04.10.22 Review

IMF warns of a widespread hunger threat in the poorest countries, and Russia will likely use the "Grain Deal" to criticize the West but won't break it

The rise in world food prices began before Russia invaded Ukraine, but after the war started, the loss of Ukrainian grain from trade and rising fuel and fertilizer prices led to a new price spike. As a result, 345 million people in the 48 poorest countries are at risk of starvation, the International Monetary Fund estimates. Accusations of violating the terms of the "grain agreement" with Ukraine are spreading from the Kremlin to the West in this context, nervous the markets, but most likely have a propagandistic nature.

Even before Russia invaded Ukraine, pandemics, climate shocks, and regional conflicts had disrupted global production chains, pushing up global food prices and exacerbating hunger in poor countries. But with the start of the war in Ukraine, the situation has taken a dramatic turn — food prices are rising due to the further disruption of chains and supply reduction and due to the increase in fuel prices, which are transferred to the cost of fertilizers and delivery. According to the IMF, over the past two years, the index of accurate food prices has almost doubled by half; according to the FAO (Food and Agriculture Organization of the United Nations), prices, while declining in recent months, are significantly higher than in the corresponding months of the previous year. 

As a result, the IMF estimates that 345 million people worldwide are at immediate risk due to severe food shortages. According to the UN World Food Program, more than 828 million people go to bed hungry every night. "This global food crisis has staggering humanitarian consequences and high financial costs," the IMF warns.

Along with human victims, the financial costs are rising as high food, and fertilizer prices make imports more expensive for famine-vulnerable countries. The IMF estimates that the pressure on their balance of payments will increase by $9 billion in 2022 and 2023, which could undermine the international reserves of these countries and their ability to keep paying for imports of food and fertilizers in the required volumes. The food crisis increases poverty and degrades the economy, fueling political instability. According to IMF calculations, by 2022 alone, countries with a high risk of hunger will need up to $7 billion to help the poorest families. 

Given Southern Europe's acute food shortage and drought, Ukrainian grain is in high demand. The export of Russian grain (despite its exemption from sanctions), on the contrary, is declining: its shipments in July and August fell by 22% compared to last year — down to 6.3 million tons. Several factors may have contributed to the situation: insurers and ship owners are afraid to send ships to the war zone and deal with toxic Russia in general, while the competitiveness of Russian grain in the world market is undermined by too strong ruble, export duties and a record harvest (about 95 million tons of wheat), which needs to be stored somewhere, says Alexandra Prokopenko, an independent expert on economic policy.

At a meeting on the course of seasonal fieldwork on September 27, Vladimir Putin attacked the "collective West" once again with another accusation of non-compliance with the terms of the "grain agreement". Breaking this deal would deprive Kyiv of a significant share of foreign exchange earnings (agriculture in Ukraine makes up a large part of the economy — about 10%) and exacerbate the global food crisis. At the same time, the possible losses for Russia seem insignificant: in 2021, grain exports brought Russia $11.5 billion, while revenues from energy exports in 2022, according to Bloomberg estimates, may reach a record of $285 billion.

However, because this topic has been a constant theme of Putin's verbal attacks on the West for a month now but does not turn into real solutions during the most intensive export of crops, it suggests the "grain agreement" and public criticism of the West over it are used by the Kremlin mainly for image and propaganda purposes. By accusing Russia of obstructing the export of Ukrainian grain, the West sought to hold Russia responsible for the global food crisis. Now, the Kremlin wants to shift this responsibility to the West, blaming it for failing to comply with the terms and declared goals of the agreement.