Rome: The war in Ukraine has not only resulted in a severe humanitarian crisis and a looming increase in global food insecurity, but also in the potential break-up of global cooperation in trade. It has further raised the risk of fragmenting global agrifood markets and magnifying hunger threats, which were already very high because of COVID-19, countries in conflict and humanitarian crises across the world.
“Policy dialogue should be strengthened to ensure that global food and agricultural markets continue to function properly and that trade in food and agricultural products flows smoothly,” the 2022 edition of The State of Agricultural Commodity Markets (SOCO 2022), a Food and Agriculture Organization of the United Nations (FAO) flagship report launched here today, stated.
“We are committed to working together”, wrote QU Dongyu, Director-General of FAO in the foreword to the SOCO report.
The report, published every two years, considers the ways in which trade policies based on both multilateral and regional efforts can address today’s challenges for sustainable development while strengthening the resilience of the global agrifood system to shocks, such as conflicts, pandemics and extreme weather. It suggests that countries that depend on food imports from Ukraine and the Russian Federation must find alternative export suppliers and should also use existing food stocks and enhance the diversity of their domestic production bases.
The Russian Federation and Ukraine are among the most important exporters of some agricultural products in the world. In 2021, either the Russian Federation or Ukraine (or both) ranked among the top three global exporters of wheat, barley, maize, rapeseed and rapeseed oil, sunflower seed and sunflower oil. The Russian Federation was also one of the world’s top three exporters of fertilizers. This sparked concerns about the risks of the war in Ukraine, which began in February 2022, spreading beyond the region.
By the end of March 2022, the war had already caused extensive damage and loss of life in key population centres in Ukraine, had spread across rural areas and had caused massive displacement. While the violence escalated rapidly, it remains extremely difficult to predict the evolution of the conflict and its effect on lives, livelihoods, food security and nutrition. At the time of writing the FAO report, it was also uncertain whether Ukraine would be able to harvest existing crops, plant new ones or sustain livestock production as the war evolves.
The war has already led to port closures, the suspension of oilseed crushing operations and the introduction of export restrictions for some crops and food products. All of these are taking a toll on the country’s exports of grains and vegetable oils.
The report notes that much uncertainty also surrounds the Russian Federation’s export prospects, given sales difficulties that may arise as a result of economic sanctions imposed on the country and their impact on future planting decisions.
The Russian Federation and Ukraine are key suppliers to many countries that are highly dependent on imported foodstuffs and fertilizers. Several of these countries fall into the Least Developed Country group, while many others belong to the group of Low-Income Food-Deficit Countries.
For example, Eritrea sourced the entirety of its wheat imports in 2021 from both the Russian Federation (53 per cent) and Ukraine (47 per cent). Many countries in Northern Africa and Western and Central Asia are also highly dependent on wheat imports from the Russian Federation and Ukraine. Overall, more than 30 net importers of wheat are dependent on both countries for over 30 per cent of their wheat import needs.
Many of these countries were already grappling with the negative effects of high international food prices before the war. Globally, if the war results in a sudden and prolonged reduction in food exports by Ukraine and the Russian Federation, it will exert additional upward pressure on international food prices to the detriment of economically vulnerable countries in particular.
The war is also set to increase humanitarian needs in Ukraine while deepening those of millions of people who, prior to its escalation, were already displaced or requiring assistance due to the more than eight-year conflict in the eastern part of the country. By directly constraining agricultural production, limiting economic activity and rising prices, the war has further undercut the purchasing power of local populations, with consequent increases in food insecurity and malnutrition. Humanitarian needs in neighbouring countries, where displaced populations are seeking refuge, have also increased substantially.
In composing the SOCO report, FAO conducted modelling exercises to identify patterns between bilateral trade flows, relative prices and geographic barriers, and to identify key drivers of trade such as comparative advantage and trade costs. The report’s findings will be discussed at the upcoming 75th Session of the Committee on Commodity Problems, FAO’s longest-established technical committee, in July 2022.
The report further notes that although World Trade Organization (WTO) members agreed on eliminating agricultural export subsidies following the Tenth Ministerial Conference held in Nairobi in 2015 and established the Trade Facilitation Agreement, which entered into force in February 2017, among others, several areas related to agriculture, such as the treatment of public food stockholding and domestic agricultural support, contributed to stalling the negotiations. At the same time, the number of Regional Trade Agreements (RTAs) in force have multiplied from fewer than 25 in 1990 to more than 350 in 2022. This has raised concerns about whether discrimination in the global market has increased and is leading to the fragmentation of global trade in competing blocs.
“Currently, the trade policy environment is characterized by a deadlock in multilateral trade negotiations under the WTO and a proliferation of deeper regional trade agreements (RTAs) that, in addition to market access, aim to promote convergence in domestic policies and regulations among their signatories,” it states and points out that RTAs create trade between the signatories but can also divert trade from non-members. “Although RTAs, on average, can generate gains globally, some countries may lose. Particularly, low-income countries with a limited capacity to negotiate and implement complex trade provisions may be left out of the regional trade integration process.”
Multilateral trade liberalization and regional trade agreements have been evolving in parallel since the end of the twentieth century, generating gains from trade and promoting economic integration. The report says multilateral trade liberalization can result in larger gains globally and can be the most efficient way to promote market access and economic growth for all.
– global bihari bureau
