E subject

1. Statement of purpose
2. Learning objective
3. Why did I choose this topic
4. Introduction
5. Content
6. Research methodology
7. Interview/survey/case study/data analysis &interpretation
8. My view
9. Bibliography
10. Appendix

What has caused the rise in food and oil

prices globally?
The unfolding crisis in Ukraine has roiled commodity markets and threatens
global food security. Ongoing fallout from the COVID-19 pandemic and other
factors have already driven up food prices. Poor harvests in South America,
strong global demand, and supply chain issues have reduced grain and
oilseed inventories and driven prices to their highest levels since 2011-2013.
Vegetable oil prices have also been at record levels, reflecting the short South
American soybean crop, reduced palm oil supplies due to harvest problems in
Malaysia, and sharply increased use of palm and soybean oil for
biodiesel production. Prices of key energy-intensive inputs like fuel, fertilizer
and pesticides have also been at near-record levels.

Russia’s invasion of Ukraine will further disrupt global markets, will have
negative consequences for global grain supplies in the short term, and by
disrupting natural gas and fertilizer markets, have negative impacts for
producers as they enter a new planting season. This could push up already-
high food price inflation, and have serious consequences for low-income net-
food importing countries, many of which have seen an increase in
malnourishment rates over the past few years in the face of pandemic
disruptions.
Russia’s invasion of Ukraine is raising food prices across the world. Developing
and emerging economies are being hit hardest due to their reliance on the region
for fuel and grain imports. Price hikes in these countries could spur further
political turbulence and even violence.

Ukraine is the world’s largest producer of sunflower oil. Combined with Russia,
it is responsible for more than half of global exports of vegetable oils. The
region also exports over a third (36%) of the world’s wheat.

World wheat prices soared by 19.7% during March, while maize

prices posted a 19.1% month-on-month increase, hitting a record high
along with those of barley and sorghum.

The FAO said these problems were likely to persist, leading to higher
prices, lower stocks and uncertainty in the wheat market in the future.

“The higher price quotations are particularly concerning for countries

already struggling with other crisis, including conflict, natural
disasters, economic conditions or, as it is often the case, some
combinations of those,” said an FAO spokesperson, adding that
countries with low incomes and food shortages may struggle to pay
higher prices.

“[Price] increases are the most noticeable in the countries where the
share in disposable income spent on food is the highest. In these
cases, the most vulnerable are likely to skip meals, purchase less
nutritious foods, or use other coping strategies, which will have
longer term effects on their health and wellbeing.”

Sanctions on Russian oil companies and the planned bans on Russian energy
exports have triggered further increases in energy prices in the international
market. While the European Union (EU) is the largest collective buyer of
Russian oil – buying 42% of Russia’s oil output in 2021 – the constituent
countries have managed to diversify their economic base and begin importing
more oil from elsewhere.
In contrast, many developing/emerging markets run a ‘monocultural economy’
–meaning they are highly reliant on single basic resources such as oil. For
example, while oil accounts for 40% of Nigerian GDP, 70% of its budget
revenues, and 95% of foreign exchange earnings, Nigeria remains the only
member of the Organization of the Petroleum Exporting Countries (OPEC) that
imports 95% of refined petrol for domestic use.

Consequently, movements in the international oil market affect local fuel prices
in these markets. Eventually, the burden of higher costs of production, storage
and transport is passed on to the consumers in the form of higher food prices.

Countries with the highest rate of food price inflation are also often conflict-
prone economies. Before the war broke out in Ukraine, some
developing/emerging markets were already experiencing higher food bills due
to internal conflicts or climate-related challenges.

The war in Ukraine, as well as sanctions against Russia, have resulted in a

massive decline in the supply of major staple foods. This has led to a rise in
food prices globally.

Which countries are bearing the brunt of the crisis?

Many developing and emerging market countries rely on food imported from
Ukraine and Russia – known as ‘the breadbasket of Europe’ – to augment local food
production. For example, the top three importers of Russian wheat in 2018 were
Turkey, Vietnam and Indonesia. Similarly Indonesia, the Philippines and Morocco
imported the largest share of Ukrainian wheat that year. Instability caused by the
war will therefore negatively affect the food supply in these importing nations.

Food shortages precipitated by the war are hurting food prices everywhere, with the
hardest hit being developing economies where the world’s poorest live. The United
Nations’ Food and Agriculture Organization (FAO) reports that the global Food Price
Index (FPI) averaged 159.3 points in March 2022, up 17.9 points (12.6%) from
February. This is the highest level since its inception in 1990. The latest increase
reflects new all-time highs for vegetable oils (248.6 points) and cereals (170.1
points), highlighting the direct negative effect of the conflict.

Focusing on country-level statistics, the largest leap in food price inflation between
February and March 2022 has been in developing/emerging regions such as sub-
Saharan Africa. Several of these countries have experienced higher food price
inflation than the global average (12.6%) over this period. For example, Lebanon
(396%), Zimbabwe (75%) and Turkey (70%) experienced the highest rate of food
price inflation between February and March.

Figure 1:
Developing and
emerging market economies with the highest food price inflation change between
February and March 2022

Sanctions on Russian oil companies and the planned bans on Russian energy exports
have triggered further increases in energy prices in the international market. While the
European Union (EU) is the largest collective buyer of Russian oil – buying
42% of Russia’s oil output in 2021 – the constituent countries have managed to
diversify their economic base and begin importing more oil from elsewhere.

In contrast, many developing/emerging markets run a ‘monocultural economy’

–meaning they are highly reliant on single basic resources such as oil. For
example, while oil accounts for 40% of Nigerian GDP, 70% of its budget
revenues, and 95% of foreign exchange earnings, Nigeria remains the only
member of the Organization of the Petroleum Exporting Countries (OPEC) that
imports 95% of refined petrol for domestic use.

Consequently, movements in the international oil market affect local fuel prices
in these markets. Eventually, the burden of higher costs of production, storage
and transport is passed on to the consumers in the form of higher food prices.
Going back to Figure 1, countries with the highest rate of food price inflation
are also often conflict-prone economies. Before the war broke out in Ukraine,
some developing/emerging markets were already experiencing higher food bills
due to internal conflicts or climate-related challenges.