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Wheat Market: A New Security of Supply Complication - Erkin Sancarbaba

The Russian invasion of Ukraine is evolving into a geopolitical deadlock, the consequences of which are still unpredictable. Even though this invasion plan has been talked about for years and has been on the agenda of the world public opinion in recent months, the United States and its European allies did not make any concrete efforts to prevent the Russian invasion. The start of this war brought up a new issue as important as the establishment of energy security: assurance of the continuity of the wheat supply. The dependence of the countries in the region on Ukraine and Russia in grain imports has the potential to cause a new crisis. Momentarily, one of these countries is currently under occupation, and the other is in the position of the aggressor. This situation necessitates dealing with supply problems and price instabilities that may occur soon.

The energy crisis that was experienced in Europe this winter has already been the harbinger of the future. Despite this crisis, the majority of European countries have a distant attitude towards energy sources such as coal and nuclear energy. The inability to offer alternatives that can replace the aforementioned resources also poses the risk of chronic energy crises that will take effect every winter in Europe. On top of all these developments, the war between Ukraine and Russia may be the beginning of a new crisis. The capacity of the two aforementioned countries constitutes about a quarter of the world's wheat production. The war on the Ukrainian soils, which is defined as the granary of Europe, jeopardizes the security of wheat supply to the region. As a result of the price surge that started after the news of the invasion, wheat prices have reached the peak of fourteen years.

The main problem here is that the areas where conflicts intensify in Ukraine are wheat fields. In other words, the intensification of conflicts may hinder Ukrainian wheat production and complicate agricultural exports. Especially when the number of wheat imports of Egypt, Indonesia, Turkey, Pakistan, Bangladesh, and African countries from Ukraine is taken into consideration, it may be necessary for developing countries to find solutions against increasing food prices. Considering that developing countries are already struggling with inflation, disruption of wheat and grain supply will deepen the economic problems already existing in developing countries.

On the other hand, the rise of food prices in Europe should be considered inevitable. Three countries play a major role in Europe's wheat import: Ukraine, Russia, and Canada. In the situation that the war scenario worsens, Ukraine's export capacity may suffer even more, and imposing sanctions on Russian wheat may come to the fore.

Regarding the realization of the sanctions, Russia can shift its wheat export to China and the Asia-Pacific region, just as it does in natural gas exports. China, with a sudden decision, lifted the restrictions on wheat imports from Russia. The railway infrastructure between those two countries enables the transfer of Russian wheat to China. However, the European Union can't eliminate the effects of a sanction to be applied on Russian wheat imports. It does not seem possible for Canada and the United States to be alternative exporters to the amount of grain sanctioned. In addition, there were already problems in the amount of wheat production due to droughts in countries such as Iran, Syria, Iraq, Turkey, and Egypt. Therefore, it is clear that the war in Ukraine will harm the world economy, which is currently in the recovery phase due to the Covid 19 pandemic and is struggling with high inflation. The inevitable increases in food prices will increase the risk of inflation, especially in developing countries, and will hinder the fight against inflation.

All in all, the inability of the United States and its European allies to demonstrate a concrete will on the existing Russian occupation, which ignores the freedom struggle of the Ukrainian people over the years, will have a global impact. Because the unfulfilled promises that lead the Ukrainian government to make untimely decisions are one of the main reasons for the war in Ukraine. The fact that the current war, which is likely to deepen, interrupts grain and especially wheat production, can cause deep wounds in many economies. Although it has not attracted the necessary attention at the moment, it can be mentioned that there is an issue as important as the continuity of the energy supply. Although it seems obvious that price increases of grains cannot be completely prevented, the establishment of a multilateral and inclusive global mechanism to contain the agricultural cooperation has become an urgent necessity to ensure supply security as well as the gain control over the price. Otherwise, it will be more difficult to create alternatives for consumer countries in the market, which will increase the fragility of the world economy.


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