Conflict begets conflict. Food is among the weapons. Russia’s invasion of Ukraine has spawned sanctions, export blockades and disruption to farming. That has already sparked civil unrest in Indonesia, Egypt and Iran. High prices and hungry bellies will foster further political instability.
The war knocked out two links in the food chain: a hefty chunk of cereals supply and the fertiliser needed to bolster a wide range of crops. Ukraine is a big producer of wheat and corn. Russia and its client state Belarus husband vast quantities of nutrients.
Potash is one. Used with other fertilisers for wheat, corn and soyabean crops, it can reputedly increase yields by a third or more. Production is concentrated in a handful of countries. Russia and Belarus together account for 40 per cent of output, slightly more than Canada. The west has not prohibited exports. But financial sanctions on Russia have made supplies harder to obtain.
Potassium chloride — “muriate of potash” in the jargon — makes up the bulk of the commodity consumed globally. Deposits abound in Canada, particularly Saskatchewan. Around a quarter of Canadian production was idled after regular gluts.
Share prices of the country’s two biggest producers, Nutrien and Mosaic, ratcheted up sharply after the outbreak of hostilities, having flatlined lengthily. Potash prices, measured by prices paid in Brazil for MOP, have soared to $1,200 a tonne after years below $500. Brazil, as a big agricultural producer, imports around 1mn tonnes a month.
Higher fertiliser costs are hurting farmers worldwide. The income of Illinois grain farms could fall by a third, estimate academics in a farmdoc daily report.
That will ensure food prices stay high unless two things change. First, Canadian potash producers, encouraged by elevated prices, would have to switch on more capacity. Second, Russia, would need to allow Ukraine to ship wheat and corn via ports such as Odesa.
The first move would take a year to have much impact. The second, while mooted by Russia, depends on goodwill conspicuously absent in all its other actions.
Persistently high food prices would mean poor, politically unstable countries become even more so. Risk is therefore proliferating for emerging market investors. Egypt, which subsidises bread to the tune of $3bn a year, is warning of global “food insecurity”. The United Nations says the number of people suffering severe food insecurity has doubled in the past two years to 276mn today. That total can only rise.
The Lex team is interested in hearing more from readers. Please tell us what you think of the outlook for world food supplies in the comments section below.