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RUHR-UNIVERSITÄT BOCHUM
Faculty of Management and Economics
Seminar paper
for the Seminar in Development Economics
about the topic
«Food crisis revisited under Covid 19 and Russian-Ukraine war:
Agro-Commodities-Prices – Demand and Supply Determinants, FAOglobal Index Trend Analysis and Consequences in Developing Countries»

Summer term 2023
Submitted to
Dr
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Sc
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06
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II
List of Acronyms
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1
Supply and demand-side determinants
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4
The impact of COVID-19 and Russian-Ukraine war in developing countries
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11
Conclusion
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IV

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List of Figures
Figure 1: FFPI in 1990-2022
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III

List of Acronyms
FAO

Food and Agriculture Organization

FFPI

FAO Food Price Index

UNDP

United Nations Development Programme

UNEP

United Nations Environment Programme

1

Introduction
The global agri-food market has been in a shock state since the beginning of Covid-19 and the
Russian-Ukraine war
...
Russia and
Ukraine are leading exporters on the world market of agricultural products
...
On the one hand, there is an excess of statistical information about the situation of the trade relations between Russia and Ukraine on the
global agri-food market, during the recent years
...

The aim of the paper is to conduct the research of the worldwide agro-food system in the conditions of Covid-19 and the arisen political conflict between Russia and Ukraine
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The urgency of the research is dictated by the analysis of the situation
of the global food security system
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Recent events have
accelerated the rise in food prices, while reinforcing existing risks
...


In the course of the study, media sources, author's works on the topic of research and the analysis of scientific research already conducted by other scientists were used, and the existing
approaches were supplemented with a toolkit of scenario planning
...
According to FAO, the overall global prices of food supplies are expected to

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increase in the years 2022-2023 between 8% and 22%, before the conflict is contained or alternative sources are found
...

From the supply-side factors, these include the availability of arable land, the degree of technical and biological progress in agriculture, the low elasticity of supply of agricultural raw materials, the cost of resources, the cost of the font of energy utilized and the weather conditions
...
It often happens during political conflicts and escalations, considered one of the most unpredictable causes of high volatility of prices of agricultural commodities and all those products that rely on them as raw materials
...
2 This state of unavailability of arable land has also resulted from
the on-going war, which caused the destruction of numerous irrigation systems, agricultural
infrastructures, natural resources and numerous farming fields, whose restoration will require
long-term projects
...
Transportation expenses are a huge
component of the price of food imports and are especially high in the case of cross-border
transports, but during the war they increased even further because of higher insurance costs in
the Black Sea area and the non-operational status of many of its ports, which accounted for
about 90% of Ukrainian grain trade flows
...
The
situation was different for goods that are usually imported or exported: a negative spiral effect
on supply chains, due to the closure of borders of many countries, transportation restrictions
and reduced activities in major sectors, was put into effect and international trade for some time
interrupted
...
15
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1990-2022
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D
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, and Wheeler C
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12
...
M
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, (2014), p
...

2

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supply pressures
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From the demand-side factors, the actual demand can be influenced for different reasons going
from the change in food habits at the global level, as can be mentioned the increased consumption in protein derived from animals due to increased incomes in developing countries and economic development, and variation in global demographic trends, starting from the increased
demand in food in Asia, especially China and India
...
At the current moment, world population is
increasing by 0
...
5 The demand for agro-commodities increases as the world's
population grows
...
6
As for the other factors, state interventionism and the adoption of protectionist measures and
bans are common influential conditionalities, which may also result in spillovers and reactions
from other government’s actions
...
One
other situation that affected price stability and falls into this category has been the decision of
India to stop its exports of rice, as well as the rise of palm oil prices for lower production in
Malaysia, a major producer, due to experienced migrant labor shortages
...
In recent years, food prices rose again, and this pressured governments into
imposing new trade restrictions, for example as the case Russia with wheat, Argentina with
beef, Indonesia with palm oil, and China with fertilizers
...
, Ritchie H
...
, and Rodés-Guirao L
...

