The Russo-Ukrainian war has affected global food trade and Gulf countries have taken note. The Middle East is the largest grain importing region of the world and self-sufficiency is not an option for lack of water, especially in the arid Gulf region, but also in more fertile Northern neighboring countries such as Syria and Turkey. The memories of the global food crisis of 2007-2008 have not been forgotten, when agricultural exporting nations such as Argentina, Russia, and Vietnam declared trade restrictions fearing for their own food security. More recently, the supply chain disruptions following the COVID-19 pandemic have intensified concerns about the reliability of the multilateral food trading regime that emerged after World War II.
The impact will be substantial. Over the past two decades, Russia and Ukraine have developed into major grain exporters, similarly to the 19th century. Back then, Black Sea grains constituted about 22% of global exports and the closure of the Dardanelles Strait in World War I caused wheat prices in Chicago to jump by almost half. By the 1970s, the Soviet Union had turned into a major grain importer and the US sought to leverage that vulnerability by declaring a grain embargo in the wake of the Afghanistan invasion. Today, Russia and Ukraine are export power houses again, like at the time of World War I. Around 30% of global exports of wheat and barley, 20% of corn, and a whopping three quarters of sunflower oil come from the two countries.
The impacts are multilayered. Harvest failure and manpower shortages reduce production. The logistics are disrupted, with Ukrainian Black Sea ports such as Odessa closed. Both warring countries have already declared export restrictions to ensure their own food security. Even if Russia was willing to maintain exports, financial sanctions will limit the availability of trade finance and the heightened risk will be reflected in higher insurance premia. Transaction costs will soar. Production elsewhere is affected as well, since both Russia and Ukraine are major exporters of nitrogen, phosphates, and potassium fertilizers. Add to this the rising energy costs, and the inflationary impact on global food production will be substantial.
This raises past specters. The global food crisis 2007/08 hit Gulf countries at a time when they had to downsize domestic agriculture. Aquifers had been depleted and local food production compromised local water security. With plenty of petrodollars in their pockets, they could afford rising food prices, but were gravely concerned by the export restrictions of some agro-exporters and the reduced liquidity on international food markets. They reacted by increasing domestic storage and investing in their global supply chains. The state owned Saudi company SALIC teamed up with international grain trader Bunge to buy a majority stake in the privatized Canadian Wheat Board for example. Such investments in the downstream sectors of processing and distribution were much more consequential than controversial land investments in often food insecure countries, such as Sudan or Ethiopia. They had a spotty implementation record and over a decade later, still do not provide a meaningful contribution to the Gulf countries’ food imports. The UAE has implemented a comprehensive food security strategy ranging from storage to price monitoring as well as the streamlining of domestic agriculture. In the wake of the COVID-19 pandemic, a special task force was formed to source alternative imports to adapt to supply chain disruptions.
Food diplomacy and management of value chains have been at the core of the Gulf countries’ food security strategy over the past decade as to manage risks to food imports that are ultimately out of their control. This could also entail cooperation in multilateral bodies to make them more resilient and receptive of the interests of food importers. The World Trade Organization (WTO) is traditionally focused on trade liberalization and import barriers, not export restrictions. During the Uruguay Round of trade liberalization, Net Food Importing Developing Countries (NFIDC) formed a negotiation alliance to lobby for affordable food imports. We might see similar cooperation among vulnerable countries in the future, and the Gulf countries and their MENA neighbors, would be prime candidates for such alliances.
As energy exporters, Gulf countries can balance food inflation with rising oil revenues while other countries in the region are in a less favorable fiscal position. Egypt has sourced over 85% of its wheat imports from the Black Sea region and will need to find alternative supplies. These will be more expensive. The wheat from Russia and Ukraine is of lower quality and protein content, hence it is cheaper. Other countries in the region, such as Yemen and Syria, are in a graver position still, as they have been relying on food aid and the World Food Program (WFP) faces challenges in sourcing supplies. Even if Gulf countries managed to insulate themselves from direct impacts of the Russo-Ukrainian war, they would still be affected if food insecurity threatened political stability in the region.
Contenuti correlati:
