War in Ukraine and Disrupted Markets

This is the title of my slide deck, which I prepared for my (virtual) presentation at the 13th Annual CAES-SCAE Canadian Agri-food Policy Conference.

Much has been said and written on the topic. And I have also contributed to the discussion. In the early days of the war, I prepared the Conversation article where I discussed the issue (of raising grain prices), as well as its possible repercussions (incidentally, then I noted that the surging wheat prices could threaten “global supplies of bread, meat and eggs”—quite the forecast, in retrospect).

That article, to some extent, then led to a collaborative effort with Shon Ferguson that resulted in a review article in the Australian Journal of Agricultural and Resource Economics, where we compared this ongoing disruption with the previous precedents, and (again) discussed its possible socio-economic repercussions.

Here I summarize the key points of my talk. First, and foremost, I suggest that the global commodity market disruption of 2022 had a transitory effect on commodity prices. The following graph presents empirical evidence of it. Once it became more or less obvious that it was just a matter of time before grain vessels were able to leave the Black Sea ports, the markets adjusted.

Why did the markets flinch anyway? The two countries at war, together, have been the largest wheat-exporting region in the world in recent years. An unanticipated disappearance of a considerable portion of commodities from the market will inevitably push the prices up. We witnessed soaring wheat prices back in 2010-2011, incidentally in the wake of the weather-induced bad crop in Russia.

Why did we care? For many reasons. But one reason that became—and rightfully so—the main talking point, was the possible problems the lack of availability and affordability of cereal grains would create for low- and middle-income countries. Particularly those that relied on grains from the Black Sea region, including politically fragile countries in the Middle East and North Africa (MENA) region and conflict-prone countries of the Horn of Africa and the Sahel. Indeed, the Arab Spring of 2011 has been partly attributed to the aforementioned wheat shortage due to droughts in Russia.

Did it happen? It appears to be a mixed bag. In the MENA region—at least in the North Africa bit of it—there were fewer conflict incidents (broadly defined—a combination of events such as battles between states and insurgents, violence against civilians, and riots and protests). There were more conflict incidents in many sub-Saharan countries, however. The list includes countries, such as Somalia, Sudan, etc., that have historically imported wheat primarily from Ukraine or Russia.

What’s next? Things remain volatile, even if global agricultural commodity markets do not appear to be as disrupted as they were a few months ago. Perhaps the biggest global issue, which will continue manifesting itself in years to come, is the opportunity cost of the ongoing war. High-income countries’ immediate focus is on Ukraine and away from other parts of the world. It is hard to guess, especially in the post-pandemic reality, how governments and policy-makers around the world will navigate the complex set of adversities thrown in their direction.

Replication material is available here.