Global Food Crisis Tests Western Resolve to Retain Russia Sanctions


WASHINGTON — In Yemen, the price of bread surged 35 percent the week Russia invaded Ukraine. Wheat mills lacking grain in Lebanon have halted operations in recent months, forcing bakeries to shutter. And in Kenya, cooking oil is scarce.

As the United States and Europe contemplate their next rounds of sanctions to starve Russia of the revenue that is funding its war, there is growing concern that the fallout is fueling an alarming hunger problem around the world that will not easily be reversed. Policymakers have been scrambling to cobble together plans to open up supply chains and provide food financing to developing countries, but the combination of rising energy costs and constrained exports from Russia and Ukraine is threatening some of the most vulnerable populations around the world.

President Vladimir V. Putin of Russia has embraced and exacerbated the crisis, blocking exports of food and grain from the region and using the shortages as leverage to get Western sanctions rolled back. Top officials from the United States and Europe have so far rebuffed such offers while also debating how to extend sanctions without widening the collateral damage.

The region’s critical role in the food supply chain has meant a cascading effect, sending global food prices soaring. Much of the world’s grains and fertilizer flow from Russia, Ukraine and Belarus. Russia and Ukraine combined export about 30 percent of the world’s wheat and 75 percent of its sunflower oil. Cutting off those supplies, along with the uncertainty about the duration and scope of Western sanctions, has prompted other governments to block exports as nations try to stockpile goods.

President Biden said earlier this month that he is working on a plan to build temporary silos on the borders of Ukraine and Poland so grain that Russia is blocking from moving through the Black Sea can be transported by rail to Europe and beyond.

“I’m working closely with our European partners to get 20 million tons of grains locked in Ukraine out onto the market to help bring down food prices,” Mr. Biden said at an A.F.L.-C.I.O. convention. “But it’s taking time.”

In its latest Global Economic Prospects report, the World Bank said that nearly half of the people in low-income countries are facing food shortages, which often lead to social unrest.

“There’s a severe risk of malnutrition and deepening hunger and even of famine in some areas,” David Malpass, the president of the World Bank, said as he warned of global stagflation in early June.

People in emerging economies often spend the bulk of their daily budgets on food, and those expenses are climbing. According to the Food and Agriculture Organization of the United Nations, food prices in May were up by nearly 30 percent from a year ago, pushed higher by rising cereal and meat prices.

Soaring fertilizer prices, driven by sanctions on Russia and Belarus, along with high global energy prices, are broadening the scope of food shortages by making it more expensive to produce and transport food around the world.

“Without fertilizers, shortages will spread from corn and wheat to all staple crops, including rice, with a devastating impact on billions of people in Asia and South America, too,” said António Guterres, the secretary general of the United Nations.

The price increases are prompting new waves of protectionism. Countries such as Indonesia, India and Malaysia have restricted exports of cooking oil, wheat and chicken to insulate their domestic markets. About 20 nations have some kind of export control to limit the impact of high food prices, according to the Center for Strategic and International Studies.

The problem is particularly vexing because much of the food crisis can be attributed to Russian sabotage.

“It’s the war that is causing this to happen,” Paschal Donohoe, Ireland’s finance minister, said in an interview. “But policymakers in Europe, in America, within the G7 are very aware of the risks that, in particular, the developing world could face with regard to food security later on in the year.”

Mr. Donohoe, who is also president of the Eurogroup, a club of European finance ministers, said that policymakers are working to craft sanctions so they minimize food inflation. In the United States, the Treasury Department has issued several sanctions exemptions, or general licenses, that are intended to to allow food exports to continue to flow.

Despite those efforts, some fear that efforts to punish Russia are having unwanted side effects.

The European Union enacted a new package this month that will ban the majority of Russian oil imports. To tighten the restrictions, it is also phasing in a ban on maritime insurers of Russian cargo ships, a step intended to hinder Russia’s ability to redirect its oil to other parts of the world.

Treasury Department officials have cautioned against such a move out of concern that food cargo could also be affected. If insurers grow overly cautious about violating sanctions, they could engage in what the administration calls “self-sanctioning,” in which they refuse to carry any cargo over fears that it could get them into trouble. To prevent such a development, the Biden administration has been reminding agriculture and shipping companies that U.S. sanctions do not prevent them from buying and carrying Russian fertilizer.

Treasury Secretary Janet L. Yellen said in April that the United States is drafting its sanctions with global food supplies in mind.

“Even as we continue escalating our sanctions and other economic measures against Russia,” she said, “we reiterate our commitment to authorizing essential humanitarian and related activities that benefit people around the world — ensuring the availability of basic foodstuffs and agricultural commodities.”

Yet some development experts say that such commitments are not being met and that backlash over the sanctions is also percolating in Africa.

At a European Union summit in late May, Macky Sall, the chairman of the African Union, warned officials that cutting major Russian banks off the international SWIFT messaging system was impeding the ability of African countries to purchase Russian food and fertilizer.

“When the SWIFT system is disrupted, it means that even if the products exist, payment becomes complicated, if not impossible,” said Mr. Sall, who is also president of Senegal.

As the war in Ukraine drags on and food shortages worsen, the debate over whether some sanctions relief should be on the table is likely to intensify if it would stave off famine.

Ian Mitchell, of the Center for Global Development, said that Ukraine had become a global magnet for humanitarian aid to the detriment of low-income countries in the Middle East, Africa and Central America that were already facing food insecurity and now must cope with higher prices. He argued that sanctions relief should be on the table.

“There should be some serious consideration about whether there are some concessions on the margin that do tackle that suffering, even if it’s clear who the aggressor is in the war,” Mr. Mitchell said. “Is relaxing some of these sanctions really going to have dramatic influence of Russia’s calculations?”

That dilemma is exactly what analysts say Mr. Putin is counting on.

“Russia holding food supply hostage is reprehensible,” said Alex Zerden, a former Treasury Department official in the Obama and Trump administrations. “The fact that they are seeking to negotiate sanctions relief to allow for some grain exports demonstrates that Russia can unilaterally expand global food supply to help those most at risk.”

In the meantime, humanitarian aid groups are struggling to deliver assistance to poor countries as inflation stretches their own budgets.

The World Bank has pledged to invest $12 billion in new projects over the next 15 months to support farmers and facilitate trade, and many of the world’s major international financial institutions have pledged to roll out aid and financing plans to help ease food shortages.

For many countries, that could be too late.

Tjada D’Oyen McKenna, the chief executive of the humanitarian group Mercy Corps, said that sanctions are having unintended consequences for the most vulnerable communities and that higher shipping costs and export controls are making matters worse. Her team has been trying to offset rising fertilizer costs in Colombia and to help midsize dairy farmers in Lebanon build more capacity, but because of inflation the aid money does not go as far as it once did.

Ms. McKenna said that in Yemen, rations have had to be reduced so that families are just getting wheat flour and cooking oil but not beans and salt. The impact of the war in Ukraine, she explained, is being felt far from the conflict.

“Everyone is watching the reception and the support that Ukraine is getting and seeing how different countries in the Middle East and Africa have not been getting the same support,” Ms. McKenna said. “Decades of progress on poverty have been reversed.”


Soruce : https://www.nytimes.com/2022/06/27/business/russia-food-crisis-sanctions.html

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