index (CPI) and the food and beverage price index in the Latin American and Caribbean market (see Figure 4).
Figure 4. This chart shows the increase in the consumer price index (CPI) and the food and beverage price index in the Latin American and Caribbean market: (CEPAL, 2022).
The graph shows a strong increase as of March 2020 associated with the impact of the COVID-19 pandemic on international markets, giving way for a new rise because of the Russian-Ukrainian crisis.
On the other hand, it is no surprise that the countries that will be most affected by the decrease in supply in the grain market will be those whose poor economies depend on the sale of these products from Russia and Ukraine. In an article on food crisis, published in The New York Times, by Michael J. Puma, director for Climate Systems Research Center at Columbia University's Climate School, points out that staple grains supply the bulk of the diet for the world´s poorest. Higher prices threaten to place a significant strain on poor countries like Bangladesh, Sudan, and Pakistan. In his work Dr Puma states that in 2020 these countries received roughly half or more of their wheat from Russia or Ukraine, as well as Egypt and Turkey, whose share amounts to two-thirds of their total grain imports. (Puma M. J., 2022)
Global Warming as a Contributing Factor
In addition to the bleak economic prospect, one cannot ignore an ongoing issue in the international debate that, although at times seems to become a routine occurrence, appears to be, in the short term, a contributing factor to a global food crisis: global warming. Since the beginning of 2022, India and Pakistan have suffered throughout the country from an alarming increase in recorded temperatures, reaching 46°C during the month of March in its capital New Delhi and a record temperature of 51°C during the month of May in the city of Phalodi, Rajasthan. Even more alarming is the situation in southern India, in cities such as Bengaluru and Chennai, where the combination of humidity (close to 75%) and high temperatures have already claimed 3 lives. (Sengupta, 2022).
This type of weather conditions, besides representing a threat to human life, have significantly affected wheat production, reaching a deficit of up to 20% in the domestic wheat crop, since excessive heat affects irrigation systems and farmer´s working hours (Kumar & Ives, 2022). This relates with a study conducted by NASA in 2021 whose projections for the next 10 years estimated a 24% decrease in global wheat and corn production resulting from "projected increases in temperature, changes in rainfall patterns, and elevated surface carbon dioxide concentrations due to greenhouse gas emissions caused by human activities." (Jägermeyr, Müller, & Ruane, 2021)
As a result, India, the world's second largest wheat producer, decided to suspend its wheat exports in an effort to minimize the impact of declining domestic production and sustain food for its own population, again impacting an already deteriorating commodity market (Yasir & Kim, 2022).
Concern of the International Organizations
The United Nations has issued a series of statements seeking to raise awareness of Russia´s aggression towards Ukraine, furthermore, implying to the Security Council of the onslaught of famine and to lessen the damaging effects of political and environmental crises in the poorest countries.
The United Nations Global Crisis Response Group issued its second report in New York on June 8, 2008, stating that this catastrophe, although it has been building up for years, has reached its worst, since the start of the war in Ukraine. In 2022, it is expected that close to 181 million people will face a famine crisis in 41 of the 53 poorest countries on the planet. Furthermore, the number of people worldwide suffering from chronic malnutrition will increase by 19 million by 2023, if the reduction of exports from the Russian Federation and Ukraine results in a decrease in global supply. FAO Food Price Index (FFPI) reached record highs in February this year, however, following the Russian invasion, these figures reached the highest one-month rise ever recorded, with a peak during March 2022. (UN Global Crisis Group Response, 2022)
Antonio Guterres, UN Secretary General, during this presentation on June 8 in New York, stated that "food prices are near-record highs. Fertilizer prices have more than doubled, raising alarms everywhere. The lack of fertilizer will cause shortages to increase from corn and wheat to all staple crops, including rice, with a devastating impact on billions of people in Asia and South America" (United Nations, 2022).
Likewise, David Beasly, Executive Director of the United Nations World Food Program noted:
"..before the start of the pandemic, the number of people heading for starvation conditions grew from 80 million to 135 million; then, with the COVID-19 pandemic, it went from 135 million to 276 million; and with the crisis in Ukraine, it will rise to 323 million 'at a minimum'... Before the war, most of the food produced by Ukraine, enough to feed 400 million persons, was exported through the country's seven Black Sea ports. Certainly, not opening the ports in the Odessa region would be a declaration of war on food security and would result in famine, destabilization and mass migrations around the world." (United Nations, 2022)
Faced with a bleak scenario such as the one submitted in this article, one can only wonder how to face these difficulties. International leaders have, currently, the responsibility to negotiate and establish commercial links between the managers of the crisis (both political and environmental) to reduce the suffering of the population in the poorest countries and the decline of the most sensitive economies.
For the UN Secretary General, Antonio Guterres, there is only one possible solution to try to stop this crisis: to put an end to the Russian invasion of Ukraine through a political solution that complies with international law and the UN Charter. Given the obvious impossibility of such a scenario in the short term, he pointed to the need for imperative action on essential negotiating aspects. "First of all, we need to stabilize world food and energy markets to break the vicious cycle of rising prices and bring relief to developing countries" he noted in New York, "and get both Ukrainian food production and Russian supplies and fuel back into world markets despite the war." (United Nations, 2022). To achieve this, he appointed the Secretary-General of the UN Conference on Trade and Development, Rebeca Grynspan, and the Under-Secretary-General for Humanitarian Affairs, Martin Griffiths, to coordinate two working groups to work towards a global agreement that would allow the safe export of Ukrainian-produced food across the Black Sea, and unobstructed access to world markets for Russian food and fertilizers. (United Nations, 2022
At the Latin American level, Mario Cimoli said that the priority is to ensure the welfare of the poorest sectors, with food security as a priority. To this end, "international trade in food and fertilizers should not be restricted, as doing so would accelerate inflation and harm the poorest. Actions such as maintaining or increasing food subsidies, implementing price containment agreements for the basic food with producers and marketing chains, and reducing or eliminating tariffs on imports of grains and other commodities should also be considered." (Cimoli, 2022) In general terms, it will be necessary to establish agricultural and industrial policies that strengthen support for agricultural production, as well as increase efficiency in the use of fertilizers, prioritizing biofertilizers. Industrial policy is key to reducing dependence on fertilizer imports in the medium term (Cimoli, 2022).
