• The war in Ukraine is having a big impact on food and energy prices worldwide.
  • Two experts explain why, and suggest what might be the longer-term implications.
  • Subscribe to the podcast: Radio Davos.

Russia’s invasion of Ukraine is having big, and potentially long-lasting impacts on the global supplies of food and energy.

On this episode of Radio Davos, Saad Rahim, Chief Economist at trading firm Trafigura, explains what makes oil and gas prices fluctuate so wildly, and considers the short and long-term impacts of the war on those vital commodities. He also considers whether the crisis is likely to speed up or slow down the global transition away from fossil fuels.

David Laborde Debucquet of the International Food Policy Research Institute assesses the impact on food supplies and prices of massive disruption in what has traditionally been the 'breadbasket of Europe', and he has recommendations for policymakers.

We also hear from David Beasley, Head of the United Nations World Food Programme, on how the crisis has immediate repercussions for hungry people all over the world.

This is an edited transcript of the episode:

World Food Programme chief on the impact of the Ukraine crisis on food aid

David Beasley, Executive Director, United Nations World Food Programme (WFP): You know, just when you think it can't get any worse, it does. I mean, Afghanistan, Ethiopia, a food and fuel price spike taking place. We were already hit. And I'm sure UNICEF and UNHCR the same thing. We were already hit right before Ukraine crisis with a $42 million increase in operational costs. We were already billions of dollars short for Afghanistan, Yemen, Syria, Ethiopia, the Sahel, let me just go around the world. And then when you think it can't get worse, here comes Ukraine.

And the difficulty here is Ukraine grows enough food to feed 400 million people on planet Earth. So when the farmers on the battlefields aren't planting or aren't harvesting, what impact do you think that's going to have? Fifty percent of our grain, for example, wheat, comes from Ukraine. And then when you put it in the global context of Russia and Ukraine together, not even to get into the fertiliser costs and fertiliser-based products, you've got a catastrophe knocking and looming on the door for the fall. That will be not a price issue but a supply issue - availability of food for people around the world. And that will be a catastrophe on top of a catastrophe.

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How is the Ukraine crisis hitting energy markets, energy supplies, and prices?

Robin Pomeroy: How would you explain how oil markets work, in a nutshell, to the non-expert?

Saad Rahim, Chief Economist, Trafigura: What we've seen in the last few years is just how critical oil is to the running of the global economy. Even during the peak of COVID lockdown, for example, we were still consuming about 85 million barrels of oil a day. So that's down from the norm where we normally consume, which is about 100 million barrels of oil a day, right?

If you think about that and if you think about how much prices are - they're normally about $100 in the last couple of weeks. So $100 times 100 million barrels a day, that adds up pretty quickly, right? So it tells you just how critical oil is in terms of global commodity markets.

Now there are a few very large producers of oil, among them Saudi Arabia, Russia, and then, as you know, in recent years, the United States. Those three big producers then followed by a few others: Canada, some of the other OPEC members, listeners may be familiar with OPEC, which is the group of petroleum exporting countries [that] in a sense control about a third of global oil production. And they will cut or raise production depending on how they see market conditions.

And we had a situation during COVID, for example, where they actually increased production right into the peak of the spread of the virus and the global lockdown. So increasing supplies at a time where we had a historic demand shock is one of the reasons where, some of you may be familiar, we ended up with actually a negative price for crude oil at one point. So, in a sense, you're paying people to take the product away from you rather than normally they would be paying you for that, right?

So it's an incredibly complex system. The big demand centres, as you can imagine, as with many other things: China, the US is the largest consumer, followed by China. Japan is still a very large consumer of oil as well, India and other emerging markets. Oil obviously is used globally - the growth is really coming out of a lot of these developing markets, emerging markets, whether it is China, India, Latin America, Middle East. So moving away from some of the more traditional demand centres in the US, Europe and OECD Asia.

