War is back in Europe. The armed conflicts in Ukraine are causing immense human suffering. The World Trade Organization (WTO), the international organization that regulates trade and economic relations, is committed to peaceful coexistence. She despises violence. That is why the WTO supports the call of the Secretary-General of the United Nations, António Guterres, for an immediate end to the bloodshed in Ukraine.
We are all impressed by the shocking images that reach us from the attacked and partially destroyed Ukrainian cities. We must do everything in our power to help the Ukrainian people. At the same time, however, we must not ignore the fact that the economic and humanitarian effects of the war extend far beyond Europe – also in an extremely negative way. It is our responsibility to mitigate these effects as much as possible.
Even before the war, rising food and energy prices were straining the budgets of many smaller and poorer countries whose economies had been badly hit by the Covid-19 pandemic. Now new price peaks are threatening the food security of these countries. While Ukraine and Russia together account for a modest 2.2 percent of global trade in goods, their importance in grain and energy markets, and as producers of fertilizers and minerals is far greater.
Export flows are disrupted
Most recently, for example, the two countries supplied 24 percent of the wheat traded worldwide and 73 percent of the sunflower oil. Imports of such raw materials are indispensable for the food security of many countries that cannot produce these raw materials themselves in sufficient quantities due to poor water, soil and weather conditions. Over the past 30 years, Ukraine and Russia have been important grain sources for countries such as Mongolia, Sri Lanka, Lebanon, Egypt, Malawi, Namibia and Tanzania.
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The United Nations World Food Programme, which organizes food aid for people affected by conflict and disasters in around 80 countries, usually gets more than half of its wheat from Ukraine. War-related blockades of Ukrainian ports and the international sanctions imposed on Moscow have already greatly reduced the global amount of wheat available.
In other words, export flows are disrupted. Commercial loading in Black Sea ports is currently suspended in Ukraine. Although efforts are being made to increase exports via the rail routes on the country’s western borders, overall volumes are likely to remain limited. Possible damage to port facilities, railway lines and storage silos could significantly affect shipments in the long term.
Disrupted fertilizer supply chains
True, most of Russia’s Black Sea terminals continue to operate. In the meantime, shipments have also resumed in the Sea of Azov. Nevertheless, export volumes could be severely restricted by trade financing restrictions and additional requirements for ocean freight insurance. Additional exports from India, the USA, the European Union and Brazil, for example, can only partially offset the lower shipments from the Black Sea over the course of the season.
The Ukrainian grain and oilseed harvest 2022/23 is also exposed to considerable risks, which are likely to exacerbate longer-term export supply shortages. In addition to the scarce availability of fuel, agricultural resources and labor, access to some fields is currently not possible due to the acts of war. Ukrainian farmers are increasingly worried about whether they can fertilize the winter crops and plant the spring varieties. The price of wheat futures has already hit record highs this month.
The war is raising concerns about bottlenecks in the world’s fertilizer supply chains, not least prompted by sanctions on the Russian Federation and Belarus, two of the world’s leading suppliers of nitrogen and potash fertilizers. Rising prices for natural gas, a key feedstock for nitrogen fertilizer production, have also contributed to the recent price hike.
All of this could have a negative impact on upcoming decisions about acreage and application rates, which in turn would have consequences for global yields and crop quality.
Cooperation can mitigate the consequences of rising prices
Against this background, the danger of protectionism is growing. Several governments have already restricted grain and other essential food exports to ensure domestic supplies. The growing number of complaints to the WTO underscores the scale of the problem.
Such export controls can trigger a new spiral of price increases. The World Bank estimates that protectionist measures accounted for 40 percent of the rise in global wheat prices during the last food crisis in 2010-11.
But the world has the ability to mitigate those risks. International cooperation can help mitigate the consequences of rising food prices. In the meantime, for example, the exchange of information on food stocks and stocks within the framework of the agricultural market information system enables leading exporters and importers to prevent panic and maintain functioning market mechanisms.
Sure, the global trading system is already struggling with high transportation costs and congested ports. However, closer international coordination could help stabilize food, energy and commodity markets and limit additional supply chain disruptions. In this context, the transparency function of the WTO is important, according to which restrictions on foreign trade must be reported so that other market participants can adjust to them.
Once market and supply disruptions become apparent, the international community is in a much better position to mobilize financial and other assistance to poor countries suffering from soaring food prices. Despite the Ukrainian tragedy, we must now ensure that some of the world’s poorest and most vulnerable countries – far removed from the war in Eastern Europe and beyond the headlines – do not become collateral damage of the war.
The author: Ngozi Okonjo-Iweala is Director-General of the World Trade Organization (WTO).
More: It is still in the hands of the EU to avert a hunger crisis