Mar 8, 2022 - Economy

Surge in wheat prices expected to seed more suffering

Data: Chicago Board of Trade, FactSet; Chart: Axios Visuals

Russia's invasion means bread prices will soar in some of the world's poorest, most fragile countries, potentially igniting a cycle of instability.

Driving the news: Wheat prices shot to a record $12.94 per bushel, and are up an astonishing 70% over the last month, as measured by a type of futures contract on the Chicago Board of Trade.

Why it matters: Throughout history, surging bread costs — see the French and Russian Revolutions — have been a major source of instability and violence.

  • More recently, soaring food costs, including wheat, have been cited as an important contributor to the wave of instability known as the Arab Spring that swept the Middle East starting in 2011. (Google Scholar)

The big picture: Both Russia and Ukraine are superpowers of the wheat world.

  • Russia produces 11% of the world's wheat and is its largest exporter. The two countries together export more than a quarter of the world's supply.

State of play: Russian and Ukrainian wheat is cheap. They sell it to some of the world's poorest countries in the Middle East and North Africa.

  • Egypt — the world's largest wheat importer — gets roughly 60% of its wheat from Russia and 25% from Ukraine, JPMorgan analysts wrote in a research note last week.
  • Ethiopia has become a major importer in recent years as well, as war disrupted farming. The government bought wheat in bulk to provide subsidized food to the population. But now "the government cannot afford to purchase enough wheat to satisfy domestic demand," USDA analysts wrote last month.
  • The surge in prices forced Lebanon to cut subsidies to prevent burning through national currency reserves. "This could exacerbate Lebanon’s social challenges," as the country only holds a month's worth of wheat in reserve, according to analysts at Fitch Ratings.

The bottom line: Besides inflicting suffering on the people of Ukraine, Russia's invasion will also spread misery worldwide.

Go deeper: Arab world divided on Russia-Ukraine

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