Your morning cereals and toast already are much more expensive than they were a year ago and are set to cost even more going forward. Why?
About 30% of all the world’s wheat comes from Russia and the Ukraine, who are not able to export their wheat due to the war and the consequential inability for commercial vessels to collect and transport wheat via the Black Sea, which is the only naval access out of the Ukraine. This means simply that a big chunk of the world’s production is taken out of circulation, creating serious price pressures. Wheat prices have gone from €300 a metric ton (1000 kg) to over €400 a ton. You might not think much of it, but this is a 33% price rise. If you are buying wheat in great quantities, this is an unsustainable price increase.
Wheat is a key food staple
The 3 top grains worldwide are wheat, rice, and corn. About half the calories consumed by the global population come from these staple foods. Ever since agriculture began, carry-over stocks of grain have been the most basic indicator of food security. The goal of farmers and of economies was and is not only to produce enough grain to make it to the next harvest, but to do so with a comfortable margin. This ‘margin’ is expressed in days of consumption. From 1986 to 2001 the carry-over stocks of grain were 107 days, dropping to 74 days of consumption over the period from 2002 to 2011 and since then the world lives from harvest to harvest as – although crop yields are improving – demand keeps increasing due to the growing world population.
Wheat is essential to food security in the world and the reduced supply and associated price increases are a red flag for countries with struggling economies such as Lebanon, Libya, Tunisia and Syria and equally for much wealthier, wheat dependent, countries like Qatar, Egypt and Saudi-Arabia, which import 100% of their wheat from various sources. In the case of Egypt, about 80% if its total wheat imports come (came) from Russia and Ukraine and Egypt will be scrambling to buy wheat elsewhere in a rush, if they can get their hands on supplies.
Who are the world’s biggest wheat producers?
China, India, Russia, the US and France make up the world’s top 5 wheat producers, harvesting more than half of the total global wheat production. The top 5 wheat importing countries – on the other hand - are Egypt, Turkey, Indonesia, China (needing more than its homegrown production to feed its own population) and Nigeria. So, for these countries it is vital to secure their wheat supplies in order to avoid food shortages and possible unrest at home. They will be competing to get hold of wheat, driving the cost up further and suffocating supply to the poorer Middle Eastern countries, where the cost of the daily bread may be crossing the line towards the unaffordable.
Is this a temporary problem and how does this affect inflation?
Inflation, post-lockdown, was already soaring due to a tsunami of demand for everything and anything being mismatched with gaping gaps in supply chains, which had shrunk back to a stutter and could not catch up quickly enough. Prices of everything have gone up, from your coffee, to timber, to housing, to train-tickets, fuel and food. So, when adding extra stress to the food system, such as taking out the combined Russian and Ukrainian wheat production, the much higher wheat prices will feed into a lot of the food stuffs we consume. If both the Ukraine and Russia manage to sow next year’s harvest this spring and the Black Sea shipping routes will be safer, inflationary pressures of wheat may finally ease.
So, wheat prices matter to all of us and in many more ways than the cost of cereal and bread alone.The current extra high wheat prices are also a symbol of suffering and injustice. Once the price starts settling at a lower level again, we can all sigh a sigh of relief for those who produce it and for those who so heavily depend on it.
Suggested links:
https://www.ft.com/content/b76d3414-4f11-4e46-9271-9309c06237df
https://www.world-grain.com/articles/15465-despite-record-output-global-grain-stocks-to-decline
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