loader image
Skip to content

The West Is Not Exempt from the War in Ukraine’s Impact on Food Supply Chains

The War in Ukraine is the latest lesson on the inherent–and growing–risks of globalized food supply chain networks which assume global peace and stability, exacerbating already steeply elevated food prices into a global nutritional crisis that will see impacts everywhere.

 

The War in Ukraine is continuing to demonstrate itself as the most significant geopolitical event of the post-Cold War era to date, surpassing even 9-11 in the way in which it fundamentally undermines the assumptions of peace and stability which have informed the last more than 30 years since the collapse of the Soviet Union in 1991. 

This is in part due to COVID-19, the deadliest single global event in 21st-century history (now approaching a widely under-reported 1 million deaths in America), a virus that changed the way much of the world lives at a day-to-day level, bringing “the world economy to its knees” and forever changing assumptions about labor and the basic stability of the modern economic regime

When we first wrote about the potential effects of the conflict shortly after it broke out, oil futures had already resulted in noticeable increases at the pump. Today, average prices have rapidly climbed to reach historic highs (though a recent dip in oil prices raises hopes for temporary relief).

However, this was predictable. What was less predictable was how the knock-on effects of rapidly climbing global energy prices would affect production, trade, and political stability (such as severe tensions within the trucking and transportation industries in Spain and Italy), or how the devastation of the conflict itself might shut down producers and supply lines. 

For example, two Ukrainian companies have just stopped shipping neon gas as a direct result of the conflict, two suppliers which alone account for about 50% of the global supply of high-purity neon essential to semiconductor production, a shortage that will strike an industry already struggling with capacity-limitations post-COVID-19.

 

A Rapidly Growing Crisis: Food Costs, Already at Historic Highs, Set to Increase

Worse, however, is the growing impact on food prices. Due to the rapidly developing humanitarian crisis in Ukraine spurned greatly by growing hunger, Ukraine has banned wheat and barley exports, both of which have seen massive price hikes since the invasion.

With global food prices seeing 33% increases and climbing, ongoing and severe impacts are anticipated due to Ukraine’s (often referred to as Europe’s “breadbasket” since the end of the Cold War) and Russia’s remarkable importance to global food supply chains, particularly in some more vulnerable nations; warns the UN, global food prices could even jump an additional 22%. 

“Lebanon imports 50 percent of its total wheat consumption from Ukraine, followed by Libya at 43 percent, Yemen at 22 percent, and Bangladesh at 21 percent,” write Emiko Terazono, Judith Evans, and Hudson Lockett for the Financial Times, making for a shortlist of countries set to suffer when already experiencing severe food insecurity.

“Around 70% of Russian wheat exports went to buyers in the Middle East and Africa in 2021,” writes Naveen Thukral and Gavin Maguire for Reuters.

This instability will invariably and increasingly hit Western shores, however: “With the two countries accounting for around 29% of global wheat exports, 19% of world corn supplies, and 80% of world sunflower oil exports, traders worried that any military engagement could impact crop movement and trigger a mass scramble by importers to replace supplies from the Black Sea region,” continues Thukral and Maguir, a region which has seen a “rising role” during the entirety of the post-Cold War era in global food security, helping to explain why its instability is so spiking global food prices.

 

ukraine supply chain
Lifting cargo cranes, ship and grain dryer in Sea Port of Odessa, Black Sea, Ukraine.

 

“Roughly 90% of Ukrainian grain exports are transported by sea,” writes Brett Forrest and Will Horner for The Wall Street Journal; “Agriculture accounted for 45% of Ukraine’s exports and 10% of its gross domestic product in 2020, making it the third-largest sector of the economy, according to the World Bank,” speaking to the dire situation Ukrainians are in if cutting off these exports—an otherwise unthinkable economic move—is necessary to stave off starvation.

Another essential factor is Russia’s role as one of the largest producers of all major fertilizers worldwide, prices for which were already high.

“Fertilizer manufacturers across Asia, Europe, and North America have already been curbing output over the past several months due to rising input costs. Rising fertilizer costs and widespread shortages would force many farmers to scale back,” writes Per Kristian Hong for Consultancy.eu. This has resulted in political unrest even within the U.S. as fertilizer prices spike 200%.

In short, the extreme conditions of the conflict coupled with the existing market failures of the COVID-19 pandemic have now resulted in an inflation rate of 7.9% in February and the highest consumer prices in 40 years 

Beyond the concerning-enough headline inflation, however, are grim Consumer Price Index measures which have grown even since we last reported them two weeks ago, with food costs rising 7.9%, the ongoing, compound result of these myriad factors in a global economy rapidly failing to answer the mounting challenges of the 21st century.

 

Preparation for the Unknown: Risk Appetite and Tolerance 

It is the context of a faltering neoliberal world order–one increasingly seen as fragile, inefficient, short-sighted, and unable to respond to crises—that the War in Ukraine has so further destabilized global production and investorconfidence (along with general consumer confidence). In other words, when it comes to economic forecasting, the assumption that the world will simply continue to spin is as untenable as it ever has been in living memory. 

Markets and operations of all kinds need to increase their risk-tolerances while reducing risk appetites as much as possible. These are basic strategies even the largest retailers aren’t exempt from, though when applied stringently, contravene recent short-term profit-oriented wisdom which has typified the neoliberal period; a pre-COVID March-April 2020 analysis by the Harvard Business Review argued that far too many companies are risk-averse, an attitude that now seems quaint and tailor-made for another era entirely because, after the last two-plus years, that’s precisely what it was.

While there are no foolproof ways to prepare for things like global conflict and massive climate disruptions, examining said risk tolerance at a broad institutional level is essential, both culturally and practically, with measures such as source diversification (best via localization, if possible) and even greater strategic reserves, a tactic more commonly used in the early-to-mid 20th century in response to global turmoil (Japan famously began to run out of oil during the latter days of WWII); a more recent and applicable example scenario to retail supply chains is Toyota’s resilience during COVID-19.

For food retailers and suppliers specifically, diversification and reducing food waste is key: “…moving forward…flexibility, adaptability…are going to be really important…I think it’s incumbent on sellers and producers…to maintain a Rolodex of potential outputs and buyers of their product across marketing channels in order to keep those pathways open and to make sure that…food is not going to go to waste,” argues Dr. Ricky Volpe of the Food Industry Association.

 

ukraine food
Stock of food such as dried meat and sausages on the display above empty refrigerators in Lviv, Ukraine.

 

“In the long-term, supply chain leaders must increase resilience by balancing investments in dedicated teams, processes, and technologies that will enable their organizations to implement end-to-end risk management. This includes tactics like deploying strategic redundancies that not only drive competitiveness but also secure critical value networks and supply ecosystems,” writes Sarah Hippold for Gartner.

What this type of risk tolerance will therefore look like for retailers and supply chain experts is, broadly speaking, an abundance of caution, even at the cost of short-term profit if businesses are forward-thinking. Preparing for a difficult future by making the necessary sacrifices now is better than being one of the next global shock’s first victims.