It's a fairly finely calibrated system on a day to day basis, but it's very hard for physical commodities to match up exactly the supply and the demand on any particular given day, which is why you will have inventories, or stocks as we call them, sort of build or draw, you know, depending on the situation. So sometimes you get too much supply, so you're getting inventories building and sometimes you have less than what you need to meet demand and therefore you're drawing out of what you have built up.

Robin Pomeroy: So what's happened so far now, because the oil price will go up and down sometimes when people are speculating about what may happen: global tensions, a build-up of troops on a border, warnings of an invasion - but that hasn't actually stopped any oil supplies at that point. Can you talk us through a little bit what has happened over the last few weeks when an invasion actually did happen? Has there been interruption to supply? And also, there's this question of oil embargoes, people turning away from Russian oil and gas. What have been the drivers of the oil price, let's say, in the last three or four weeks?

Saad Rahim: Look, great question. And I think when we have shocks to a commodity market it really does depend a little bit on what the market environment is going into those shocks. So at times where you have a lot of inventory built-up you have high stocks, that's a cushion, it's a margin of safety that you have then. So if there is any particular supply disruption caused by war or by attacks on pipelines or things like that, embargoes, sanctions, what have you, then you can draw on those stocks and you have some cover for those supplies that are disrupted.

What we have seen this time, for example, though, is very different because ahead of the war, we were already in a very tight oil market to begin with. As the world was recovering from COVID, was starting to really to reopen, to start to travel again, to start to drive, fly, all these things again, you were really starting to see demand pick up very, very strongly. In particular over this year we were expecting demand to grow probably somewhere north of about 4-4.5 million barrels a day this year. Normally the oil market growth is probably about 1.5 million barrels a day, maybe 2 if it's a very strong year. So that gives you some idea of how strong we expected this year to be. Now, obviously coming back from a low base as you were recovering after COVID, but very strong demand growth.

On the other hand, supply was not expected to keep up with that demand growth. Why? Because even OPEC and Russia had cut supplies in order to help rebalance the market over COVID. They have been bringing some of these supplies back, but not quickly enough and not without the scope to be able to increase to match that demand.

Even though there are no specific hard sanctions on Russian oil, it is very hard and expensive to move it. So really, this is a very large disruption of the energy system.

—Saad Rahim, Chief Economist, Trafigura

So globally, we're looking at a market that was already very tight in terms of supply/demand fundamentals, and now you've added in this disruption from what's happening with Russia and Ukraine. And although Russian oil has not been sanctioned directly unlike, say, Iran, with Iran the idea has been to block Iran from exporting its oil completely. You have seen some embargoes from places like the United States, Canada, the UK saying we won't take Russian oil, but these are generally places that don't consume that much Russian oil to begin with.

So really, what we have seen is sort of 'second-order' sanctions, I would say, around, banking, finance, insurance, freight. These are kinds of things that, even though oil is not blocked from moving out of Russia on paper, these things have introduced enough sand into the gears of what is an incredibly complex logistic system, such that you really don't have Russian oil that is moving in large volumes.

Of the, let's call it 4.5-5 million [barrels] that Russia normally exports, I would say probably about 3-4 million right now is impacted in some way.

The crude oil that flows by pipeline out of Russia is not being affected because those are going directly into refineries so there's no freight component, no putting it on a ship, no need to insure it, you really don't have banks that are getting involved to the degree that you have with seaborne or waterborne crude shipments or oil shipments.

It's really on the waterborne side that we're seeing a real slowdown. You can see that because what Russian oil is being offered to the market - there are companies that had pre-existing supply agreements with Russia before all this happened - they have a quantity of oil that has not been sanctioned and they're trying to now sell that - that oil itself is not sanctioned, but no one really wants to take in. You can see that in the discounts that are being offered for this crude. So normally, this type of Russian crude would trade a few dollars a barrel above the global benchmark which is Brent. Instead, you're seeing discounts of up to $30 dollars - minus $30 dollars against Brent - for these cargoes. That's a huge shift. And yet you would think that some consumers might be looking to to purchase crude on the cheap, whether it's China or India. And they are not really stepping up to the plate to buy this in quantity, in size. Eventually they may decide differently. But today, even though there are no specific hard sanctions on Russian oil, it is very hard and expensive when you can to move it. So really, this is a very large disruption of the energy system.