Borychowski M
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(2015), p
...

7
Hanson K
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, Schluter G
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98
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M
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, (2014), p
...

6

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example trade policies, apparently bring short-term effects of fluctuations in global agricultural
markets, which however in the long term can affect prices
...

As evidenced in the analyses of price determinants, the causes of instability can have multiple
origins, some resulting from human behaviors, more appropriately of States and governments,
and some that are completely unpredictable, resulting from environmental catastrophes
...
S
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From higher wheat costs, in this case, to
higher prices for flour, therefore bread, pasta, and cereals
...
The increase in domestic prices in Asia, due to the depreciation of goods, and the
stop in income growth, ended up influencing the demand of the affected countries even more
...

Further unpredictable catastrophes impacted food security over the years, namely the 2006
drought in Australia, which resulted in the production of only 9
...
11 In the same year, heat waves in California, which killed
large numbers of farm animals, and the unseasonable rains in Kerala, India, which destroyed
swathes of grain in 2008, or the Cyclone Nargis in Burma in the same year, are additional
similar phenomena
...
, Shevlin T
...
3
...
W
...
, (2000), p
...

11
Guénette J
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, Kenworthy P
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(2022), p
...

12
Obadi S
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, Korcek M
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420
...
The products more affected, according to the FAO Indexes, are cereals, diary
and vegetable oils
...
3, 137
...
1 points (compared to 2006 values – 73
...
2 and 70
...
13 In the meantime, sugar prices remained comparatively low and meat prices went
through an inconstant but relatively controlled growth
...

The prices never fully recovered from this phenomenon, as the crisis soon reached Europe and
developed in the European Sovereign Debt Crisis
...
7 points, in the following years raised once again, involving all five
groups of food commodities that FAO takes into consideration
...
The indexes were way
13

FAO Food Price Index
...


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higher during the 2008 Financial Crisis, the category of diary reached 140
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2 points in 2011 and vegetable oils 156
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14 2013 values for
cereals include also the increase due to shifts in trade policies and restocking by major rice
producers, which set prices to double compared to the beginning of the century
...
In the late 2017, notably, an increase in energy prices and transportations produced the so-called producer inflation, that produced a slight rise in the indexes of
that year
...
9
point and 98
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15
Prices of rice, for example, increased before the start of the pandemic, pushing countries out of
their export bans, and after the end of the pandemic have fallen back to pre-Covid-19 levels,
reflecting positive harvest and production prospects
...
In the case of wheat, lower production
levels manifested as consequences of the droughts in the last years in several major production
areas, namely the United States, Canada, in the European Union, Turkey, and Iran
...
16
After this quiet period, prices encountered a dramatic rise with the Coronavirus pandemic that
started in 2020 and resulted in prolonged lockdowns all over the world, during which prices
kept rising for the unavailability of products and the impossibility to increase production processes in the time being
...
7 compared to 131
...
17 The products more affected by the price rise are still diary, cereals
and vegetable oils; those were the ones that spiked the most right from the start of the pandemic

14

FAO Food Price Index
...

FAO Food Price Index
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16
Vos R
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, Hernández M
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, (2022), p
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17
FAO Food Price Index
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15

