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Cost of wheat, export controls, social unrest & challenges the world face

23 May 2022 12:12 pm
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Mumbai, 23 May (Commoditiescontrol): Last week, the United Nations Security Council was appraised about the global food insecurity having reached levels not seen since the financial crisis of 2008, and how it’s only getting worse without aggressive intervention, by food insecurity experts.

While Russia-Ukraine war was seen at the base of food catastrophe the world is currently facing, with more countries putting food export controls in place, it is expected to reflect in rising food prices, which coupled with rising fuel price, could pose a risk to global economy.

As per a private agency risk report, which pointed out that "Unlike low-income countries, they were rich enough to offer social protection during the pandemic, but now struggle to maintain high social spending that is vital to the living standards of large sections of their populations". The report found several countries within the emerging markets are highly reliant on food and energy imports and are at the brink of social unrest.

Over half of the world experienced an increase in civil unrest risk since the onset of the COVID-19 pandemic. The latest iteration of Civil Unrest Index shows that 107 out of 198 (54 percent) assessed countries recorded a deterioration in their score since 2020-Q1, compared to 31 percent that have improved and 15 percent that have remained static. Indeed, 68 countries (34 percent) experienced a significant deterioration – which we define as a decrease of 0.5 or more in their score.

Russia’s invasion of Ukraine has made a bad situation worse, causing instant disruption to energy markets and food supply chains, and provoking further price rises. With no resolution of the conflict in sight, the global cost of living crisis will continue deep into 2023.

For instance Bread - one of the more crucial ingredients in maintaining world stability - is getting dangerously expensive. As food prices rise around the world due to the war, extreme weather and inflation, more countries are putting export controls in place - but that only exacerbates the issue.

At least 43 protectionist measures have been implemented since the Russian invasion, according to data cited by the New York Times earlier this month.

These include restrictions put in place by Russia and its ally, Belarus, along with Indonesia's ban on palm oil exports and China's prohibition on fertiliser exports.

Before the Russia-Ukraine conflict began, the two countries supplied a combined one third of the world’s wheat exports and were in the top five exporters of corn. Further, the widespread fertilizer shortages, supply chain issues and record droughts, the world has about 10 weeks worth of wheat on hand, Sara Menker, CEO of Gro Intelligence, told Fox29 - a digital arm of FOX TV.

India's decision to restirct wheat exports as it deals with an extended, climate-change-driven heat wave, comes at a time when several countries have already been forced to adjust their procurement and supply arrangements to make up for shortages following the Russia-Ukraine conflict.

This has led to further elevation in prices as they scramble to source their needs. Measures taken by India, Indonesia and others, is threatening to further tighten global supplies, and will create price pressure on food as we head further into 2022.

India is the ninth-largest wheat exporter in the world, according to USDA stats. Initially, Indian officials said the country would increase wheat production, before reversing course on Saturday.

There are few commodities more important than wheat. Rising prices for bread have led to social unrest throughout history from the French and Russian revolutions to the Arab spring.

More headwinds in the wheat market are coming. There are issues with drought in France that could drive up prices, while production in the US is down.

The U.S.is not a big exporter of wheat because it's too costly to ship overseas, but it's a supplier of "last resort".

With drough condition widening across Africa and America, high fertiliser prices, there is likelihood of rise in cost of food which along with high inflation and cuts to subsidies programmes will exacerbate rising living costs.

U.N. food chief David Beasley warned the Security Council that the war in Ukraine has created "an unprecedented crisis" of escalating food prices that are already sparking protests and riots and growing hunger.

The crisis could add at least 47 million people to the 276 million "marching to starvation" before Russia’s invasion of its smaller neighbor.

The executive director of the World Food Program said 49 million people in 43 countries are already "knocking on famine’s door."

Indonesia will be lifting ban on palm oil exports on Monday, but its decision to ban exports has already done the damage to world food prices.

Given the lack of fertilizer, extreme climatic conditions, cooking oil shortage, inadequate grain storage capacity, and supply chaing/logistic bottlenecks, the world is facing a once-in-a-generation occurrence that can dramatically reshape the geopolitical era, and, hence, experts see a need for coordinated global response.

(By Commoditiescontrol Bureau: +91-22-40015505)


       
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