By Javati Ghosh |
Contrary to popular belief, the war in Ukraine has not caused a global wheat shortage. While world hunger has skyrocketed in recent years, the best way to confront the current food crisis is to attack its true causes: financial speculation and the profit motive of companies.
In recent years, the sharp rise in food prices and the increasing frequency and intensity of floods, droughts and other extreme weather events have raised alarm about a possible imminent grain shortage, with consequent catastrophe for the poorest populations. and vulnerable of the planet. Although climate change poses the greatest medium and long-term threat to global food security, the Russian invasion of Ukraine is often cited as the immediate cause of the current famine. But this is a smokescreen.
There is no doubt that the war has disrupted wheat exports from both Russia and Ukraine, two of the world’s largest producing countries, by distorting crucial trade relations. With Ukraine and Russia exporting more than a quarter of global wheat volume before the invasion, politicians and commentators attributed the sharp rise in prices in early 2022 largely to supply shortages caused by the conflict.
However, while the global wheat price index increased by around 23% in the first months after the Russian invasion, prices began to decline in June 2022. By December they had returned to pre-war levels. This was acknowledged, but this trend was attributed to the success of the Black Sea Grain Initiative, a United Nations-sponsored agreement that lifted the Russian blockade of Ukrainian grain exports. In turn, Russia’s recent decision to cancel the agreement has raised concerns about its potential effects on global grain trade.
These concerns are misguided for two reasons. First, global wheat supply (both total production and traded volume) has remained constant since the start of the Ukrainian war. The Agricultural Market Information System, administered by the United Nations Food and Agriculture Organization, incorporates data from the International Grains Council to calculate supply, consumption and trade volumes. Between July 2021 and June 2022 – a period in which wheat prices skyrocketed – global production increased by five million tonnes, while the volume traded grew by three million tonnes. During the same period, reserves increased slightly (three million tons).
The most curious thing is that the total supply of wheat (that is, the volume of production plus starting reserves) exceeded consumption by no less than 275 million tons. This surplus belies the official narrative of a global shortage. Likewise, it is estimated that global supply has exceeded demand between July 2022 and June 2023, indicating that this is a consolidated trend.
Second, governments and the media often highlight shortages in specific regions, while overlooking increases in production and trade in other parts of the world. In reality, wheat is produced globally, meaning that shortages in one region can be offset by increasing production in another.
What then was the cause of the increase in wheat prices? To answer this question we have to follow the money trail. The world grain market operates as an oligopoly, in which the four main trading companies – Archer-Daniels-Midland, Bunge (which has recently merged with Viterra), Cargill and Louis Dreyfus – control more than 70% of the market, and Glencore another 10%.
In the early stages of the war in Ukraine, especially between March and June 2022, the four large grain traders achieved record revenues and profits. Cargill’s annual revenue rose 23% to $165 billion, while Louis Dreyfus’ profits grew 80%. These increases reflected price increases that did not square with real-world demand or supply dynamics.
In addition, grain futures markets experienced frenetic activity between April and June 2022. Financial investors, including pension funds, increased their share of long positions from 23% in May 2018 to 72% in April 2022. It was reported that ten “tailwind-driven” hedge funds made $1.9 billion by capitalizing on the sharp rise in food prices caused by the Russian invasion of Ukraine. Instead of preventing or containing these financial maneuvers, US and European regulators allowed them to continue at their leisure.
Surprisingly, most of Ukraine’s grain exports did not go to the poorest countries on the planet. Instead, 81% of the 32.9 million metric tons exported under the Black Sea Grains Initiative went to high- and upper-middle-income countries, primarily European countries such as Spain, Italy, and the Netherlands. , as well as China and Turkey. Low-income countries received 3% of Ukraine’s grain exports and 9% of its wheat (mostly Bangladesh). Given that food-importing African countries only received a fraction of these exports, fears that canceling the deal would lead to mass famine across the continent appear grossly exaggerated.
The Black Sea Grains Initiative appears to have been more about facilitating Ukrainian exports – a laudable goal in itself – than about combating world hunger. In addition to Russia’s blockade of its sea routes, Ukraine’s land routes were hampered by implicit import restrictions imposed by Central and Eastern European countries such as Poland, Bulgaria, Hungary, Slovakia and Romania, which wish to protect local farmers struggling with competitively priced Ukrainian grain. However, as they have indicated other sources, the Initiative primarily serves the interests of the agricultural trade giants that market Ukrainian grain and the financiers who support them.
If world hunger has increased sharply in recent years, the cause does not lie in a shortage of cereals. Instead, plummeting exports, declining foreign exchange earnings, capital flight and rising debt servicing costs have undermined the ability of many countries to import food. To address these challenges we must look for other ways. Instead of distributing grain on a charitable basis, the world’s political class must mitigate the trade vulnerability of impoverished countries and take measures to increase local and regional production of basic foods. We can still win the fight against world hunger, but on condition that we recognize the true causes of today’s plight.
Jayati Ghosh is a professor of economics at Amherst College in Massachusetts and serves on the Commission for Economic Transformation of the Club of Rome.
Original text: Project Syndicate
Translation: wind on