ALADI. (28 de Marzo de 2022). Webinar: Impacto de la guerra en Ucrania en la economía Post Covid de América Latina y el Caribe. Obtenido de https://www.youtube.com/watch?v=7HObVspv054&t=2s
Bobylov, A., & Bland, W. (06 de Junio de 2022). Grain terminal at Ukraine's Mykolaiv port hit by Russian military. Obtenido de S&P Global: https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/agriculture/060622-grain-terminal-at-ukraines-mykolaiv-port-hit-by-russian-military
CEPAL. (Junio de 06 de 2022). Acerca de Comisión Económica para América Latina y el Caribe. Obtenido de Comisión Económica para América Latina y el Caribe: https://www.cepal.org/es/acerca
Cimoli, M. (2022). Repercursiones en América Latina y el Caribe de la guerra en Ucrania: Cómo enfrentar esta crisis? CEPAL.
FAO. (13 de Junio de 2022). About FAO. Obtenido de Food and Agriculture Organization of the United Nations: https://www.fao.org/about/en/
Jägermeyr, J., Müller, C., & Ruane, A. e. (01 de Noviembre de 2021). Climate impacts on global agriculture emerge earlier in new generation of climate and crop models. Obtenido de Nat Food: https://doi.org/10.1038/s43016-021-00400-y
Kondalamahanty, A., Singh, S., & Nandy, S. (24 de Febrero de 2022). Factbox: Russia’s Ukraine invasion seen disrupting vegetable oil, grain trade flows. Obtenido de S&P Global: https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/agriculture/022422-factbox-russias-ukraine-invasion-seen-disrupting-vegetable-oil-grain-trade-flows
Kumar, H., & Ives, M. (28 de Abril de 2022). The Extreme Heat Pummeling India and Pakistan Is About to Get Worse. Obtenido de The New York Times: https://www.nytimes.com/2022/04/28/world/asia/india-extreme-heat-wave.html?searchResultPosition=1
Naciones Unidas. (19 de Mayo de 2022). Alimentar a los hambrientos significa invertir en paz y seguridad, dice Guterres. Obtenido de Naciones Unidas: https://news.un.org/es/story/2022/05/1509012
Naciones Unidas. (08 de Junio de 2022). Guterres alerta de una “ola de hambre y miseria sin precedentes”. Obtenido de Naciones Unidas: https://news.un.org/es/story/2022/06/1509932
ONU. (02 de Marzo de 2022). La Asamblea General exige a Rusia la retirada inmediata de sus fuerzas militares de Ucrania. Obtenido de Naciones Unidas: https://news.un.org/es/story/2022/03/1504852
Puma, M. J. (02 de Marzo de 2022). What the War in Ukraine Means for the World’s Food Supply. Obtenido de The New York Times: https://www.nytimes.com/2022/03/01/opinion/what-the-war-in-ukraine-means-for-the-worlds-food-supply.html
Puma, M. J., & Konar, M. (02 de Marzo de 2022). El hambre no puede ser arma de guerra. Obtenido de The New York Times: https://www.nytimes.com/es/2022/03/02/espanol/opinion/rusia-ucrania-crisis-alimentos.html
Sengupta, S. (03 de Mayo de 2022). An extraordinary heat wave exposes the limits of protecting people. Obtenido de The New York Times: https://www.nytimes.com/2022/05/03/climate/india-heat-wave.html
The Economist. (19 de Mayo de 2022). The coming food catastrophe. Obtenido de The Economist: https://www.economist.com/leaders/2022/05/19/the-coming-food-catastrophe
Toh, M., Ogura, J., Humayun, H., McGee, C., Yee, I., Cheung, E., . . . Kennedy, N. (25 de Febrero de 2022). La lista de sanciones mundiales a Rusia por la guerra de Ucrania. Obtenido de CNN en español: https://cnnespanol.cnn.com/2022/02/25/lista-sanciones-mundiales-rusia-guerra-ucrania-trax/
TradeMap. (13 de Junio de 2022). Trade statistics for international business development. Obtenido de International Trade Center: https://www.trademap.org/Index.aspx
UN Global Crisis Group Response. (08 de Junio de 2022). Brief No.2 Global impact of the war in Ukraine: Billions of people face the greatest cost-of-living crisis in a generation. Obtenido de UN Global Crisis Group Response: https://news.un.org/pages/wp-content/uploads/2022/06/GCRG_2nd-Brief_Jun8_2022_FINAL.pdf?utm_source=United+Nations&utm_medium=Brief&utm_campaign=Global+Crisis+Response
Yasir, S., & Kim, V. (14 de Mayo de 2022). India bans most wheat exports, adding to concerns of global food insecurity. Obtenido de The New York Times: https://www.nytimes.com/2022/05/14/world/asia/india-wheat-export-ban.html
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Año CXXXVIII, Volumen 141, Número 995
Julio - Agosto 2023