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Emerging Markets

Food price spike threatens instability in SEMED and sub-Saharan Africa

UkrainianWheatField.jpg

Food inflation was already rising before the outbreak of conflict between Russia and Ukraine, which between them account for a quarter of global grain supply

The war on Ukraine is having an enormous impact on the agrifood sector, both in terms of national economies and on global food security.

A surge in agricultural food prices due to tight supply and the Ukraine crisis is threatening to bring a new hunger crisis in developing countries — including current and potential countries where the EBRD is engaged.

According to the World Bank, global agricultural food prices jumped by 36.6% in March 2022 compared with a year earlier, an acceleration from the 28% rise seen in 2021. In contrast, prices were up by just 0.1% on average in the previous three years.

Economists at Bank of America (BoA) see a worrying potential for further rises in key grain prices. They cite reduced planting this spring, damage to port and farm infrastructure, prolonged disruptions to Ukraine exports and rising risks to Russian exports hitting the prices of cereals and oilseeds.

“Given the additional surge in prices because of the Russia-Ukraine war, global food inflation should remain extremely elevated for the rest of the year,” says sub-Saharan Africa economist Tatonga Rusike.

Abebe Aemro Selassie. director of the IMF’s Africa department, says higher fertiliser and oil prices will also increase the cost of harvesting, the cost of production and provision of goods and services which together will “erode living standards quite a bit” in many countries.

In 2019, Russia and Ukraine together exported more than a quarter of the world’s wheat. As a result, some 50 countries depend on those two countries —currently pitted against each other in a ferocious war — for a third of their wheat supply.

These include low-income countries in northern Africa such as Egypt, Lebanon, Morocco and Tunisia that are part of the EBRD’s southern and eastern Mediterranean (SEMED) region.

“We’re just emerging from Ramadan, where in our region people look at food prices every day,” said Heike Harmgart, the EBRD’s managing director for SEMED. “People have talked about meat prices in previous year, but this year was the first in a long time that people are talking about bread, vegetables, and other domestically produced ingredients for Ramadan.

“It is a sign that expectations of food price inflation are enormous in the region, and food price inflation makes up a huge price of the basket.”

BoA warns that the impact will also be felt further south in sub-Saharan Africa, a region where the EBRD has planned a “limited and incremental” expansion of its activities. It says Kenya and Ghana are the most vulnerable as a third of their wheat imports came from Russia.

It warns that lower-income countries may soon confront social unrest and potential political turmoil as a result of soaring prices. It highlights Nigeria as a country vulnerable to political instability in the face of soaring food inflation. Its government has already delayed removing fuel subsidies to keep transportation prices and overall domestic prices in check.

The issue will be high on the agenda at this week’s EBRD meetings. On Wednesday, it will hold a discussion panel on food security at times of crisis, with a special focus on SEMED. It will also publish new figures on the impact of the crisis in SEMED in particular and will highlight key policy and investment priorities for the region.

But Harmgart at the EBRD said that solutions to diversify or increase private sector efficiency “may come too late for this year”.

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