Jeremy's Blog 29th April 2022: Ukraine's War Further Market Effects

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 28th April 2022

In the third month of Russia’s gruelling invasion of Ukraine, its expected reverberations continue across the world, compounding already disrupted supply chains and gas markets.

As a benchmark for world trade, the shipping company, Maersk, carrying a fifth of sea-borne containers, reports shipping volumes down 7 per cent over the last year but freight rates up 71 per cent. China’s severe Covid lockdowns make world supply chains worse.

Alongside wheat (feed wheat now £332/t for May, £296 for November), the loss of the Black Sea’s 80 per cent of sunflower oil exports has dramatic effects; first on price (rapeseed, the easiest substitute, £880/t for May, £720 for November), now more widely. As in previous price spikes, countries protecting home markets reduce exports.

With 35 per cent of world palm oil trade, Indonesia has banned its exports, used from food to printing ink, also raising soy oil prices. Following Canada’s poor canola production, this tightens prices across the globe. How far can this year’s harvests fill the gaps? How far might new western routes bring more Ukrainian stocks onto markets?

Nearer home, sharp European moves away from Russian gas and oil, accelerated by evidence of Russian war crimes, add to pressures on strained markets. Gas prices, already expected to stay higher for longer, are now higher than in the autumn – doing nothing to ease nitrogen fertiliser.

Such moves have political consequences. Prices rise across the world: over 9 per cent in Holland, Egypt, Pakistan and Brazil but 50 per cent in Turkey. Food and fuel prices have prompted sustained protests in Sri Lanka’s deteriorating economy and other pressure in Peru, Pakistan and Indonesia. Debt crises are in prospect, much now owed to China.

Here, the government, re-writing its response to the Dimbleby Report amid rising discussion of food security’s many-faceted issues, is bedevilled by cost of living concerns. Yet, higher output prices are needed to sustain our higher value food production, now squeezed badly by input costs. There are signs of prices strengthening but the readjustment needed for the profitability necessary for businesses to thrive has yet to come for markets to adapt for the future.

A food security strategy for domestic production would not unwind current policies but emphasise the changes needed for improved productivity, including technology and automation. With climate and environmental needs, it would consider the competing uses for land, perhaps less the plans for local nature recovery but the undefined commitment that 30 per cent of land be managed for nature by 2030. Such markets shape our future.