Robin Pomeroy: Why would markets like China and India not be buying that? It's a product that's in massive demand globally right now. They can get it 30% cheaper than Europe can buy oil from elsewhere. Why would they not be doing that?

Saad Rahim: I think they will continue to buy some amount, probably close to what they've bought historically. China has these pipelines that run into China from Russia, that delivers it directly, so that that flow is still going.

But I think buying seaborne crude, I think they've seen the backlash that companies like Shell, for example, faced. Shell bought a cargo - actually from us. And it was at a very large discount to what the price normally would be. This was oil pre-war that we had ownership of. They bought it. It was, in a sense, a great discount for them. But there was an immediate public backlash against that, against them. And they said, look, we can no longer trade Russian-origin material given this kind of backlash.

And that's really what the Chinese have come out and said, that even though we need to look at ensuring commodity supplies for China, we have to do it at a price that is appropriate for us, we are, in a sense, a large enterprise and we do need to look at all the ramifications of this.

There's a lot of what we would call self-sanctioning going on in the industry.

—Saad Rahim, Chief Economist, Trafigura

So they are not looking to really step up and buy cheap barrels today. Again, that may change. There may be a price line at which they say, look, this is too tempting to miss out on. But that's not the case today. They're looking at the escalating violence in Ukraine. There's talks today, there may be some sort of ceasefire or peace agreement. If that's the case, I'm sure there will be some of these flows that do open up. But the longer this continues, the worse the violence gets, I think the harder people are finding it to really do it, to be able to trade.

There's a lot of what we would call self-sanctioning going on in the industry, meaning even if the EU, for example, said, look, we have not put a ban on on on Russian oil, in fact, let us be very clear that we want to continue accepting this, companies are not really handling it. So whether it's Shell, BP, Total, who normally would handle a lot of these volumes, a lot of the refineries in Europe are saying, we're not touching this, we're not accepting the material.

Eventually this whole system has to recalibrate and it will likely do so at some point. The idea, though was that probably China, India would take maybe more of it than they had been. But so far they have not. And that's causing a real backup in the system. And the reason for that is you do have physical storage capacity constraints. If you're Russia and you're still producing 10 million barrels a day that you're supposed to be exporting about five of that - 5 million barrels a day of liquids adds up very, very quickly. And so you start to run out of storage and you have to start to shut down refineries as well as in your upstream production operations. So we'll see how that goes.

Robin Pomeroy: How would you judge the Ukraine crisis in terms of a market shock or a game changer compared to other things that have happened during your career that you've seen? Where does it rank?

Saad Rahim: We saw something similar with when Iraq invaded Kuwait. And I think actually at that time it was a larger volume that came out because both Iraq's and Kuwait's volumes were out. There were both major producers. That was a bigger disruption in what was a much smaller market. Both of them were producing about the same as they are today, but in a market that was significantly smaller than it is today. So in terms of a pure supply-demand balance, I think that was larger and that continued for quite some time.

This may be one of the more profound remakings of the energy market that we've seen in quite a while.

—Saad Rahim, Chief Economist, Trafigura

But this may have some longer lasting scars and consequences. Iraq oil was able to come back into the market fairly quickly afterwards. Kuwait certainly was able to restore a lot of its production. But if Russia, depending on how the endgame here goes, and I don't think anyone really knows, but there are scenarios in which this continues to escalate, the violence continues to become worse, and the tide of public opinion says - even if there is some form of settlement or ceasefire that is acceptable to both parties in Ukraine and Russia, but the damage that has been done to public opinion - says, look, we may want to keep Russian oil out of the market for longer than we have anticipated, and these sanctions don't get rolled back right away.

