Russia’s invasion of Ukraine is driving global food prices higher and providing further fuel for inflation, says Fitch Ratings.
In a new report, the rating agency indicated that the conflict in Ukraine has pushed global food prices to “historically high levels, intensifying inflation dynamics at a time when global CPI inflation rates are already at multi-year highs.”
According to Fitch, Russia and Ukraine account for a third of the global wheat and barley production, and two-thirds of the world’s sunflower oil exports.
“The conflict has worsened the outlook for the supply of key grains given the destruction of Ukraine’s port infrastructure, the mining of the Black Sea and international merchants’ avoidance of Russian supplies,” it said.
The impact will be hardest on emerging markets, Fitch said, given that food represents a higher share of consumer spending in these countries, and they are more directly dependent on imports from both Russia and Ukraine.
The advanced economies don’t rely much on imports from the two countries, but the surge in global food prices will still affect their inflation rates, it noted.
“For central banks, the rise in food prices is a significant development given that there is some academic evidence to suggest that it plays a disproportionate role in fuelling inflation expectations,” Fitch said.
In a separate report, Fitch also noted that the imposition of strict lockdowns in China to try and prevent the spread of Covid-19 may also disrupt grain production there — specifically the planting of rice and corn in the spring.
“The scope of the lockdowns may continue to widen, as more cities take pre-emptive actions to enable mass testing,” Fitch said. “This may disrupt the transportation of planting inputs and farmers’ mobility, reducing the production of spring-planted grains.”
The production of wheat is not affected, as this is planted in the fall, Fitch said. And it noted that the country’s abundant grain reserves will keep it from running short of supply.
However, the rating agency said domestic grain prices will rise in 2022 “amid tighter supply and demand, and higher global agricultural commodity prices.”
Wheat and corn prices in China rose in March, largely due to the effects of the Russia-Ukraine war, Fitch said.
“Ukraine was China’s second-largest corn supplier, accounting for 29% of China’s total grain imports in 2021, and Russia is also a main grain and fertilizer exporter globally,” it said.