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Food Prices Will Continue to Rise Due to War Affecting Supply

In: Finance, Forex

The Food and Agriculture Organization raised its outlook for global grain stockpiles, usually a good sign for supplies, but said most of that is due to stranded grain in the Black Sea region.

Ukraine’s exports will be particularly hard hit from the war, with wheat shipments falling 5 million tons and corn down 12.5 million tons from a previous estimate. Freight and financing challenges are also impairing Russian sales.

Global food prices are surging at the fastest pace ever as the war in Ukraine chokes crop supplies, piling more inflationary pain on consumers and worsening a global hunger crisis.

The food price rally and the fallout from Russia’s invasion has sent costs of basic foods like bread soaring, that is felt most in poor countries where groceries make up a large share of consumer budgets. The United Nations’ World Food Program recently said expensive staples in import-dependent Middle Eastern and North African nations are putting people’s resilience at a breaking point.

The war has wreaked havoc on supply chains in the crucial Black Sea breadbasket region, upending global trade flows and fueling panic about shortages of key staples such as wheat and cooking oils. That’s sent food prices to a record, which were already surging before the conflict started, with a United Nations’ index of world costs soaring another 13% last month.

Ukraine’s ports are closed and many vessels are avoiding the region, which accounts for about a quarter of all grains trade. Farmers in Ukraine, the top sunflower-oil exporter, are expected to drastically cut crop plantings and the nation is struggling to export supplies already harvested.

Elsewhere in the world, high energy and fertilizer prices are raising food-production costs, which is feeding through to bigger grocery bills or threatening output.

The surging costs are spurring some countries to hold off on imports, seek new suppliers or draw down local stockpiles, though that won’t be a long-term fix.

The UN has warned that prices could still climb much more. That’s bad news for the world’s hunger problem. Cost increases stemming from the war and resulting sanctions on Russia will, without action, push more than 40 million additional people into extreme poverty.

Ukraine planted its wheat months before the war erupted, and the FAO expects at least 20% to go uncollected because of destruction, constrained access to fields or a lack of resources for harvests.

Aside from the food-supply risks associated with the war in Ukraine, farmers around the world continue to contend with severe weather events and the impact of climate change.

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