The world’s bread basket is facing significant food inflation. Prices on groceries in Ukraine rose 22.1% in May compared to the same time period last year. Overall, CPI rose 15.9% on an annual basis as well. Fruit prices alone have soared by 17.6%, with authorities claiming it is primarily due to poor weather conditions that reduced harvests.
Ukraine and Russia are both relying on imports to offset the uptick in food prices. Ukraine exported around 10.6% of the nation’s food supply last year. The European aggregate came in at an estimated $5 billion in food exports for the year, with Poland, Germany, and France becoming top suppliers. In fact, 51.3% of all food imported to Ukraine came from the EU.
Food inflation for Russia, as of April, hit 12.66%, with general inflation resting at 10.2%. This does not account for the soaring prices of staple food products like potatoes, which have tripled in price over the past year. “On a daily basis, people are not buying smartphones and television sets,” Central bank governor Elvira Nabiullina said. “They are buying food. If prices there are growing faster, it forms high inflationary expectations.” This is precisely why I note that issues like the Japanese rice crisis are causing overall confidence to erode.
The average Russian household spent around 35% of its income on food this past April, a five-year high, as reported by the Romir think-tank. Russia is seeking exports from its remaining trade partners. Egypt exported 274,000 tonnes of potatoes to Russia this May, a 4.5X increase from the same period one year prior. Egypt also provided Russia with 13,000 tons of onions and has become a major supplier of nuts, fruits, and vegetables. Other meal staples such as carrots, beets, and cabbage have seen a surge in prices.
China has also been working to solve the potato shortage by sending Russia 65,000 tons throughout the first six months of the year. Georgia, Pakistan, Kazakhstan, and Armenia have also begun to ramp up food exports to Russia.
Both China and Egypt have profited heavily from this war from an agricultural standpoint, as each is providing both sides with much-needed food imports.
Russia’s agriculture minister believes prices will begin stabilizing in July. As RCB Governor Elvira Nabiullina explained, the average person will first notice surging prices at the grocery store. It becomes a daily reminder that there are breaks in the system. The Russians and Ukrainians lost confidence long ago, but the situation is not improving for them. We see it everywhere with food prices leading to unrest. The reasons contributing to rising prices do not matter as the people will immediately blame the government. We saw it in the US, for example, with people outraged over the price of eggs. The Japanese are livid that the price of rice has multiplied.
The French Revolution began when bread prices surged beyond what the people could afford. The Arab Spring ignited not because of political ideology, but because food became unaffordable. Socrates picked up a shift in food inflation in 2019 before the COVID lockdowns and I have warned that it would be wise to stockpile food as that inflationary cycle did not end with COVID. While we are not at a point of revolution just yet, food prices have a major impact on overall confidence and high prices correlate with high unrest. The people will not obey when they are hungry.
