The war in Ukraine is likely to trigger the “biggest commodity shock” since the 1970s, the World Bank has warned.
In a new forecast released, the organization assesses that the conflict will contribute to the increase in prices of items ranging from wheat to cotton, including natural gas.
The readjustments are “starting to have very large economic and humanitarian effects,” Peter Nagle, co-author of the report, told the BBC. He stated that “families around the world are feeling the cost-of-living crisis.”
“We are particularly concerned about the poorest families, as a greater share of their income is spent on food and energy. They are particularly vulnerable to this price increase,” added the World Bank’s senior economist.
Energy prices are expected to rise by more than 50%, impacting both home and business bills, says the World Bank.
The biggest adjustment will occur in the price of natural gas in Europe, which should more than double. Values are expected to decline in 2023 and 2024, but will still remain 15% higher than last year.
According to the World Bank, in the nearly two-year interval between April 2020 and March this year, there was an escalation that represents “the biggest 23-month increase in energy prices since the oil price hike in 1973”.
At the time, a cut in the supply of oil by Middle Eastern countries, in retaliation for US support for Israel, caused prices of a barrel to skyrocket around the world.
Energy prices are rising because of Russia’s invasion of Ukraine and are expected to remain high in Europe until 2024
Imagem: GETTY IMAGES
Likewise, oil prices are expected to remain high over the next two years. The barrel should reach US$ 100 on average this year, something that will raise inflation around the world.
Russia is the world’s third largest oil producer, with 11% of the total, but the World Bank report says that “disturbances resulting from the war are likely to have a lasting negative effect”. With sanctions from Western powers, companies are leaving the country and cutting ties with the Russian economy.
Currently 40% of the European Union’s gas and 27% of its oil is supplied by the Russians, but European governments are acting to reduce this dependence. This move, however, raised global energy prices by driving demand elsewhere.
Wheat on the way to breaking records
The World Bank’s outlook on commodities also includes a forecast of a sharp rise in food prices. The UN price index is at its highest level in the historical series started 60 years ago.
Wheat is expected to rise 42.7% and hit new records. Other expected impact increases are the price of barley (33.3%), soybeans (20%) and chicken (41.8%). These are reflections of the drastic fall in exports from Ukraine and Russia.
Before the war, the two countries accounted for 28.9% of global wheat exports, according to JP Morgan, and 60% of global sunflower supplies, according to S&P Global. That last product is a key ingredient in many processed foods.
Effects in Brazil
For Sérgio Vale, chief economist at MB Associados, “it makes sense to think of unprecedented pressure on prices. In the Brazilian case, the impact is clearly inflationary because of fuels and wheat derivatives.”
“The question is whether these increases will be persistent or not. This inflation that is being generated could lead to an intense slowdown in the world economy next year, and this could lead to decompress in part the price pressure that we see now”, he analyzes OK.
Rachel de Sá, head of economics at Rico, recalls that the world economy was already in a cycle of high commodities before the war due to the effects of the covid-19 pandemic.
“Most analysts expected that commodity prices would at least lose strength, but the outbreak of war between Russia and Ukraine, two major producers of both agricultural and mineral commodities, changed things. So it’s not just a food price problem. , but also industrial inputs. Practically the entire production chain is affected”, says Sá.
She explains that inflationary trends should lead to higher interest rates: “We have a challenging period for the population as a whole, with high prices for goods and more expensive credit.”
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It is estimated that the prices of other important raw materials such as fertilizers, metals and minerals will rise. Wood, tea and rice costs are among the few items expected to fall.
“Wheat is one of the most difficult agricultural products to replace,” says a Bank of America report.
The analysis points out that bad weather conditions in North America and China are expected to worsen the impact of reduced Ukrainian exports – and with the war, spring planting has been stopped.
Bank of America estimates that Ukrainian grain and oilseed exports have dropped by more than 80% because of the conflict. Over the course of a year, this is “equivalent to about 10 days of the world’s food supply”.
The chief executive of Archer Daniels Midland, one of the world’s four largest food commodity traders, said he did not expect prices to fall anytime soon.
According to Juan Luciano, global grain markets will feel the effects in the coming years from a poor canola harvest in Canada and lower-than-expected results in South America, in addition to the war in Ukraine.
Peter Nagle of the World Bank says rising food prices are having “very large economic and humanitarian effects”
The World Bank’s Nagle said other countries could help solve the supply shortage caused by the war in Ukraine in the medium term.
However, an anticipated 69% rise in fertilizer prices this year means that “there is a real risk that as farmers use less fertilizer, crop yields will decline.”
For commodities in general, the World Bank report predicts prices will peak this year, but remain at a much higher level than previously anticipated.
The document points out that “the outlook for commodity markets largely depends on the duration of the war in Ukraine” and the disruption it causes to supply chains.
*With reporting by Shin Suzuki, from BBC News Brazil in São Paulo