by John Hirschauer
As a twenty-something living in Washington, you have to find ways to cut costs. A lot of people here go without cable. Others sell their cars and rely on public transport. I like television and the open road, so I gave up food instead.
I eat the same thing every week. It’s a joke around the office. On Saturday, I’ll buy chicken breasts, ground turkey, sweet potatoes, asparagus, protein bars, eggs, and wheat bread at the supermarket. If I play my cards right, I can walk out of the store having paid less than $60. For five days’ worth of food, that’s not bad. I cook some of it Sunday and the rest on Wednesday night. I hate it, but it’s been pretty good on my waistline.
Even on the Club Fed diet, I’m feeling the pinch of rising food prices. Bread has become more expensive in the past three months. Eggs have, too. Buying store-brand chicken is like buying Ibérico ham.
I’ll survive. I can always cut cable. For wannabe proles in the laptop class, the rise in food prices has been at most an inconvenience. But the outbreak of war in Ukraine and the coming disruptions in global food markets will immiserate the actual working class in this country and may kill thousands of the world’s poor.
Well before war broke out in Ukraine, prices in the food industry were surging. U.S. food prices rose a whopping 7.5 percent between 2021 and 2022. Indexed global food prices hit an all-time high last month.
The causes are familiar. Supply-chain disruptions have slowed production and slashed supply. The sight of barren grocery shelves has incentivized consumers to buy in bulk, sending aggregate demand skyward. Labor-retention issues and slumping workforce participation rates have reduced output and further cut supply. Labor issues have reached a point where meatpacking companies like Tyson plan to automate their processing plants to weather labor shortages.
At the same time, the prices of industry inputs like oil, animal feed, and fertilizer have soared. The price of urea—a popular, highly soluble nitrogen-based fertilizer—nearly doubled at the pivotal New Orleans port last year. In input-dependent industries like agriculture, where producers net only 15 percent of final retail cost, consumers inevitably bear most of the increase in input costs.
The effects of the war in Ukraine and the sanctions imposed against the Russian government and economy threaten to accelerate these trends. Russia is the world’s leading producer of wheat; Ukraine is fifth. Together, they are responsible for some 30 percent of the world’s wheat exports. War will almost certainly disrupt planting season in both Russia and Ukraine.
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Like most agricultural commodities, the price of wheat tends to move with the price of oil. The continued rise of crude oil prices, combined with the loss of Russian and Ukrainian wheat exports, will accelerate the rise in global wheat prices. That’s consequential domestically—paying $5.50 for a loaf of bread is no small thing—but abroad, it could be lethal. Wheat is responsible for some 20 percent of the world’s caloric intake. Nigeria, where 40 percent of people live below the global poverty line, is one of the world’s ten leading importers of wheat. What happens when they can’t afford to import grain?
More concerning is the possibility of a global shortage of nitrogen-based fertilizers, which would dwarf the impact of rising wheat prices. Without nitrogen-based fertilizers, half of the world’s population simply could not be fed. Russia is responsible for roughly two-thirds of the world’s ammonium nitrate production. To support domestic farmers and protect its fragile food supply, Russia banned all ammonium nitrate exports until April. Depending on developments in Ukraine, the Kremlin could extend the export ban in the future.
The West already sanctioned Belaruskali, the world’s second largest potash producer, in 2021, which caused fertilizer prices to soar. Losing Russian exports could drive global fertilizer prices—and, inevitably, food prices—through the roof. Many smallholder farmers will be unable to afford rising fertilizer costs, entrenching the power of large industrial farmers and cutting smaller communities off from a key source of food stability.