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and degenerating further in 2022 with the start of the war
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18 This means production was disrupted for a long period of
time and the global market had to function with a lower volume of oils stocks and at a higher
price
...
S are also among the other top producers and, even though the countries are
not developing ones, still suffered highly the costs of the pandemic, mostly because of poor
regulations and containment measures
...
19 A concrete example is the export ban set by Indonesia on palm oil at the beginning of the conflict
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2 – was more than
(or almost) the double of its usual standard in normal times
...
This was followed by reduced income and job losses, which
further decreased because small farmers were one of the main vulnerable target groups, as they
were prevented from working on their land and from accessing markets to either sell their products or buy input products
...
21
In the timespan analyzed in this paper - starting from 1996 -, prices never reached higher levels
than the current war between Russia and Ukraine; the general Food Price Index reached 158
...
4 points more than the pandemic’s highest record (2021) and 26
...
All the five subcategories of the FFPI considered
reached their all-time higher prices - meat, diary, sugar and especially cereals and vegetable
oils, as already mentioned the enormous weight the countries involved in the conflict have in
their production
...
, Glauber J
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, and Laborde D
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68
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, Czyzewski A
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155
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1990-2022
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, Glauber J
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, and Laborde D
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70
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1990-2022
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Fertilizer prices have also risen as a consequence of this,
but also during the Coronavirus pandemic, primarily as a result of stronger demand and perceived higher energy costs
...
As for the current
time, each subcategory’s price index lowered considerably since the start of the war (except for
sugar prices); still far from going back to pre-pandemic records, but the numerous solutions
adopted to mitigate the effects of the war are slowly working
...
This has been shown with the increases in energy, food and fertilizers’
prices after the start of the Russian-Ukrainian war or the high health expenditures for the Covid19 virus and costs resulting from the lockdown
...
The war particularly had a direct impact on food
availability and food access, leading to an increase in the number of undernourished people that
will continue in the following years
...
Scarcity and high
prices of basic products will then cause adjustments on labor prices in these countries, precisely
in domestic labor markets, as citizens will require higher or multiple incomes to sustain the new
costs of living
...
Most of these countries are not only the ones most affected
by such global crises but are also highly indebted and already used to spend an average of 16%
of their exports profits on their national debt
...
24
The areas most affected by the conflict include around 50 low-income and less developed countries – mostly MENA and the Global South
...
25 The unavailability of food commodities and their high demand may also result
in spillover effects on prices in other wheat exporter countries and put more pressure on the
global market, while excluding low-income countries from access to those products
...
, Bibri S
...
, and Sharpe S
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, (2022), p
...

Hassen B
...
, and Bilali H
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, (2022), p
...

25
Borychowski M
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(2015), p
...

24

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A probable pattern that will affect developing countries is the one that spread in China and India
around the years of the Global Financial Crisis, where - as already mentioned - the middle
classes of both countries presented a growth rate of 70% and 30% respectively
...
26 Likewise, in all the crises presented, reducing the shock absorber of that share of the population is necessary to guarantee
their food consumption
...
Egypt is the prime example of a country suffering the consequence of increased food commodities prices, being the world’s largest wheat importer - 85%
coming from Russia and Ukraine - and in the top 10 of sunflower oil’s importers - again the
73% of which coming from the two protagonists of the conflict
...
27 The observation of Indonesia, on the other side, gives away
the perspective of a major exporting country that still got caught in the many downsides of the
war
...
28 Nevertheless, regarding Indonesia’s major
exporting product, palm oil, commodity and energy prices impacted negatively the actual earnings, which, alongside higher interest rates, contributed to raising inflation
...
Indonesia was also heavily relying on Russia for its fertilizer supplies, which mined domestic
agricultural production, and for these many reasons stated above had to resort to export bans in
order to bring down the country’s domestic vegetable oil prices
...
29

26

Roser M
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, Ortiz-Ospina E
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(2022)
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, (2022), p
...

28
Surya A
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, Nurhalimah S
...
, and Ramdani R
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, (2023), p
...

29
Elsafty A
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, (2022), p
...

27

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Future forecasts for the next years
Forecasts on the size of the world population expect it to reach 9 billion by year 2050 and
developing countries slowly continue to adopt consumption patterns of developed economies,
which means by that time they will have a huge impact on global trade flows and price trends
...
A more sustainable production chain is already a necessity at the
current time and will be even more with the growing of the population and the deteriorating of
land, and air and water pollution, therefore of the agricultural products derived
...
Every factor that will obstacle this green transformation will result in availability and accessibility concerns, which will
inevitably comport the rising of prices and will – once again – affect the poorest share of the
population, both as consumers and as small farmers and producers
...
This is a longterm prospect on which it is necessary, or should be a priority, to start acting immediately
...

