Bread has been the lifeblood of society for generations. Riots and revolutions have erupted over the supply of this key dietary staple — and, more broadly, food prices, particularly in the Middle East and North Africa.
Russia’s unjustified invasion of Ukraine has now jeopardised a large amount of the wheat and grain on which these countries rely. Russia and Ukraine contribute for over one-third of worldwide wheat exports, nearly 20 per cent of corn exports, and 80% of sunflower oil exports — and they supply the majority of the MENA region’s supplies.
Wheat futures have increased by 30 per cent since the invasion began in late February.
Prior to the war, the Black Sea carried more than 95 percent of Ukraine’s total grain, wheat, and corn exports, with half of those exports going to MENA nations. That essential conduit is now closed, suffocating Ukraine’s marine trade after its ports were attacked by Russia’s forces.
The country is currently attempting to export some of its produce by train, which has huge logistical limitations, while Ukrainian farmers whose infrastructure has not been damaged seek to till their fields while wearing protective vests.
Russia is the world’s leading exporter of wheat, as well as the world’s leading exporter of fertiliser. Fears of becoming embroiled in Western sanctions against Moscow have already hampered Russia’s exports.
All of this is exacerbating the rising inflation that is affecting the world’s 500 million people, mainly the poorest and those already suffering high unemployment and bleak economic prospects.
“Inflation and economics, more than political freedom, are key” for the region’s stability, Kamal Alam, a non-resident senior fellow at the Atlantic Council, told CNBC.
Alam cited Mohammed Bouazizi’s self-immolation, the young Tunisian street vendor whose act of protest sparked the 2011 Arab Spring uprisings.
“Even the vendor who burned himself in Tunis did so because of economic indignation, not (then-Tunisian president) Ben Ali,” he said. “One would argue the first and foremost reason for unrest in the Arab world is always lack of economic mobility.”
According to the International Monetary Fund, inflation in the MENA area will reach 14.8 per cent in 2021. Higher food prices were already the main driver at the time, accounting for around 60% of the increase in the region, excluding the oil-rich Gulf Cooperation Council states.
That was before to the outbreak of the Ukrainian war. According to the United Nations, food costs in April were 34 per cent higher than a year ago.
“We’ve got now 45 million people in 38 countries that are knocking on famine’s door,” David Beasley, executive director of the U.N.’s World Food Programme, told CBS in an interview last week. “And you may see a general price increase of food, let’s say 38 to 40%, but in some of the very tough places, it’s going to be 100, 200% like in Syria.”
While governments seek other sources for critical food imports, rising global inflation and probable export restrictions make switching costly. And, due to water shortages in the MENA region, local agricultural production is severely hampered.
Egypt, the Arab world’s most populated country, imports more than 80% of its wheat from Ukraine and Russia alone. Lebanon, which is already mired in a debilitating economic and inflation crises, imports 60 per cent of its wheat from the two fighting countries, which supply 80% of Tunisia’s grain.
Egypt “has a lot to lose from the war as its bread subsidies program reaches over half of the population and forms a pillar of the social contract that maintains stability in the most populous Arab state,” said Amer Alhussein, economic development expert and advisor for the post-conflict initiative Plant for Peace.
This, he believes, explains why Egypt’s wealthy Gulf friends have raced to its help with billions of dollars in money for its central bank and other economic projects.
While Egypt’s government can continue to borrow money, rising interest rates in major economies and a lack of demand for emerging market bonds will weigh heavily on the country, “and may become a sovereign risk factor, leading to a default that would have a catastrophic impact on its population,” Alhussein added.
Meanwhile, Lebanon is witnessing “many signals of oncoming starvation,” according to Alhussein.
“The current situation could very soon develop into protests and riots like the ones that took place in 2019, but with a much more violent impact given the ever-worsening standard of life and food security in the country.”
Furthermore, increased wheat prices “may boost (the Middle East’s) external finance needs by up to $10 billion in 2022,” according to the IMF’s latest Middle East and Central Asia Regional Economic Outlook, which was released on Wednesday. “Supply shortfalls from Russia and Ukraine can jeopardise food security, especially in low-income nations, which may potentially suffer from potential aid diversion.”
According to estimates, about a quarter of Ukraine’s latest pre-invasion wheat harvest is still available on markets, but it will only last about three months.
The WFP’s Beasley warns that the war’s consequences would be felt most acutely across the Middle East and North Africa this fall, triggering a crisis that might lead to mass migration.
“If you think we’ve got hell on earth now, you just get ready,” Beasley warned in an interview with Politico in March. “If we neglect northern Africa, northern Africa’s coming to Europe. If we neglect the Middle East, the Middle East is coming to Europe.”
Taufiq Rahim, a senior fellow in the international security programme at think tank New America based in Dubai, concurred that the worst is yet to come.
“At a time of rising inflation, increased commodity prices and supply chain gridlocks, the wider region could be in for an unprecedented economic shock this summer,” Rahim told CNBC.
“A new political Pandora’s box will be opened by the rising economic discontent and we will see governments under increasing pressure.”
(Adapted from CNBC.com)
Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability
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