8 April 2022 — 1029 mdt
War and high profits are old partners
Montana’s farmers and fossil fuel producers
could profit from Putin’s invasion of Ukraine
By James Conner
Montana is a major producer of grain, and a significant producer of oil, natural gas, and coal. Shortages of these commodities caused by the conflict in Ukraine could drive up prices, putting more money in the pockets of farmers and hydrocarbon producers — and removing money from the pockets of automobile owners and everyone who has toast with their coffee.We are reminded of these trends every time we visit the grocery store and filling station.
Hence it is no surpise that the U.S. Department of Agriculture’s Foreign Agricultural Service in its 6 April 2022 monthly update reports that grain prices are increasing worldwide.
A number of factors have converged over the last 18 months to send global agricultural commodity prices to near-record levels. Russia’s invasion of Ukraine – and the potential loss of Ukrainian exports – was the latest development to push commodity prices higher. Other factors affecting global markets, which date back to late 2020, include: increased global demand, led by China; drought-reduced supplies; tightening wheat, corn, and soybean stocks in major exporting countries; high energy prices pushing up the costs of fertilizer, transportation, and agricultural production; and countries imposing export bans and restrictions, further tightening supplies.
As observed during the food price crises of 2008 and 2012, developing countries that are dependent on food imports are the most vulnerable to food insecurity. Such countries tend to respond to price signals by shifting consumption and trade patterns, while larger exporting nations respond by increasing production to meet demand. However, the geopolitical turmoil of a war between two major agricultural exporting countries, including the world’s largest fertilizer exporter (Russia), adds additional uncertainty and concern to today’s situation.
A month ago, a 2 April 2022 report in Der Spiegel (The Mirror) International warned the war in Ukraine could cause shortages of grain and send higher already high prices, wreaking havoc in hungry (“food insecure” in the anodyne argot of bureaucrats) nations.
Even in the weeks before the Russian invasion of Ukraine, food prices in many African countries had already been exploding. The price of wheat flour has risen by 15 percent over last year’s prices, and it is a third higher for cooking oil. But the war in Ukraine promises to make the situation even worse. “Already, 276 million people in 81 countries are facing acute hunger. The world simply cannot afford an additional conflict,” says Martin Frick, director of the World Food Program (WFP) in Germany.
He says that more than half of the foodstuffs that WFP distributes in crisis regions around the world comes from Ukraine. “Putin’s war isn’t just bringing immeasurable suffering to Ukraine,” Frick says. “The effects will be felt far beyond the region.”
Egypt, the most populous country in the Arab world, with over 100 million residents, imports the majority of its wheat from Russia and Ukraine, as does Tunisia. In both countries, poor people in particular are heavily dependent on bread. Experts in Tunisia are warning that prices could quickly begin rising as a result of the war. Many other countries in the region face similar problems.
Most Ukrainian and Russian grains are shipped to the Middle East and East Africa through ports on the Sea of Azov, a very shallow body of water, and the Black Sea, where there are deep water ports, in particular Odessa. Damage to port infrastructure could slow or prevent loading and unloading freighters. Blockades could prevent ships from docking or departing with loads. Damage to roads and railroads could interfere with shipping grains to seaports. And shortages of fuel and fertilizer could result in lower yields and difficulty harvesting the crops the war has not destroyed.
If Egypt cannot buy grain from Russia and Ukraine, it will seek other sources, among them Canada, the U.S., and Australia. That could increase the income of Montana’s farmers, who should not be blamed for taking a profit as long as it is reasonable and fair, and not opportunistic to the point of being gouging and extortion.
If Europe begins taking coal fired electricity generating plants out of mothballs, Montana and Wyoming could sell Europe more steam coal, a development that would generate more greenbacks and more dirty air.
What we can to do ease the hits on our bank accounts
Consumers, who will be whiplashed by these development, can buffer their exposure to sudden and steep short term price variations by laying in a three-month supply of food, buying big when something is on sale, and buying small when prices are at highway robbery levels. Without special tanks to store motor fuel, the only strategy is driving less and trading that gaz guzzling SUV for a less fuel hungry small station wagon.
We can also pressure Congress and the President to take steps to assist Ukraine that are sensible and do not run the risk of getting into a shooting war with Russia. Therefore, bless sending small arms such as antitank missils, and curse facilitating the transfer of Poland’s elderly MIG-29s to Ukraine, or, as Sen. Richard Blumenthal (D-CT) suggested, sending Ukraine surplus American A-10 ground attack jets that, with its 30mm gatling gun, packs a fearsome punch but may be vulnerable to Russian antiaircraft defenses. Above all, let’s support a ceasefire and peace treaty before the bread in our peanut and jelly sandwiches reaches a sawbuck a slice.