Rising food and fuel prices due to Ukraine war to hit developing nations hardest, UN says

More than 5% of the import basket of the poorest countries are products that are likely to face a price hike resulting from the conflict

An Unctad assessment of the impact of the Ukraine war on trade and development confirms a worsening outlook for the world economy. Photo: UN

The Russia-Ukraine conflict is worsening the outlook for the world economy as rising food, fuel and fertiliser prices become “alarming” for developing nations particularly, the UN Conference on Trade and Development (Unctad) said.

Developing countries — which are already affected by the Covid-19 pandemic, rising debt levels and climate change — will be hit the hardest by disruptions in food, fuel and finance, the agency said in report that evaluates the impact of war on trade.

About 26 African countries, including some least-developed ones, import more than a third of their wheat from the two nations at war, the report said.

For 17 of these African countries, the share of imports is more than half.

On average, more than 5 per cent of the world's poorest countries’ import basket is composed of products that whose prices are expected to increase due to the Russia-Ukraine war, Unctad calculations showed. The share is below 1 per cent for richer countries.

“Soaring food and fuel prices will affect the most vulnerable in developing countries, putting pressure on the poorest households which spend the highest share of their income on food, resulting in hardship and hunger,” Unctad secretary general Rebeca Grynspan said.

“This is cause for great concern as social and political stability and increasing food prices are highly correlated.”

Russia and Ukraine are major players in the global agricultural commodity markets, representing 53 per cent of the global trade of sunflower oil and seed trade and 27 per cent of wheat trade worldwide, said Unctad.

International food and feed prices could rise by up to 22 per cent as a result of the continuing conflict and the ensuing supply gap, the UN's Food and Agriculture Organisation said last week.

Some countries are particularly dependent on agricultural commodities from Russian and Ukraine.

The share of imports from the two countries — as a percentage of total imports of wheat, maize, barley, colza, sunflower oil and seeds — is 25.9 per cent for Turkey, 23 per cent for China and 13 per cent for India, Unctad said. Poor countries face the highest exposure.

The risk of civil unrest, food shortages and inflation-induced recessions cannot be discounted, the report said, particularly given the fragile state of the global economy and developing countries due to the pandemic.

“Agrifood commodity cycles have coincided with major political events, such as the 2007–2008 food riots and the Arab Spring,” Unctad said.

Freight rates to rise even higher

The conflict could also drive up cargo rates, which were already elevated as a result of the pandemic, the UN agency warned.

“Such increases would have a significant impact on economies and households,” the report said.

Restrictive measures on airspace and security concerns are complicating all trade routes going through Russia and Ukraine, it said. Global air freight capacity will be further constrained and air cargo prices are set to rise as airlines are forced to take longer routes and spend more money on fuel.

The already expensive and overstretched maritime trade will find it difficult to replace these suddenly unviable land and air routes, the agency said.

Reversal of green investments trend

Unctad's rapid assessment of the war's impact beyond the humanitarian crisis in Ukraine shows heightened financial volatility, sustainable development divestment, complex global supply chain reconfigurations and mounting trade costs.

“Countries already under severe pressure due to the costs of the pandemic will see disruption in trade”, widening deficit and a contraction in investment, Ms Grynspan said.

Moreover, the sharp rise in oil and gas prices can shift investment back into fossil fuel-based energy generation, which raises the risk of reversing the trend towards renewables as the world deals with an acute climate crisis, said Unctad.

“All these shocks threaten the gains made towards recovery from the Covid-19 pandemic and block the path towards sustainable development,” Ms Grynspan said.

Mounting debt burdens, rising climate change costs, continuing pandemic effects and commodity price shocks increase the risk of a debt crisis in developing countries, the report said.

The combination of high food and fuel prices and macroeconomic tightening will place severe pressure on households in developing countries: real incomes will be squeezed and economic growth will be constrained, the UN body said.

“Even in the absence of disorderly moves in financial markets, developing economies will face severe constraints on growth and development,” the report said.