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Food crisis deepens as rising prices trigger export bans

FILE PHOTO: Ears of wheat are seen in a field in the Kyiv region
FILE PHOTO: Ears of wheat are seen in a field near the village of Hrebeni in the Kyiv region, Ukraine, July 17, 2020. REUTERS/Valentyn Ogirenko/File Photo

March 9, 2022

By Nigel Hunt

LONDON (Reuters) – A global food crisis sparked by Russia’s invasion of Ukraine escalated on Wednesday as Indonesia tightened restrictions on palm oil exports and added a growing list of key producing countries trying to keep essential food stocks within its borders.

The conflict in Ukraine threatens world grain production, supplies of cooking oils and fertilizer exports, is sending up commodity prices and reflecting the crisis in energy markets.

Palm oil is the most commonly used vegetable oil in the world and is used to make many products including cookies, margarine, laundry detergent and chocolate. Palm oil prices are up more than 50% this year.

Indonesia’s Trade Minister Muhammad Lufti said the export restrictions are aimed at ensuring domestic cooking oil prices remain affordable for consumers.

The price spike comes at a time when food affordability is a major challenge as economies try to recover from the coronavirus crisis and is also helping to fuel a broader surge in inflation around the world.

Russia and Ukraine are also important suppliers of edible oils, accounting for nearly 30% of world wheat exports.

Ukraine announced on Wednesday that it has banned a wide range of agricultural exports, including barley, sugar and meat, until the end of the year.

Not only has the conflict disrupted supplies from the Black Sea region, it is also threatening prospects for crops as fertilizer prices soar and stocks dwindle due to a sharp rise in the cost of natural gas — a key component in the manufacturing process of many products.

World food prices rose to a record high in February, up 20.7% year-on-year, according to the United Nations Food Safety Agency, while many markets continued to rise this month.

Malaysian palm oil futures surged to an all-time high after Indonesia’s announcement, while soybean oil prices surged to a 14-year high.

Soybean oil prices are up almost 40% this year.

CLOISTAGE AFTER DELIVERY

Russia and Ukraine are both major producers of sunflower oil, and the two countries account for nearly 80% of global exports, leaving customers like India scrambling to secure supplies of alternatives like palm oil and soybean oil.

Chicago wheat futures are up about 60% so far this year and threaten to raise the cost of key staples like bread.

The loss of two major exporters in Ukraine and Russia was compounded by news that the state of the wheat crop in the world’s largest producer China could be the “worst in history” according to the country’s agriculture minister.

Poor growing conditions in drought-affected parts of the US plains are likely to tighten supply further.

Serbia announced on Wednesday that it would ban exports of wheat, corn, flour and cooking oil from Thursday to stem price hikes, while Hungary banned all grain exports last week.

Bulgaria has also said it will increase its grain stocks and possibly limit exports until it completes planned purchases.

Grain shipments in Romania, a key exporting country, have also tightened as international buyers look for alternatives to supplies from Russia or Ukraine, although there are no plans at this time to cut supplies.

Global grain production could also fall as production of fertilizers, which help boost crop yields, is curtailed following a rise in natural gas prices.

Yara, one of the world’s largest fertilizer makers, said on Wednesday it would limit its production of ammonia and urea in Italy and France.

The Norwegian company warned last week that the conflict was threatening global food supplies.

Russia, which describes its actions in Ukraine as a “special operation” rather than an invasion, has been a key supplier of fertilizers, but the country’s Trade and Industry Ministry on Friday recommended that producers temporarily halt exports.

(Reporting by Nigel Hunt; Editing by Elaine Hardcastle)

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Bobby Allyn

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