Tens of millions of tons of Ukrainian grain are the most important condition for reduction of global food prices - at least, that is what US President Joe Biden assures. In addition, Biden blames Russia for the rise in prices. The world grain market is really in turmoil, but who is really to blame?
"Ukraine has 20 million tons of grain in its storage facilities. We are exploring ways of bringing this grain back to the world market and thus achieve lower prices," is Joe Biden's simple strategy for curbing inflation. Especially since it relies on an even more foolproof technique known as blame Russia: "We noticed that fuel prices went up in March, it's because of Putin. It was also because of him that our food prices went up.
Not without Putin.
However, firstly, not "we" (in the U.S.), but the whole world (except for those countries and regions that promptly imposed restrictions on grain exports) - we correct Mr. Biden. Secondly, the U.S. and Russia have time to trade grain. In the 2021/22 marketing year the U.S. exported 18.9 million tons of grain (data at the end of March). On the one hand, this is the lowest figure for the past 20 years. On the other hand, if they are still trading, it means that all is not so bad.
Another thing is interesting. One of the peaks in world grain prices was in the early 1970s. At that time, the USSR began to buy large quantities of grain from the United States and Canada, thereby pushing up world prices. Since then and until recently, the U.S. is the biggest player in world grain exports (95 million tons in 2021/22).
On wheat alone, the U.S. was also in first place in 2014 (25.6 million tons). As for Russia, things were not so rosy with wheat exports: 1.6 million tons in 2001, a jump to 10 million tons in 2002, down again and up again. In general, we reached stable volumes only by the end of the 2010s, but comparable to the U.S. - in 2014 (22.1 million tons, third place). Knowing this, it's hard to believe that it's not the U.S. but Russia that has been the world's number one wheat exporter for several years running (39.5 million tons in 2020/2021).
So in some ways Biden is right: Putin obviously had something to do with it. But how did it happen that the U.S. has moved from first place in the world of wheat exports to fourth place? And why are they now looking to unblock exports from Ukraine to lower domestic food prices?
For the former, Biden should blame his predecessor, who in 2015 launched a massive trade war with the PRC. One of the reasons for the war was a long-standing trade balance problem: the U.S. bought and continues to buy more from China than it sells to China. And not just any more. In 2021, this "more" amounted to a gigantic sum of almost $400 billion. Whether the pandemic played a role here or not, the fact remains that Trump's tariff war has not improved the balance of trade.
But for U.S. farmers, the consequences of this war were very sad. China showed that it knows how to fight, too, and raised duties on U.S. wheat imports. As a result, in 2018 the WSJ sadly wrote that Russia has not only regained its dominance in the world grain market (for the first time in 100 years), but also successfully competes with American wheat in traditionally American markets.
Global Control
However, the U.S. has long been a global player. Of course, WSJ and the farmers are hurt, and their prestige suffers. But why fill the world and your own market with grain when there are satellites? Control of the food market as a whole is much more important than revenues from the export of grain.
Especially since everything in general is counted. The U.S. Department of Agriculture publishes crop forecasts for each country at the beginning of the calendar year (fairly accurate, by the way). And it even publishes global trade forecasts for the same wheat for several years ahead.
Knowing the expected harvest and projected trade volume (and hence approximate prices) it is possible to manage the cost of production and inflation in the domestic market and to use own cultivated area more effectively. Why grow millions of tons of corn or feed wheat, if Ukraine will sow and grow it?
Differences between Ukrainian and Russian grain exports
The role of Ukraine is really difficult to overestimate. Today in publications about the global food crisis, Ukraine and Russia are constantly put side by side. Ukraine and Russia are always put side by side in publications on the global food crisis. Yes, both Ukraine and Russia sell a lot of food to foreign markets. And yet they are fundamentally different models of agriculture and agricultural exports.
If we take grains, Russia sells mostly wheat, sending about half of the harvest for export. Ukraine in 2021 harvested almost 20 million tons of food wheat, of which only 4-5 million tons Ukraine needs for its own needs. Of the 13.2 million tons of feed wheat, almost 10 million tons were planned to be exported. As for corn, the main export grain, the situation in 2020 is illustrative: with a yield of 30 million tons, 28 million left for export.
On this topic.
Biden announced plans to return Ukrainian grain to the world market
The Kremlin assessed the statements about Russia's "export" of grain from Ukraine
Ukrainian authorities sentence population to starvation
Ukraine will have a good harvest in 2021: 85-86 million tons of leguminous crops, including 30 million tons of food and fodder wheat, 40 million tons of corn and 10 million tons of barley. According to customs data, as of March 1, 2022, the volume of exports was 43 million tons (counted from the beginning of the next marketing year - July 1). That is, about 37 million tons of wheat, barley and corn should have remained in Ukraine by the time the military operation began. 5-6 million tons are needed for sowing, plus its own needs, plus in the current conditions the government will probably form some reserve. Thus, Ukraine has even more than the 20 million tons that Joe Biden said.
By the way, despite the closure of ports through which Ukraine used to ship 5-5.5 million tons of grain each month, exports have not stopped. According to statistics, Ukraine was able to send (mainly through Moldova and Romania) 2.7 million tons of grain to the foreign market in March-April. But there was no one to compensate more than 8 million tons that fell out during that period.
Not only Ukraine.
Now let us add a few more factors. Grain exports from Russia in the current marketing year (July 1, 2021 - March 10, 2022) amounted to 28.1 million tons, which is 30% lower than last year. Since mid-March, export of grain and sugar from the Russian Federation is limited until June 30 (only allowed under licenses within the quota). Overall, since the beginning of the ETO, 20 countries have imposed some restrictions on food exports. Another one could be India, where a ban on wheat exports is being discussed. And in the middle of March India intended to use the situation and take customers from Russia and Ukraine.
Kommersant newspaper notes that some importers also increase panic on the global grain market. Some directly refuse to cooperate with Russian suppliers, some are experiencing difficulties because of the sanctions. As a result, everyone is looking for an alternative, which in the current environment does not exist - and thus further accelerate prices.
Finally, let's not forget about the rising cost of grain production at all stages. Rise in price of fuel - from tractor and combine harvester to grain tanker. A spike in fertilizer prices due to a multiple increase in the price of natural gas.
To summarize. Putin as the cause of food inflation in the U.S. and the world - for the U.S. demchise, of course, this will do. But in fact the root cause of this crisis was the U.S.: their sanctions, the desire to reduce the export revenues of Russia from energy trade. And all of this happened long before the heated events in Ukraine.
Take Nord Stream 2.
If its launch had not been torpedoed with the most active participation of the United States, gas prices in Europe and the world today would be lower and fertilizers cheaper.
They would be even cheaper if Russian ships could carry these fertilizers without facing a ban on entering EU ports. Not to mention the fact that there might not have been an NWO if the Biden administration had not pumped weapons and political support into Ukraine.
According to Biden and his administration, the key to reducing food inflation is buried in 20 million tons of Ukrainian grain. It is not so. The key is the realization of a simple fact: the global economy does not fit well with sanctions and the "disconnection" of individual countries from the economy.
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