Will Russian invasion of Ukraine spark a global food crisis?

Scott Irwin is the Laurence J. Norton Chair of Agricultural Marketing in the department of Agricultural and Consumer Economics at the University of Illinois Urbana-Champaign. Irwin, an expert in agricultural commodity markets, spoke with News Bureau business and law editor Phil Ciciora about the potential for a global food crisis.

Are we on the verge of a full-blown global food crisis brought about by the Russian invasion of Ukraine? How concerned should U.S. consumers be?

If you define “food crisis” as an inadequate supply for the diet of every American, I don’t think that we’ll see something like that in the U.S. There’s also not going to be a food shortage in the U.S., so both of those fears are unfounded.

Clearly, though, there is and will continue to be food price inflation, right now running about twice what it’s been in recent years. For the U.S., the rising price of food will be a real pocketbook issue. That upward pressure is being driven by a whole host of factors, including the raw commodity prices at the farm level. But that only accounts for about 15% of the price consumers pay in grocery stores. The other 85% is the cost of transporting, processing, marketing and finally retailing the food to the consumer, all of which are currently vulnerable to the same inflationary pressures via increased fuel and labor costs that every other good is subject to.

However, on the international front, the Russian invasion of Ukraine is having a major impact on worldwide grain, livestock and food markets because of the role of the Black Sea region as a major supplier of the world’s grain needs – principally wheat, but also corn, sunflowers, barley and other types of crops.

We probably will be closest to seeing a food crisis or food shortage in some of the poorer countries of the Middle East and Africa, countries that have been heavily dependent on wheat imports from pre-war Ukraine.

In the short run, the market is going to do its job, which is basically to force the world to economize its use of commodities. Unfortunately, the brunt of that tends to fall on the poorest consumers who are least able to pay. And that’s what I think is the real big fear globally: the impact on very poor consumers in those areas of the world, and the potential for political instability that a food crisis or shortage could lead to.

Historically speaking, is there any modern-day analog for what’s happening to food prices?

There are recent historical examples of food price spikes similar to what we’re experiencing. Corn and soybean prices right now are getting close to the all-time highs that we had in 2007-08. We also had record surges in the grain markets in the mid-1970s. We’ve experienced shocks in food prices before, and we’ve also had major food security and food shortage concerns during times of war in the past. The aftermath of World War I is probably the one that’s most prominent. Wars often cause crises in food production and food availability. Sadly, this is just another example of that.

What domestic policies should the Biden administration pursue to ease consumer pain over food costs? What should be done internationally?

We need to make sure that programs like the Supplemental Nutrition Assistance Program are adequately funded and there are no significant constraints to people accessing those benefits. There are various United Nations programs and other kinds of relief efforts that can be ramped up in the short run to try to fill in some of these gaps in poor countries.

However, that’s just dealing with the demand-side issues in the short run. We also can think about the supply side to try to preemptively address some of these food security and food price issues. In agricultural policy circles, there’s been talk of the USDA potentially opening up acreage in the Conservation Reserve Program for emergency agricultural production to partially offset the supply-side shock of the Ukrainian war. There was similar chatter back in 2008 but ultimately nothing ever came of it. Agriculture Secretary Vilsack has already ruled it out this time around, but if the Russia-Ukraine war stretches into a years-long conflict, it might be something the USDA needs to revisit.

What role do biofuels play in a potential global food crisis? Does the U.S. need to reconsider the Renewable Fuel Standard?

That’s certainly being debated among agricultural economists. There’s been a lot of misinformation about U.S. biofuels mandates and misunderstanding of how the RFS works and what would happen if we lowered the standards for blending ethanol into gasoline. My view is that suspending or modifying the RFS wouldn’t have much of an effect. Ethanol is the cheapest source of octane in the world, so it helps hold down the cost of gas. If the government decided to reduce mandates, I don’t think consumers would demand any less ethanol in gasoline.

On the other hand, modifying the RFS could slow down our use of advanced biofuels, in particular biodiesel and renewable diesel, which primarily use vegetable oils – at all-time high prices right now. Ukraine is a major producer of vegetable oils. They’re the world’s largest producer of sunflower oil. Cutting back on the renewable diesel boom could help ease some of the pressures on global vegetable oil supplies right now, but it’s not a silver bullet, and it’s not as easy to do as most critics think.

What people don’t realize is that, while the RFS mandates in the U.S. encourage biodiesel, the big driver of advanced biofuels growth is the low-carbon fuel standard in California. You would need to change both the RFS mandate and the low-carbon fuel standard in the most populous state in the U.S. to have an appreciable effect. Neither scenario seems likely.

Editor’s note: To contact Scott Irwin, call 217-333-6087; email [email protected].

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