The escalating conflict in Ukraine following the Russian invasion on February 24, 2022, has led to current and anticipated supply issues for grains, vegetable oils, and fertilizer products as several shipping ports ceased operations on February 25 due to access and security issues. Consequently, the grain futures markets on major global exchanges have spiked in some cases by over 10%, causing major importers to seek products from other markets.
Financial sanctions being introduced by several nations across Europe and North America have hobbled the Russian economy with unknown medium to long-term consequences. The conflict in Ukraine is affecting food accessibility, food cost, and food safety.
Food Accessibility
According to the US Department of Agriculture, Russia and Ukraine are two of the leading exporters of grain products by volume - collectively accounting for an estimated 23% of the global total for the 2021-22 marketing year. With markets in turmoil, several importers are reviewing their supply options, with China, the largest global importer of corn and soybeans and one of the largest importers of wheat – turning to America to secure supplies.
Egypt – the largest wheat importer, historically secured over 85% of their supplies from Russia and Ukraine, will be turning to global markets, including Argentina – one of the largest wheat exporters. With supply issues spurring massive inflation – deepening poverty and additional conflict will likely arise from untenable increases in food costs.
Fertilizer
Fertilizer prices – which have been rapidly increasing through 2021, have seen further significant increases since the beginning of the war as producers struggle to secure supplies of raw materials which have historically been secured from Russia and China. This comes at a critical time, where large amounts of fertilizer are required for the northern hemisphere summer planting season, which begins in late March across most of Europe.
Given the current situation, Ukrainian and other grain crop farmers globally will be severely affected in their ability to produce a crop in the next season – potentially leading to shortages of staples including wheat, corn, soybeans, and sunflower seeds and oils. These shortages, in turn, will further fuel the already seen massive inflation in food prices ranging from bread to beef and pork.
Food Cost
The increasing costs of fuel, fertilizer and raw food materials has already led to significant increases in Consumer Price Index (CPI) inflation – with figures from the US BLS data from February 2022 where indices for gasoline, shelter, and food were the largest contributors to seasonally adjusted all items increases. The gasoline index increased by 6.6 percent – accounting for approximately 30 percent of the increase of all items index. Food and food at home indices rose by 1.0 percent and 1.4 percent, respectively – accounting for the largest monthly increases since April 2020.
The food index has risen by 7.9 percent for the 12-month cycle ending in February 2022 – representing the largest 12-month increase seen since the period ending in July 1981.
As the conflict deepens, the compounding effects throughout the supply chain are going to reinforce the inflation of food exceeding that of the all items index – leading to greater global food security issues-particularly in countries that rely on food aid made up largely of staple crops such as maize and wheat.
Food Safety
As suppliers who have formerly produced raw grain products to strict standards demanded by the European Union dry up, grains – particularly wheat – will be sourced from suppliers in less regulated environments. Such environments may use banned pesticides and use processing and storage facilities where cross-contamination with potential allergens and introduction of mycotoxins and foreign materials are more likely.
With fertilizer shortages already being experienced and cost increases making its use less viable, many crop producers may turn to more affordable and readily available resources for crop nutrition, including animal dung and human effluent. This may lead to outbreaks of fungal, bacterial, and viral infections in laborer populations and inevitably spill over to product processing and production facilities leading to additional recall events.
Additionally, migrant workforces comprising of an increasing number of refugees fleeing the conflict zone may introduce emerging and re-emerging infectious agents as they travel with animals and shelter in crowded conditions in poor hygiene. Potential outbreaks of parasitic, fungal, bacterial, and viral infections may arise along migration corridors into neighboring countries – contaminating and infecting local crops and animals, promoting the need for sentinel surveillance and revision of hazard analysis and process control steps, as well as verification of vendor controls and processes.
The equilibrium shift across the global food market supply chain is going to require all affected parties to reconsider their safety and quality assurance programs – by maintaining insight into the changes which are going to affect them and carefully scrutinizing opportunities that come with hidden costs such as questionable supplier quality analysis, verification of new or replacement suppliers, and the downstream implications from tainted products including recalls and market withdrawals.
Conclusion
The crisis in Ukraine is affecting food accessibility, cost, and safety. With supply chains already impacting grain and fertilizer supplies, higher demand is likely to lead to cost-cutting throughout the supply chain as shortages fuel inflation across the food market. As food manufacturers and processors change suppliers due to price or availability of raw materials, they need to remain focused on food safety and quality. Verification that suppliers have correctly identified their hazards and critical controls, sample testing to verify the raw materials meet all specifications and periodic assessments of suppliers that they are maintaining food safety best practices are critical to avoiding contaminations and costly recalls.
For an in-depth analytical assessment of the Russia/CIS region, request a copy of the 2022 Global Risk Forecast.
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