This may be one of the more profound remakings of the energy market that we've seen in quite a while. In terms of then saying, where do these flows go from Russia? Are they completely shunned or do we start to see a realignment of the energy system? These flows start to move more into China and India, those displaced flows from the Middle East and West Africa, those go back into the Atlantic Basin markets, and what does that look like?

So I think we are looking maybe at a scenario where we do start to see some very profound shifts on the oil side. And on gas you're already seeing it. Very much so. Regardless of what happens from here, Europe is saying we want to reduce our dependence on Russian gas. We get 40% of our supplies from Russia, so we want to now start building alternatives, both in the renewable space, and so displacing gas, maybe rethinking nuclear, maybe having to bring some coal plants even into reserve, also really bringing in LNG - liquefied natural gas - it's a gas that has been supercooled and compressed and then is put on ships and then is brought into terminals and has to be then turned back into gas, which, as you can imagine, is an expensive process, but allows you more flexibility than having to sit on the end of a fixed pipe from Russia. And so I think Europe is really starting to look at that. And again, that's a profound remaking of the global gas system. We've been used to Russia providing gas into Europe for decades now. And so if we're moving away from that, then this will have knock-on consequences in other places in a way that I don't think we have seen before.

Robin Pomeroy: Now, how will all of this impact on the famous 'energy transition'? We've got to move away from fossil fuels by 2050, make a big effort on that this decade.

Saad Rahim: This is a great question, is one we have been speaking about as an industry for for quite some time. Oil prices really collapsed in 2014. They went from about $110 to the low in 2016 of about $28. A major, major move down. And that really set off a cycle which starved the industry of capital and new investment.

To put things in context, normally you probably lose about 4-5% of your production base every year as you produce oil out of a reservoir - there's less of it to then produce over time. And so you need to then continue to invest to an amount that allows you to at least maintain production, if not grow it as demand goes up. So in a sense, you have to constantly being investing and investing more than you were the previous year to grow that production, to keep pace with demand.

And we didn't do that really since 2014 all the way til now. And so there's probably something in the order of $2-3 trillion of projects that have been cancelled, shelved, pushed back. And that has created a major supply gap in the market. And that's what we're feeling right now. We don't have the flexibility to bring on barrels when there is this type of disruption from Russia when we're seeing the kind of demand that we're seeing.

So part of what's been happening is that people have been saying, look, we really need to focus on the energy transition and we need to reduce our usage of fossil fuels. And I do think there's been a bit of conflation of fuel that we use for power generation and fuel that gets used for road transport. People tend to lump all these things together in one go and say, OK, well, for the energy transition we need to build a lot more renewables, we need to reduce our dependence on coal, and then also do a lot more electric vehicles. Whereas I would say these are probably two different problems, in a sense.

And the point I'm making here then, is oil demand is here to stay with us for some period of time. Even if it's not growing in a few years time, you still have to maintain that baseload of demand, and we're not investing enough to meet that right.

So my concern for quite some time has been that given the underinvestment in oil and gas, is that you were in a sense almost cannibalising the funds that you will eventually need for the energy transition because oil and gas prices will spike to levels that place an economic burden on the global economy and therefore you don't have enough to actually fund this energy transition.

Robin Pomeroy: Will the high prices of oil help wean us off oil? Or will the reverse be true?

There has to be a question around what is the most sustainable path that gets us to an end point that we all want to be at, which is that we have reduced our dependence on these fuels.

—Saad Rahim, Chief Economist, Trafigura

Saad Rahim: Given the volatility in prices - we were just at $130 and now today we're below $100 - companies have been a little bit, I would say understandably perhaps, gun-shy about investing in new projects, especially ones that have a long lead time. So if you're saying, well, if I start a project today but I don't get the oil for another five or seven years, what will the environment be like when I bring those barrels into the market? Is it going to be a market where people are saying, look, we don't want this oil? So am I simply destroying shareholder value by investing in these things today when I could be returning it to to shareholders?

