“Challenges in the food and energy markets could get much worse and lead to significant disruptions in the global supply chain if the Russian-Ukrainian war stretches out longer than expected,” said Ivo Pezzuto, Professsor of Global Economics, Competitiveness, and Digital Transformation at the International School of Management in Paris.
Pezzuto discussed the impact of the Russia-Ukraine war on the global supply chain with David Lin, Anchor at Kitco News.
A research report recently published by Deloitte says that according to the Food and Agriculture Organization of the United Nations, Russia and Ukraine account for more than 25% of the world’s trade in wheat, more than 60% of global sunflower oil, and 30% of global barley exports. Russia is also a major global exporter of fertilizers.
Pezzuto stressed that the war is having a massive impact on the supply chain and costs of commodities, especially food. “For commodities, raw materials and natural resources, Russia and Ukraine are both powerhouses in supply. The two countries have dominant market positions in sunflower oil and seeds, wheat and barley,” Pezzuto noted. “Russia and Ukraine produce critical commodities for todays and tomorrow’s strategic industries for electric vehicles, rare earth elements, and palladium fertilizers. Russia and Ukraine produce many types of metals like iron ore, copper and zinc as well.”
“We are already seeing the war influence the cost of food, because of shortages of fertilizers, cereals and metals. This is having a significant impact globally,” Pezzuto added.
Due to a reduction in the amount of food exported globally from Russia and Ukraine, this war will have a severe impact on emerging developing economies, Pezzuto explained. “Those countries are net importers of food and other commodities from abroad. Food insecurity is a big issue for those countries. Diversifying suppliers is not easy to change overnight.”
“The fields in Ukraine are at serious risk by either being bombarded or by failing to have a reasonable spring planting season in the coming months. This will not allow Ukraine to produce as much as expected,” Pezzuto pointed out. “Russia has continued to produce commodities during the war, but because of the embargoes, bans and sanctions, it has been trying to keep those commodities for itself to protect its internal market rather than export.”
Speaking about the ongoing issues with the global supply chain, Pezzuto explained, “The pandemic is still affecting global trade with congested ports, a supply and demand
mismatch, shipping logjams, rising inflation, increasing freight rates, shortages and a disruption in the trade of the supply chain.”
“As a result of the war, there may be a worse food shortage than we have seen so far, along with rising prices,” Pezzuto continued. “Put this together with the other issues we are facing, even if you source the products from elsewhere, for example, South America, there’s still going to be challenges with shortages, bottlenecks, backlogs and transportation.”
Pezzuto noted that there will be economic spillover effects globally from the Russia Ukraine war.
“We can see a recession and stagflation from the war possibly this year or next year. If the central bank raises interest rates or unwinds the balance sheet too far and too quickly to avoid destroying purchasing power, a recession is possible,” he said. “There could be stagflation, and not just in the U.S.”
Even though North America is not experiencing major food shortages like it did earlier during the pandemic, Pezzuto emphasized the U.S. has been impacted now by much higher inflation.
“From 2020 to more recently, all different categories of the Consumer Price Index have risen, from energy to food. Inflation is more widespread in the U.S. than Europe and other parts of the world, where it mostly involves higher energy prices,” Pezzuto stated. “A massive food shortage may not happen in North America, but there could be significant shortages, backlogs and higher prices.”
For more on the impact of the Russia-Ukraine war on the global supply chain, please watch the full video above.
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