Rising food costs are rocking Middle East economies, raising the risk of unrest

Local government officials and a Ukrainian soldier inspect a grain warehouse previously shelled by Russian forces on May 6, 2022 near the front lines of Kherson Oblast in Ukraine’s Novovorontsovka.

John Moore | Getty Images

Rising food and energy prices reverberate through the economies of the Middle East and North Africa, a new S&P Global Ratings report finds, as Russia’s war in Ukraine accelerates inflation, raising the cost of living for millions of people become.

“As history has shown us, at a time when food in particular is struggling through this continued inflationary period, we are having these strikes and social unrest,” Satyam Panday, chief economist at S&P Global Ratings told CNBC’s Dan Murphy this week.

“Especially if you have higher youth unemployment rates and come out of Covid, when the recovery is still fragile, we are facing situations like this where, yes, the likelihood of social unrest is increasing,” he warned.

Analysis by S&P Global Ratings found that of the MENA countries, Egypt, Jordan, Lebanon, Morocco and Tunisia will be hardest hit by the economic fallout from the war in Ukraine, which will see Russia blocking Ukrainian ports vital to supply of agricultural exports to much of the developing world.

Russia’s funding mechanisms for its food exports are also limited due to Western sanctions over its neighboring country’s invasion.

Net food and energy imports into the MENA countries mentioned above represent between 4% and 17% of their GDP, according to the report, and they all import a large proportion of their wheat and grain from Russia and Ukraine.

The Black Sea: a lifeline for food exports

Ukraine and Russia together account for about 75% of the world’s sunflower oil, a primary cooking oil in many regions, and are home to about a third of the world’s wheat exports. Twenty-six countries depend on Ukraine and Russia for at least 50% of their wheat imports Russia is also one of the world’s largest exporters of fertilizers.

The warring countries supply most of the MENA region’s supply – Egypt, the country with the most population in the Middle East at 100 million people, imports more than 80% of its wheat from Russia and Ukraine, with an estimated worth $2 billion in 2021.

The Russian invasion of Ukraine poses a threat to global wheat and grain supplies, a particular risk for countries in the Middle East and Africa, such as Egypt, where bread is an important food staple. Cairo, Egypt, on March 9, 2022.

Photo by Ahmed Gomaa | Xinhua via Getty Images

“Egypt, which has a more centralized system, has been able to cope with this crisis, it has taken a beating in terms of movement out of the debt markets, in terms of capital, but the focus on food security is perhaps a little more alert and on top off the ball than other countries,” Angus Blair, a professor of practice at the American University in Cairo, told CNBC’s Capital Connection on Monday.

Lebanon and Jordan spend more than 10% of their GDP on energy and food imports, making them one of the most vulnerable to the crisis in the region, according to S&P Global Ratings.

Lebanon imports about 90% of its wheat from Russia and Ukraine — and the country’s economic crisis, which has been accelerating since 2019, has been exacerbated by food inflation and currency collapse. The country’s grain silos were also destroyed in the explosion at the port of Beirut in 2020.

A member of the Lebanese army walks past the rubble at the site of Tuesday’s explosion in the port area of ​​Beirut, Lebanon on August 7, 2020.

Mohamed Azakir | Reuters

While economies are fragile, some MENA countries have built up strategic wheat reserves to protect themselves from food supply disruptions, S&P says.

“Jordan has the largest reserves in MENA, with consumption lasting about 16 months. Egypt’s reserves are more limited and, along with domestic production, will last until November 2022,” S&P wrote in its report, adding that “Morocco is bulk of its 2022 annual wheat orders from Ukraine before the conflict escalated.”

A farmer wears a bulletproof vest while sowing crops in the Zaporizhzhya region of southeastern Ukraine.

Dmytro Smoliyenko | Future publication | Getty Images

The war between Russia and Ukraine has many consequences for world markets and food security. Concerns are mounting around the world that the current food crisis will be chronic and not transient.

On Friday, African Union leader Macky Sall, African Union leader and Senegalese President Macky Sall met with Russian President Vladimir Putin to discuss freeing up essential grain exports. The meeting was inconclusive; the Kremlin insisted that Russia was not responsible for the growing crisis, but that Ukraine was responsible for mining its ports against Russian ships, and that the West crippled its banking, shipping and insurance activities with sanctions.

But a hundred days after the war, it is Russia that occupies much of Ukraine’s southern coastline, and its warships control access to Ukraine’s crucial Black Sea ports.

The poorest of the region are at risk

It is the poor in the MENA region who are most at risk, Kali Robinson of the Council on Foreign Relations wrote in an April report. “They spend a higher proportion of their income on food and are more likely to be farmers, so seed and fertilizer shortages will hit them the hardest.

Those dependent on international food aid are also expected to endure further hardships,” Robinson noted, adding ironically that “Ukraine and Russia are major suppliers of wheat, maize and sunflower oil to the World Food Program.”

It was also the region’s poor in many countries that played a major role in the 2011 Arab Spring protests, fueled by economic discontent and lack of access to basic goods and services. And as the writer Alfred Henry Lewis wrote in 1906, “There are only nine meals between humanity and anarchy”—nine meals which equate to three days without food.

A farmer scoops seeds on a farmland as Russian attacks on May 30, 2022 negatively impact the agricultural sector in Kiev, Ukraine.

Dogukan Keskinkilic | Anadolu Agency | Getty Images

The crisis does not appear to be abating at the moment and will continue to weigh on import dependent countries as purchasing from different places will eventually increase shipping costs for many importers.

The American university at Blair in Cairo warned that “this is not just for this year’s crop, it now has the potential to continue for another year or more because there is war, we don’t know what’s going to happen, that uncertainty is a concern.”

“Rising food prices not only have an effect on inflation, but also on the social impact. And that is a concern in much of the Mediterranean world,” Blair told CNBC. “The average citizen is really hurting. But this is a global problem. And those countries with lower GDP per capita will be affected to a greater extent,” he added.

Russian Foreign Minister Sergey Lavrov and his Ukrainian counterpart Dmytro Kuleba have met to discuss creating a possible maritime corridor for Ukrainian agricultural exports, but have so far been unable to do groundbreaking work.

Ukraine is currently working with allies to mount a United Nations-backed effort to reopen its Black Sea export routes.

“We are calling on countries whose food security may be more affected by Russian aggression against Ukraine to use their contacts with Moscow to force the country to lift the blockade of Ukrainian seaports and end the war,” the Ukrainian spokesman said. of the Ministry of Foreign Affairs, Oleg Nikolenko, Thursday.

Leave a Comment