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Alexander Yakovenko: who is responsible for the food crisis

Александр Яковенко
© Форпост Северо-Запад

International agricultural production has been among the hardest hit by global economic instability for at least the last two years. As a result, according to stock exchange data, the annual rate of increase in wheat prices in 2021 was around 70%. By February this year, they were 49% higher than the average price level for 2017-2021. The price of maize increased by 52% over the two years and that of rapeseed by 127%.

The crisis phenomena of recent years in the agricultural market are primarily due to miscalculations and accumulated systemic errors in the macroeconomic and food policies of industrialised countries. The following key circumstances should be noted here.

Firstly, there is the COVID-19 pandemic. In 2020-2021 Western countries saw a dramatic increase in financial injections into their economies to cope with the negative effects of the coronavirus pandemic. The combined value of anti-crisis packages amounted to about 5 trillion dollars in the USA, more than 1 trillion euro in the EU, and about 2 trillion dollars in Japan. The resulting budget deficits led to a spike in inflation, pushing up food prices.

This trend was exacerbated by open trade wars between key players and persistent acute contradictions in the regulation of agricultural markets. Due to restrictions on international movements, disruptions in freight traffic and a decline in freight volumes, transport costs increased significantly in the face of anti-coveting measures. Freight rates almost doubled.

Secondly, the development of the negative situation in food markets was exacerbated by the Western countries' forced conversion to alternative energy sources at the expense of traditional fuels. It has caused a run-up in energy prices. In particular, oil quotations in 2020-2022 increased by more than 22% (and that includes a price collapse in spring 2020 against the background of the first global "lockdown"). Natural gas spot prices, meanwhile, have been on a sharp upward trend since 2021, reaching a three- or fourfold increase at their peak (at the end of February this year they were above $1,000 per 1,000 cubic meters, rising to a record $2,500 during the winter of 2021-22). As a consequence, in December 2021 there was an unprecedented increase in mineral fertilizer prices: 3.5-4 times for urea and nitrate and 2.5-3 times for other types.


Thirdly, during the "Corona crisis", the collective West actually "took over" the commodity food flows, worsening the already difficult situation in the food import-dependent countries of Asia, Africa and Latin America. Low food stocks, adverse weather conditions (in particular the prolonged drought in North America) and a general underinvestment in the sector have exacerbated the situation. As fuel and fertilizer costs rise, farmers across the board are reducing acreage, which has resulted in a decline in agricultural output as demand has continued to rise.

Finally, fourthly, the unilateral economic pressure introduced by Western countries against Russia in February-March 2022 sharply exacerbated the negative trends in the global food market. And this circumstance should be emphasised, given Russia's role as one of the world's main producers of food, fertilizers and energy resources.

Payment restrictions and logistical difficulties caused by the sanctions have affected the entire global network of ecommerce operators in the field of agricultural products. In the face of exchange and market uncertainty, agro-producers are questioning the viability of investing in expanding their operations.

Unilateral sanctions, including threats of mass arrests of dry cargo ships and the disconnection of Russian banks from the SWIFT system, have greatly exacerbated the problem of disrupting the logistical and financial chains that have existed for decades in global food trade. Under these circumstances, the Russian Federation has been forced to adopt certain retaliatory restrictive economic measures affecting, among others, a number of agricultural and commodity products in order to protect its interests in response to external restrictions. We hope that these measures are temporary, especially given the intention shown by some Western countries, including the US, to ease sanctions on Russian agricultural products, including fertilizers.

© Форпост Северо-Запад / пшеничное поле в Крыму

As a result, Russia has been a net exporter of agricultural and food products for the third consecutive year. Agricultural raw materials and foodstuffs are now supplied to 161 countries. The volume of food and agricultural raw materials exports in 2021 amounted to 71 million tons worth $37.1 billion, which is 21% higher than in 2020 ($30.5 billion).

Exports of food commodities and agricultural raw materials in 2022 are projected to increase by about 6 percent compared to 2021 levels to more than $39 billion. In both value and volume terms, grains dominated the structure of Russian agro-exports in 2021. Preliminary forecasts for the new harvest in 2022 are mainly optimistic. According to the Federal Customs Service (FCS), in January 2022 the physical volume of poultry meat exports from Russia increased by 39.1%, fresh and frozen fish by 17% and seafood by 24%. In terms of value, exports in the first quarter of 2022 amounted to $0.96 billion, an increase of 43.2% over the same period in 2021.

As for fertilizers, Russian producers also remain export oriented. Nearly 70% of Russian production is shipped to foreign markets. The total volume of fertilizers supplied to foreign markets, mainly due to nitrogen and mixed fertilizers, has been growing steadily in recent years. There is also a trend towards geographic diversification of Russian fertilizer exports, depending on demand in various foreign countries. In terms of value, export of mineral fertilizers reached a record $12.5 billion in 2021.

The Russian Federation notes, however, that unjustified measures of unilateral economic pressure could affect Russia's agricultural exports and have disastrous consequences for all countries without exception. As a responsible player on the world food market, Russia intends to continue faithfully fulfilling its obligations under international contracts for the export of agricultural goods, fertilisers, energy resources, and other critically important products. We are well aware of the importance of supplying socially important goods, including food, for the socio-economic development of the states in Asia, Africa, Latin America and the Middle East, achieving food security indicators and implementing the UN Sustainable Development Goals programme.