And that's where we're seeing a lot of - companies are eschewing new capital investment to return, in the form of buybacks and dividends, cash to shareholders, They're saying, look, that is what we are being told by our shareholders that that's what they would like us to do.

So I think there has to be a question around what is the most sustainable path that gets us to an end point that we all want to be at, which is that we have reduced our dependence on these fuels, that we are able to then reduce the amount of carbon in the atmosphere. But again, to do it in a way that we're not penalising, in particular, emerging markets where they can't handle price spikes like this, what we're seeing, that does cause economic hardship, that does cause demand disruption.

I think this is something that is getting a rethink now in the wake of what's happening with Russia and Ukraine. As you say, there's a big push now in Europe to say, OK, we need to think about how do we reduce our dependence in particular on Russian gas? You know, does that involve building more renewables? But also it likely involves bringing in more LNG from places like the United States. And so we need to maybe build more regasification terminals for this LNG when we've been reliant on pipeline gas from Russia.

I think governments are realising a little bit it has to be an 'all of the above' solution. It can't just be a 'pick winners' and invest that way, because you simply won't have a smooth enough transition, if that's the case.

Robin Pomeroy: Putting our money where our mouth is, or politicians deciding certain things, where do you feel the cards are going to fall after this, or during this?

Saad Rahim: Well, our CEO likes to say 'price is the best geologist'. As in, if prices do stay high and are sustained at those levels, that effectively is a market signal telling you that the world needs more investment in this sector, right? And especially in what is still, relatively speaking, a low-yield world, people are still looking for returns. I think eventually the types of returns that we're seeing at these prices, people will then say, OK, capital needs to come back to the sector because you can earn a return that is commensurate with what we're looking at in terms of the downside.

But that takes time and that takes prices to move higher and stay higher. And I think what we have seen is that even with prices at about $100, we are still not seeing massive new investment come in. We're starting to see the US shale sector start to turn up a little bit. But even there, these are companies that have been burned badly. You know where companies in the last few years when they announced a new drilling programme, a new capex programme, would see their share price plummet, in fact it would be punished by shareholders who are saying, look, that's not what we want from you. We want the cash back.

So until companies start to say, and investors start to look at it and say, look, this is a long-term returns game, that we need to then bring capital back into the sector. That's when you will then start to see that. But that is a market mechanism that needs to take place. And we're not quite there yet.

Robin Pomeroy: But at the same time that market signal, that price signal, doesn't it also make renewables look like a bargain now?

Saad Rahim: Agreed. And I think that is what we're seeing. We're seeing the new strategy come out of the EU in particular. But even coming out of COVID, if you looked at China, you looked to the US, you looked at Europe, major new stimulus plans directed towards renewable energy, towards electric vehicle infrastructure and charging and all of that.

But again, I wanted to just highlight the difference between building out renewable power doesn't solve your need for oil transport, right? So the infrastructure really for EVs is just not there yet. Your production capacity for auto manufacturers is just not there yet. And I think the point is it's just a longer process, I think, to to move off of this. I think that's the problem is that there's a mismatch in timing. So I think you can say absolutely today, as oil prices move up very substantially, renewables and electric vehicles both look much more attractive. So instead of having to fill up my car and paying substantially more, if I had an electric vehicle it would it would cost me next to nothing. But having said that, it's a long process. Right now it takes about 12 years to turn over the US fleet, in terms of cars. How do we solve these problems at these end-points in the future? We want to arrive at 2050, we want to arrive at 2030 in these places, but you can't ignore what's happening right now on the ground today.

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The impact of the Ukraine crisis on global food supplies

Robin Pomeroy: When it comes to commodities traded on the global markets, it’s not just oil and gas - much of the food that we eat is also bought and sold by traders.

