The document does not set out economic or geopolitical forecasts and should not be treated as doing so. As a result of the dynamic situation, this article should be treated as a best-efforts perspective at a specific point of time, which seeks to help inform discussion and decisions taken by leaders of relevant organizations. The analysis in this article was formulated based on the best-available data as of mid-July. The implications of the invasion are rapidly evolving and are inherently uncertain. What follows is our perspective on four dimensions of the unfolding and constantly changing crisis 8 The invasion of Ukraine in February 2022 is having deep human, as well as social and economic, impact across countries and sectors. In addition to the human suffering this implies, based on the experiences of recent food crises, there are a host of other possible destabilizing consequences. ![]() The larger deficit represents a year’s worth of nutritional intake for up to 250 million people, the equivalent of 3 percent of the global population. The deficit in 2023 could reach roughly 23 million to 40 million metric tons, according to our worst-case scenario, assuming a prolonged crisis in which the recently signed agreements don’t work. Today’s more negative outlook could ultimately result in a deficit of roughly 15 million to 20 million metric tons of wheat and corn from the world’s supply of exported grain in 2022. 7 Caroline Henshaw, “The politics of food prices in Egypt,” Wall Street Journal, February 1, 2011. and the 2010–11 food price hikes that contributed to the Arab Spring. The consequences of a looming food crisis may be more pronounced than during the 2007–08 global food crisis 6 Douglas Belkin and Bob Davis, “Food inflation, riots spark worries for world leaders,” Wall Street Journal, April 14, 2008. Lastly, while the price of grain has come down, fertilizer prices remain high, causing some farmers to use them sparingly as grain commodity prices show signs of contraction. Add to this picture the recent heat waves in India and the current dry summer in Western Europe that together could limit supply to world markets by more than ten million tons of grain-vivid demonstrations of the higher risk for food commodities posed by climate change. This situation has provoked numerous countries to try to protect their food access by curbing grain exports. Fast-forward to 2022: the blockade of Black Sea ports caused by the war in Ukraine severely restricted supply access. Even before the invasion, price levels for wheat and corn were 40 to 50 percent higher than the average price over the past decade. Next, monetary and fiscal policies aimed at alleviating the pandemic’s impact pushed up commodity prices starting in mid-2020. ![]() These immediate concerns converge with longer-term complications that began in early 2020 when the COVID-19 pandemic began, convulsing global supply chains. Also daunting is the fact that our projection for the 2022–23 harvest in Ukraine is below normal levels by more than 30 million tons, due to lower acreage planted and lower input availability (and the fact that some grain is likely to remain unharvested). 5 “Lebanese buyer refuses cargo from first grain ship since Ukraine-Russia agreement over quality doubts,” VRT News, August 9, 2022. Also, if the roughly 20 million tons of grain in question has not been stored in optimal conditions for the five to six months it has been sitting in Ukrainian silos, it may have declined in quality and could be unfit for human consumption. 4 Dalton Bennett and Isabelle Khurshudyan, “After Russian port strike, Ukraine grain deal hangs in the balance,” Washington Post, July 26, 2022. Immediate concerns include the fact that though the grain deal may alleviate some logistical problems in ports, the outcome is uncertain, and there are significant inland bottlenecks and other complexities that could continue to make it difficult for grain to reach customers. In spite of this optimistic turn of events, a confluence of immediate concerns and longer-term complications continue to point to elevated risk levels. 3 Caitlin Ostroff, “Wheat, corn prices fall as Ukraine dispatches grain,” Wall Street Journal, August 1, 2022. ![]() has brought some relative relief to the market, enabling the price of some cereals to return to preinvasion levels. Oleksandr Kravchenko, Julien Revellat, and Ivan Verlan, representing views from McKinsey’s Agriculture Practice.Ī deal signed on July 22 intended to free approximately 20 million tons of grain stuck in Black Sea ports 2 Matina Stevis-Gridneff, “Russia agrees to let Ukraine ship grain, easing world food shortage,” New York Times, July 22, 2022. This article is a collaborative effort by Daniel Aminetzah, Artem Baroyan, Nicolas Denis, Sarah Dewilde, Nelson Ferreira,
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