Food inflation is going to get worse as the bread basket for much of Europe and the Middle East is from Ukraine and Russia. The invasion has halted sea exports and ships are now stranded in ports under Russian control or where there is fierce fighting. As a result prices are spiking for the key foodstuffs grown in the region.
Wheat: Russia and Ukraine provide 29% of world wheat exports. Egypt is one of their largest customers and buys 60% from Russia and 25% of their needs from Ukraine. The price spike so far is reminiscent of what happened in 2008 (Chart #7). Prices have doubled since mid-2021. Egypt has been subsidizing bread for its citizens and will find it difficult to do so going forward. This could destabilize the country. Middle Eastern countries that were buying affordable wheat from Russia and Ukraine may now not be able to do so. Turkey, Iran, Egypt, Lebanon and Syria are the largest buyers in order of magnitude. Egypt with a large population could see severe problems feeding their people going forward. Syria might get help from their Russian sponsor but the others will be in a bind. Turkey is on the outs with Putin.
The global food supply problem does not end there. European livestock farmers are reliant on Ukraine for corn and other grain additives for animal feed. Ukraine last week banned all exports of food products in an effort to save its own citizens.
Brazil will be in a bind as they have been importing 46% (Economist report) of their potash from Russia and Belarus (which is not yet sanctioned).
Another grain, barley, is produced in both countries and they provide 28% of world exports (Chart #8). The area also provides much of the world’s sunflower oil.
Russia provides 40% of the global palladium used for catalytic converters to curb emissions. The price has nearly doubled to US$3,525 from US$1,531 in December 2021 (Chart #9). The loss of Russia’s exports will surely add to supply chain problems for the world auto industry.
Lastly on the inflation problem and recessions, is a chart on crude oil and its price spike impacts (Chart #10). Every recession since the early 1970s has been a result of crude prices spiking over 50% from the prior year. There have been six prior incidences and now we are having the seventh.