Illustrative photo
Photo: SHUTTERSTOCK
Sandra Dieziņa, “Latvijas Avīze”, JSC “Latvijas Mediji”
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Economists estimate that the rise in prices could reach double digits. The sharp rise in prices could be halted by the end of the war in Ukraine.
Shakes the market
“The war in Ukraine has shaken the world food market. Russia and Ukraine together have so far supplied a third of internationally traded wheat. At present, normal economic activity is not possible in Ukraine – employees are drafted into the army, the supply of fuel, seeds and other materials is very difficult.
Sowing should start soon, but hopes for an early end to the war are low, ”comments Pēteris Strautiņš, an economist at Luminor Bank. As a result, the market is panicking and the price of wheat is approaching EUR 400 per tonne, which is about twice the pre-pandemic ‘normal price’ and also much more expensive than during the pandemic.
The effect on other products is less pronounced. If this price of wheat is maintained for a long time, it is expected to create enormous tensions in poor countries. Strautiņš reminds that the so-called Arab Spring in 2011 was caused by a sharp rise in grain prices, so it can already be assumed that the wave of unrest over the world caused by this war will last for a long time and may last for several years.
SEB banka’s macroeconomic expert Dainis Gašpuitis also predicts that the rise in food prices is inevitable, and now it seems that it will be very rapid. High energy and fertilizer prices make the situation even more difficult, as the possibility of absorbing price rises in the long production chain becomes impossible. In addition, the war in Ukraine exacerbates this effect.
To guess in which groups the increase will be most noticeable, it remains to look at the structure and volumes of Ukrainian agricultural exports – sunflower oil, corn, wheat and chicken are the main Ukrainian export groups. Russia and Ukraine account for about 25% of global wheat exports, so global stress is growing rapidly, especially in the Middle East.
“High energy prices will refer to the costs of farmers and food producers in Latvia and other European countries, which makes the price increase comprehensive. As prices in one product group rise, demand will shift to others, creating price pressure there as well. In some groups, the increase may not appear for a short time or even fall slightly, because the goods that previously went to Russia and Ukraine will look for new buyers elsewhere, ”predicts Gašpuitis.
Will not be avoided
The situation can be saved a bit if the war reaches sowing time and a good harvest comes this year. In the event of adverse weather conditions, the global situation could become critical, as countries may begin to restrict exports, as was the case relatively recently and Russia has been able to apply to certain products.
The use of national strategic stocks, which is generally sufficient to normalize the situation, will certainly be considered. However, they are unevenly distributed across countries and each country will be guided by its own domestic policy considerations. Given the impact of covidium, there are real problems with access to food in many countries. Europe is in a relatively favorable position, but we will not be able to avoid rising prices, according to a macroeconomic expert.
Agnese Buceniece, Swedbank’s Chief Economist in Latvia, points to the upcoming changes: “Russia and Ukraine are important producers of agricultural products. Together, the two countries account for about 30% of world wheat and barley exports, almost a fifth of corn exports and 80% of sunflower oil exports. The war in Ukraine is likely to adversely affect the sowing and processing of fields.
Black Sea ports have already come to a standstill and supplies from Ukraine have been suspended. Existing sanctions on Russia make it difficult to pay for agricultural products and their supply. The limited supply pushes the already high prices of food raw materials even higher. In addition, stock exchanges raise concerns about the possible negative impact of new sanctions, including retaliatory sanctions, on the availability of food raw materials. “
At present, for example, wheat prices on world stock exchanges are at their highest level in 14 years and are fast approaching their historic record. This means one thing: everything made from wheat, such as flour, bread and pasta, will become more expensive. Grains are also used in animal feed, which can also make meat prices more expensive.
Even before the Russian invasion of Ukraine, there was a rise in fertilizer prices, fueled by high natural gas prices, unfavorable weather conditions and pre-existing sanctions on Belarus. Prices are currently rising even more, given Russia’s major role in fertilizer production and global natural gas exports. Russia is a major producer of nutrients used in the production of fertilizers. In addition, a further jump in gas prices is making ammonia production more expensive, which is also widely used in the production of fertilizers.
It should also be noted that Russia has restricted the export of fertilizers. Higher prices and lower availability of fertilizer mean both that it will become more expensive to grow agricultural products and that a shortage of fertilizers could reduce global yields. Edgars Putra, a member of the board of the Zemnieku Saeima, has already warned about this, pointing out that 108.5 million tons of food raw materials, mostly wheat and corn, may be in short supply in the world in the next trading season. Putra calls for a review of current EU policies to make food production a top priority. The EU’s greening policy should also be abolished and other changes made to provide food for the public.
We can provide
This spring, many farmers have already provided at least most of the fertilizer needed for the season, which means that the current situation may have a greater impact on next year’s harvest and costs.
The price of fuel also adds to the oil fire. Fuel prices in Latvia have already exceeded 1.8 euros / l, and experts predict a further increase. Taking into account more expensive food raw materials, rising fuel prices, further increase in electricity prices, food production will also become more expensive, so unfortunately we need to prepare for even higher and more extensive food inflation in Latvia as well, concludes Agnese Buceniece.
“No one can say how high the food price inflation will be in Latvia, but it will almost certainly be written in double digits. The situation will be unpleasant for consumers, but it could be a year of good profits for farmers, despite the high cost of fuel and fertilizers, ”said Luminor Bank’s economist.
Inguna Gulbe, the head of the Agricultural Market Promotion Center, also predicts that food prices could rise and this time it is not a double-digit number, but sometimes. “Let’s hope it will be enough twice,” she said. The price increase is likely to affect all product groups. But the good news is that Latvia can provide itself with food.
“If farmers can sow and mow, then we will have eaten in the autumn as well,” said the head of LTVC. At present, it is not possible to make a meaningful distinction between the impact of rising energy prices, rising fertilizer prices and the direct impact of hostilities on Ukrainian agriculture and transport – there is one reason for all – Russia’s attack on Ukraine, and food prices can only be reduced by stopping the war .
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