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Policymakers Ponder Russian Sanctions that Minimize Food Inflation, as Some See Improving Ag Supply Outlook, Lower Prices

Alan Rappeport reported in today’s New York Times that, “As the United States and Europe contemplate their next rounds of sanctions to starve Russia of the revenue that is funding its war, there is growing concern that the fallout is fueling an alarming hunger problem around the world that will not easily be reversed. Policymakers have been scrambling to cobble together plans to open up supply chains and provide food financing to developing countries, but the combination of rising energy costs and constrained exports from Russia and Ukraine is threatening some of the most vulnerable populations around the world.

“President Vladimir V. Putin of Russia has embraced and exacerbated the crisis, blocking exports of food and grain from the region and using the shortages as leverage to get Western sanctions rolled back. Top officials from the United States and Europe have so far rebuffed such offers while also debating how to extend sanctions without widening the collateral damage.”

“Wartime Harvest Starts in Ukraine But Silos Are Already Stuffed,” by Megan Durisin and Volodymyr Verbyany. Bloomberg News (June 19, 2022).

Today’s article noted that, “President Biden said this month that he is working on a plan to build temporary silos on the borders of Ukraine and Poland so grain that Russia is blocking from moving through the Black Sea can be transported by rail to Europe and beyond.

“‘I’m working closely with our European partners to get 20 million tons of grains locked in Ukraine out onto the market to help bring down food prices,’ Mr. Biden said at an A.F.L.-C.I.O. convention. ‘But it’s taking time.’

In its latest Global Economic Prospects report, the World Bank said that nearly half of the people in low-income countries are facing food shortages, which often lead to social unrest.

Rappeport added that, “[Paschal Donohoe, Ireland’s finance minister], who is also president of the Eurogroup, a club of European finance ministers, said that policymakers are working to craft sanctions so they minimize food inflation. In the United States, the Treasury Department has issued several sanctions exemptions, or general licenses, that are intended to to allow food exports to continue to flow.”

“As the war in Ukraine drags on and food shortages worsen, the debate over whether some sanctions relief should be on the table is likely to intensify if it would stave off famine,” the Times article said.

Reuters writer Pavel Polityuk reported yesterday that, “Ukrainian grain exports in the first 22 days of June fell by around 44% from a year earlier to 1.11 million tonnes, agriculture ministry data showed on Monday.”

And earlier this week, Reuters writers Rajendra Jadhav, Maximilian Heath and Nigel Hunt reported that, “India is one of at least 19 countries that have introduced food export restrictions since the war in Ukraine sent prices soaring, hampering international trade flows for several agricultural products and sparking violent protests in some developing nations.

“From Delhi to Kuala Lumpur, Buenos Aires to Belgrade, governments imposed restrictions, at a time when the economic damage caused by the COVID-19 pandemic, combined with factors such as extreme weather and supply chain bottlenecks, had already driven hunger across the globe to unprecedented levels.”

The Reuters article stated that, “Many economists say the global food crisis is already more severe than the last one that peaked in 2008, which was driven by factors including droughts, global population growth, higher consumption of meat in major developing economies, and the increased use of crops to produce biofuels.”

Nonetheless, Bloomberg writers Kim Chipman, Michael Hirtzer, and Samuel Gebre reported yesterday that,

Runaway food inflation may be tamed soon — at least temporarily — as farm commodities tumble after a surge that pushed up prices of everything from bread to chicken wings.

“Four months after Russia’s invasion of Ukraine upended trade flows and sent futures soaring, fear of grain shortages is giving way to optimism that key producers will reap harvests large enough to help replenish war-pinched reserves. That’s critical for the wheat needed to feed the world; the corn to nourish hogs, chicken and cattle; and the oilseeds to process food.”

“Food Inflation Relief Is Within Sight as Crops and Crude Pull Back,” by Kim Chipman, Michael Hirtzer, and Samuel Gebre. Bloomberg News (June 27, 2022).

The Bloomberg writes explained that, “The Bloomberg Agriculture Spot Subindex is on track for its biggest monthly drop since 2011. Along with easing concerns about dwindling grain and oilseed reserves, worries that an economic slump could slash demand also knocked soaring crop futures down from recent highs. While such changes can take time to reach grocery shelves, chicken and beef prices are cooling a bit, according to Darden Restaurants Inc., owner of the Olive Garden and LongHorn Steakhouse chains.

Fuel pump prices also will play a big part in determining the course of food inflation for the remainder of this year. Supermarket bills are expected to ‘moderate over the next six months, particularly if energy prices fall,’ said Joe Glauber, former chief economist at the US Department of Agriculture.”

Meanwhile, Wall Street Journal writer Patrick Thomas reported yesterday that, “U.S. Agriculture Department Secretary Tom Vilsack called for Ukrainian ports in the Black Sea to be opened to ship grain out of the embattled country, to help relieve a global food crunch.

“Trading needs to resume from the ports in the Black Sea that have been damaged or disrupted by Russia’s invasion, Mr. Vilsack said, freeing up storage space for the coming harvest in Ukraine. The U.S. also needs to look for ways for it to increase its own crop production to help make up the gap in global grain supplies, he said.

“‘The world needs Ukrainian grain,’ Mr. Vilsack said at The Wall Street Journal’s Global Food Forum on Monday. ‘It is important for us to take steps to do the best we can to open the ports so the grain currently in Ukraine can be exported to North Africa and the Middle East.'”

With respect to U.S. agricultural production, Reuters writers Hallie Gu and Dominique Patton reported today that, “The U.S. Department of Agriculture (USDA) cut its rating of the country’s corn crop in good-to-excellent shape to 67% in its weekly crop progress report, down 3 percentage points from a week ago. Its U.S. soybean crop rating also fell by 3 percentage points to 65% good to excellent, according to the report.”

“The USDA said the U.S. winter wheat harvest was 41% complete, more than trade expectations and ahead of the five-year average of 35%.”

Dow Jones writer Kirk Maltais reported yesterday that, “Rainfall providing needed moisture amid hot temperatures in areas of the Midwest put pressure on corn and wheat futures.”

And on the issue of production costs, Reuters writer Tom Polansek reported yesterday that, “U.S. farmers have cut back on using common weedkillers, hunted for substitutes to popular fungicides and changed planting plans over persistent shortages of agricultural chemicals that threaten to trim harvests.

“Spraying smaller volumes of herbicides and turning to less-effective fungicides increase the risk for weeds and diseases to dent crop production at a time when global grain supplies are already tight because the Ukraine war is reducing the country’s exports.

“Interviews with more than a dozen chemical dealers, manufacturers, farmers and weed specialists showed shortages disrupted U.S. growers’ production strategies and raised their costs.”

Keith Good Photo

Keith Good is the social media manager for the farmdoc project at the University of Illinois. He has previously worked for the USDA’s National Agricultural Statistics Service, and compiled the daily FarmPolicy.com News Summary from 2003-2015. He is a graduate of Purdue University (M.S.- Agricultural Economics), and Southern Illinois University School of Law.

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