Someone who knows about that is David Laborde Debucquet, a Senior Research Fellow at the Food Policy Research Institute thinktank in Washington. I asked David why Ukraine and Russia were so important for global food production

The combined shares of Russia and Ukraine on the wheat market globally [pre-war] is one-third ... What they export represents 11-12% of the global market for calories.

—David Laborde Debucquet, Senior Research Fellow at the International Food Policy Research Institute

David Laborde Debucquet, Senior Research Fellow at the International Food Policy Research Institute: Historically, we have seen this region of the world as the breadbasket of Europe, so it's not a novelty. It's just with what happened after the Second World War, this part of Europe was disconnected from the rest and even from a lot of global markets. After the collapse of the Soviet Union, agriculture in this country also collapsed. So in the early 1990s, these countries were actually net importer of grains. But after 20 years they recovered and they have become leading exporters of cereal products, in particular wheat, sunflower seed and sunflower oil.

And just before the crisis, if you were taking the combined shares of Russia and Ukraine on the wheat market globally, it's one-third. So yes, they have become key food exporters. And if you try to convert all the agriculture commodities into calories, what they export represents 11-12% of the global market for calories.

Robin Pomeroy: Absolutely huge then. So how have we seen the war affect those supplies around the world?

David Laborde Debucquet: Even before the war and the invasion started, there was a lot of military operations. The ships that move around the Black Sea were disrupted. So actually, Ukraine stopped to export even before the military operation. And of course, now there is a war, so basically there is no shipment leaving Ukraine. The game of sanctions and retaliation also has disrupted the exports of Russia.

So we have this area, that is not the breadbasket for Europe anymore, but the breadbasket for North Africa, Middle East, even part of Africa and Asia - that's where the biggest disruption takes place right now.

So - food cannot leave the Black Sea to go where normally it is aimed to go, and markets panic, governments panic, so prices increase on the spot, and that's really the short-term effect. Then we are going to have more medium-term and long-term consequences, both on the food market and on the fertiliser market.

Robin Pomeroy: So there are two ways that this these flows of grains are being stopped: by military events for Ukraine, even before this invasion actually happened, and then sanctions. How are sanctions stopping Russia exporting?

David Laborde Debucquet: Mainly through the fact that you have some companies that do'nt want to operate with Russia right now. Even if the sanctions try to protect food trade you have just a number of companies that do not want to do business with Russia on the spot for various reasons. That can be just a matter of of communication or even just thinking that their banks will cause problems. So we have this specific aspect. Of course, the SWIFT sanctions also make business more and more difficult.

Robin Pomeroy: That's the banking the bank transfer organisation.

David Laborde Debucquet: Exactly. So for very large transactions, in particular from government to government, it doesn't really matter. But for a lot of medium-sized operators, actually it creates a disruption.

And then you have the fact that the sanctions applied to Russia have led Russia also to kind of retaliate, either by saying I'm not going to export fertiliser, or just also because their own economy is collapsing and the purchasing power of people in Russia is collapsing. So now they say, ok, I want to keep grains for myself, with export restrictions, things like this. So you see, there's a number of direct effects and indirect effects coming from how these things impact Russia, Russian behaviour and, of course, the Russian economy.

Robin Pomeroy: So what will be the impact of these reductions or disappearance of exports of food from those two countries on the world?

David Laborde Debucquet: On the spot, you already have countries, in particular in the Near East or in North Africa, that have already bought some grains from Russia or in particular from Ukraine, that are not delivered. So, there was grain in Odessa, normally it should have been sent, it's not sent. So now you have these countries trying to find other options. And so they are turning to South America. They are looking at Australia. They are looking at India. So other, particularly wheat, exporters that can fill the gap in the short term.

20 million tonnes of wheat from Ukraine that should have normally reached the market may not reach the market. So it will create an additional vacuum with very limited options about how we are going to fill it.

