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20-24 FEBRUARY 2023
DUBAI WORLD TRADE CENTRE

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Falling global food and fuel costs offer poor countries little relief

LATEST NEWS & INSIGHTS

05 Sep 2022

Falling global food and fuel costs offer poor countries little relief

Falling global food and fuel costs offer poor countries little relief

Many of the global prices for food, fuel and fertilizer that spiked when Russia invaded Ukraine have returned to their prewar levels, defying the most dire forecasts even as policymakers warn of the continued risk of famine and financial crisis in the developing world.

 

Russia’s Feb. 24 attack on Ukraine sent a shock wave through commodity markets. Since then, however, fears that the war would cut off all exports through the Black Sea have proved unfounded.

 

Russian grain cargoes for months have sailed from the docks in Novorossiysk to customers in Africa and the Middle East. And limited grain shipments from the Ukrainian port of Odessa resumed Aug. 1 under a deal brokered by the United Nations.

 

Pressure on commodity markets also eased after Wall Street speculators began selling their holdings in response to the Federal Reserve’s interest-rate increases, which made bets on rising commodity prices less certain.

 

Wheat is now less expensive than when the war began. Brent crude oil, the global benchmark, hovers around its mid-February level of $97 per barrel. And the price of urea fertilizer, which almost doubled in the war’s first weeks, is back to its prewar level.

 

Yet, markets could again reverse course, and they are likely to remain volatile into next year, analysts have said.

 

“The worst didn’t happen. … But there’s a false sense of security in the markets right now,” said Sanjeev Krishnan, the chief investment officer at S2G Ventures, an investment firm in Chicago specializing in food and agriculture. “This fall could have a lot more volatility.”

 

Averting a deeper global crisis depends on the interaction between government policies in scores of countries, the climate, an unpredictable conflict in Europe and global diplomacy.

 

With Russia already having lobbed one missile at grain terminals in Odessa, there are questions about whether the deal to resume Ukrainian shipments will hold. Extreme weather events, including a multiyear drought in the Horn of Africa, threaten harvests on multiple continents. And a potential embargo on Russian energy shipments to European customers later this year could aggravate rising natural gas costs that already are pushing some fertilizer prices up.

 

Still, the current situation is an improvement. Earlier this year, the war between Russia and Ukraine, neighboring countries that together account for more than one-quarter of all globally traded wheat, caused grain prices to soar by 63 percent in less than two weeks. At the same time, prices for one type of nitrogen-based fertilizer almost doubled, and oil shot up to almost $128 per barrel.

 

With Russia already having lobbed one missile at grain terminals in Odessa, there are questions about whether the deal to resume Ukrainian shipments will hold. Extreme weather events, including a multiyear drought in the Horn of Africa, threaten harvests on multiple continents. And a potential embargo on Russian energy shipments to European customers later this year could aggravate rising natural gas costs that already are pushing some fertilizer prices up.

 

Still, the current situation is an improvement. Earlier this year, the war between Russia and Ukraine, neighboring countries that together account for more than one-quarter of all globally traded wheat, caused grain prices to soar by 63 percent in less than two weeks. At the same time, prices for one type of nitrogen-based fertilizer almost doubled, and oil shot up to almost $128 per barrel.

 

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