12. April 2022
Hugues Chevalier, Economist
The recent surge in commodity prices following Russia’s invasion of Ukraine comes at a time when economies have already been hit hard by the Covid crisis and inflationary pressures linked to transport chaos and production disruption. The prices of energy and food have exploded following the halt of all logistical flows from the Black Sea, which demonstrates the strategic weight of Russia and Ukraine in the production and export of raw materials. For example, Russia is the world’s largest exporter of wheat. Moreover, in the food sector, the biggest exporters of fertilisers, such as China and Russia, have also stopped their exports, which could penalise cereal and oilseed producing countries, such as France, with yields that could fall by 25%. Added to this is the price of gas, which has increased tenfold over the past year and accounts for 90% of the cost of nitrogen fertilizers. In total, the price of nitrogen fertilizers has increased by 300%, which will also be reflected in cereal prices. Finally, there is still total uncertainty about volumes for the 2022 campaign. But the recent price increase is already causing a stir among importers in the southern Mediterranean. For example, Egypt, whose 80% of imports come from the Black Sea, needs 10 million tonnes of wheat per year to provide subsidised bread to 72 million people. The surge in food prices (+75% for wheat in a fortnight) has forced the government to seek new aid from the IMF and the EU. In addition, following the acceleration of inflation, the central bank has raised its interest rates, which will penalise economic growth. The fear, as in neighbouring countries, is of new social tensions and riots, like in 1977.