—David Laborde Debucquet, Senior Research Fellow at the International Food Policy Research Institute

And then the two big questions: how long this conflict is going to last. First, can Ukrainian farmers go back to their fields in April to plant some of their spring crops? But what would be the state of infrastructure? Are they going to have oil for their tractors? So there is a number of questions.

And for the key commodity here that is wheat - the wheat has been sown during the last winter and normally should be harvested in July and August. And so the question is, will it be possible or not? And here we are talking about 20 million tonnes of wheat from Ukraine that should have normally reached the market and may not reach the market. So it will create an additional vacuum with very limited options about how we are going to fill it this year.

In 18 months, everyone will have factored this in. The northern hemisphere will have taken new planting decisions and things like this. But in the short run, we have this gap that is created and that will put a lot of pressure on wheat market and will force people either to reduce their consumption in some places, some governments to increase the amount of subsidies they give to their population to pay for it.

Then for Russian agricultural production, it's not clear what's going to happen because Russia is still going to export to some countries. Maybe they will have to discount their price when they sell to China, when they sell to India. So we are going to see a number of domino effects.

But, you know, just changing the pattern of regional and global trade flows has always a cost, you know. You need to have longer maritime routes. You need to find new business networks. So it's not like, oh, we just have one tonne of wheat from Russia - before it was going to Egypt, and now we teleport it to China. That's not as simple as that. That takes place, that takes time, and that's expensive.

But then, of course, the big issue is fertilisers, because also Russia and Belarus are key exporters of fertilisers. Normally, the Black Sea market is a very active market for fertilisers and fertilisers impact every product everywhere in the world, of course, to different degrees. But you know, if you are in Brazil and you don't receive your potash - normally it comes from Belarus - you are going to produce less. And if Brazil produces less, the world produces significantly less food.

Five countries represent 80% of the markets. So if you lose one of the big players like Russia, you put a lot of pressure on the other guys try to fill the gap.

Robin Pomeroy: So I'm guessing all of this will lead to price rises. Can we talk a little bit about that? Presumably as wheat is a traded commodity, the price in the markets has already shot up because of this. Is that right?

Even before the crisis we already had historically high level of food prices on global markets.

—David Laborde Debucquet, Senior Research Fellow at the International Food Policy Research Institute

David Laborde Debucquet: Yes. It has really skyrocketed five six days ago. Since then, just started to go down a bit. But we also just have to keep in mind that all of these commodity prices were rising since April 2021. So even before the crisis - five years before the invasion - we already had historically high level of food prices on global markets.

Robin Pomeroy: Any particular reason for that?

David Laborde Debucquet: Several. First, last year we had a number of bad climatic events. Drought in some wheat areas, in Canada, in the US, even in Western Europe. We have a lot of pressure. We had what we call a La Niña - that is another weather event, in Latin America, that is putting a lot of pressure on the soybean markets. We also have a number of drivers in Southeast Asia, with a disruption in Malaysia and Indonesia coming either from some of the consequences of COVID-19 or just also a climatic event. And at the same time, we have still a strong global demand.

For vegetable oils, the biofuel policies that are implemented in the US, in European Union, in Indonesia in particular regarding biodiesel, have put a lot of pressure on the vegetable oil market. So a couple of weeks ago, we were talking about $2,000 per tonne of vegetable oil. Five or six years ago, people were more about $600 per tonne. So you see a very strong increase.

And last but not least, China after the lockdown of 2020, when they were back on the market in 2021, they bought a lot of everything from everyone. So really, that does push prices at a high level. And of course, all the overall issues regarding disruptions in value chains that you may have heard of - and that makes life more complicated for everyone.

And at the same time, fertiliser prices were also rising. In some cases for similar issues, in some cases due to a high price of natural gas, in particular in Europe. We have seen export restrictions taking place. Last September, China decided to limit the export of fertilisers and that created all of these conditions of shortage on the world market, pushing prices up. And of course, if fertiliser price goes up, the price of producing food goes up.