If it were to make predictions for the next two years, however, the hope is that the current war
in Ukraine will cease and that, as a consequence, prices will find some stability
...
This process will depend on how the situation
is handled both at the global and at the domestic levels
...
It is logical to suppose that this line of intervention will be followed even in the upcoming years and alternative products, or producers
30

Roser M
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, Ortiz-Ospina E
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(2022)
...
Secondly, regardless of the outcome of the war, Ukraine suffered the most damages and
losses, both in term of infrastructures, land degradation and population; this means that, to restore industries and find enough available workers will take a considerable amount of time,
during which it will keep affecting trade volumes and prices
...
Thirdly, as two years is a relatively short period of time
for economic prospects and analyses, it is possible to say that the number of undernourished
people will continue to grow with the pace set by the new price levels that this war, occurred
right after a global pandemic, in an already undermined and unstable condition of food insecurity
...
Since Russia and Ukraine are the leading exporters of agricultural products in the
world market, war conditions had affected most of the agro-industrial complex structures in the
world
...
The escalation of the situation leads to a decrease in agricultural production in the countries involved in the conflict, which, combined with low economic activity and rising prices, undermine the purchasing power of the populations
...

According to the FAO Food Price Index, international export quotations for staple food products have risen almost continuously since the second half of 2020, reaching an all-time high in
nominal terms in May 2022
...
Thus, the rise of food prices leads to increased social tensions
...


IV

References
Journals:
Borychowski M
...
, (2015): Determinants of prices increase of agricultural
commodities in a global context; Journal Management 2015, Vol
...
2, p
...

Elsafty A
...
, (2022): The Consequences of Ukraine-Russia Crisis: The Case
of International Trade and Prices’ Behavior in Egypt; Business and Management Studies Vol
...
2, p
...

Hanson K
...
, Schluter G
...
96-116
...
T
...
E
...

1-17
...
W
...
, (2000): Asian economic crisis and the long-term global food situation, Food Policy, Vol
...
243-254
...
M
...
, (2014): Are Food Prices Affected by Crude Oil Price: Causality Investigation, Review of Integrative Business and Economics Research, Vol
...
411427
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, Aditiany S
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E
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R
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1-6
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, Glauber J
...
, and Laborde D
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64-72
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, Bibri S
...
, and Sharpe S
...
, (2022): The Rising Impacts of the COVID-19 Pandemic
and the Russia–Ukraine War: Energy Transition, Climate Justice, Global Inequality, and Supply Chain Disruption, MDPI recourses Journal 11(11), p
...

Textbooks / Handbooks:
Jenkis A
...
261
...
V, and Segers Y
...
456
...
, (1987): What Price Food?: Agricultural Price-Policies in Developing Countries,
Pringer Nature; 1987th edition, p
...


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Internet sources:
FAO Food Price Index, (1990-2022): https://transportgeography
...
06
...

FAO Food Price Index, (2000-2023): http://www
...
org/worldfoodsituation/foodpricesindex/en/ , last accessed 23
...
2023
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https://www
...
org/3/cb6562en/cb6562en
...
06
...

Guénette J
...
, Kenworthy P
...
, (2022): Implications of the War in Ukraine for
the Global Economy
...
worldbank
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pdf, last accessed
23
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2023
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, Shevlin T
...
bls
...
pdf, last accessed 23
...
2023
...
, Ritchie H
...
, and Rodés-Guirao L
...

https://ourworldindata
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06
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Tanchum M
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https://www
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edu/sites/default/files/2022-03/The%20RussiaUkraine%20War%20has%20Turned%20Egypt%27s%20Food%20Crisis%20%20into%20an%20Existential%20Threat%20to%20the%20Economy%20
...
06
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