But just to go back to the key point - yes, wheat prices are historically high, but they're the same thing for soybean and corn, even if Ukraine doesn't produce soybeans. So all these markets are interconnected. That's a concern, even if you don't consume a lot of wheat and you are in the livestock sectors and you try to feed your animals with soybean meals or corn, you are also impacted by the situation,

Robin Pomeroy: Which brings me to potential solutions. You'd think, OK, we'll stop eating this, we'll eat something else. But in fact, if food prices are high across the board, that's probably not really an option. What are the options for countries that are very reliant on Russian and Ukrainian exports? And what are the options for everyone else in the world in general to try and get a hold on this because this will push food prices sky high? Are there any kind of immediate things that countries that import those products can do? And then secondly, what about the world overall, what can be done?

David Laborde Debucquet: So on the one hand, what we want is to promote cooperation among countries to avoid panic, to avoid that exporters start to put more and more export restriction, as we saw in 2007, 2008, and to make sure also that importers don't kind of compete for the same resources and just, you know, increase prices on top of each other.

It's much more easy to say than to do. Even if you think about how people reacted during COVID 19, they are rushing to the supermarket and they are buying stuff. And countries are doing the same thing. At the end that's not really useful, but that's how people and countries operate.

So really - more cooperation and really a lot of restraint in all these export restrictions will be key to avoid panic and make sure that markets behave as we expect them to behave, so restraint.

Then money is still going to be part of the story, meaning that you need to help some countries in the short term to pay for their import bill, and also for some countries to deploy a social safety net that will protect their poor consumers. And here targeting is an important word. You don't need to reduce the price of food for everyone everywhere. If you are a rich household in advanced economies or even in Africa you will adjust to rising food prices. Now, if you're a poor household in the Horn of Africa, you already spend 80- 90% of your daily income on food, so you don't really have a margin for adjustment except eating less. And that's a type of nuance that we need to see.

Last but not least, obviously not all the food importers are in the same situation. If you take Lebanon today, Lebanon, they rely more or less 75% for their food security on global and regional markets. It's a service economy, on the coast, in an arid area, so it would make a lot of sense in the normal situation to depend on this market. But right now, you don't really get much more money from any of your normal business activities. And the situation is different for Iraq, because Iraq also imports food, but Iraq has oil money. And with the current level of oil prices, the Iraqi government has instruments and resources to manage the crisis in a very different way.

When we think about the vulnerability of countries, it's not because you are a food importer that you are in trouble right now. Of course, the situation is a bit more difficult, but if you are exporting other products or minerals, you actually can even be better off. And it's pretty much about how you, the government, is going to manage and redistribute money around than asking anyone to help them.

Robin Pomeroy: So what should we be looking out for? Now you mentioned the harvesting season and then the planting season. When will we know if things are starting to get better or starting to get worse? What are those key steps?

We hope to see collaboration and rational planning and rational thinking, and not just an emotional response.

—David Laborde Debucquet, Senior Research Fellow at the International Food Policy Research Institute

David Laborde Debucquet: So, so on one hand, the situation on the ground in Ukraine is going to be very important. We all hope that conflict will stop as quickly as possible. And to some extent, people in Ukraine, in terms of food insecurity, people in Ukraine are really on the front line. You know, we talk about global food insecurity, but if you are a refugee or if you are in a Ukrainian city right now, you have serious concerns of food security. And Ukraine is 40 million people, so, there is a global concern but also there's a local concern.

So, conflict can stop. People can go back to normal. The question is how infrastructure will look like. Because even if you are a farmer that can go back to their field, are they going to have fuel. But then even if they harvest the grain in July, can we bring this grain to the port on the coast? How the rail infrastructure, railroads actually operate, they have been already damaged. So planting, harvesting and trading from Ukraine is really a hotspot of concern.

But then around the world, are we going to have enough fertiliser for the farmers? You know, how we are going to manage a potential shortage of fertiliser this year is a big question mark on which we hope to see collaboration and rational planning and rational thinking, and not just emotional response.

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