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March 15, 2022

Why the price of wheat is so important to food security and global stability

From flour to pasta, the versatility, resistance and affordability of wheat make it crucially important for global food security.

By Marina Leiva

It is present in almost every household in the world, and when its price rises sharply, riots and revolutions have been known to result. The economic importance of wheat cannot be overstated, and it mainly lies in the crop being one of the ‘big three’ cereal grains, alongside rice and maize, and a nutritional staple across the world. 

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Following the Russian invasion of Ukraine, a country known as ‘the breadbasket of Europe’, wheat prices are soaring to record highs, according to Erin Collier, an economist at the trade and markets division of the UN’s Food and Agriculture Organisation (FAO), which is shaking up the markets.

The full extent of these disruptions is yet to be felt, but the reason why these possible supply issues with wheat have been making international headlines is due to wheat’s important presence in diets across the world.

The widespread use of wheat, and its versatility, make it a staple food upon which the most vulnerable depend. In fact, numerous studies link social unrest to increases in food prices in countries that rely on imports of staple foods, with rises in wheat prices in particular being cited as likely to lead to unrest. 

In his study Food imports, international prices, and violence in Africa, Stijn van Weezel found that “food prices (especially for wheat) are related to the probability of violent events”, analysing African countries that are net importers of food. However, he did recognise that even though rising food prices can ignite social unrest, a country’s “regime type was a stronger predictor of such violence than food prices”.

Other scholars have conducted studies that show similar results, such as Jasmien De Winne and Gert Peersman’s paper The impact of food prices on conflict revisited. The authors acknowledge that most episodes of violent social unrest do not occur because of higher food prices but are “caused by broader economic conditions or political grievances”, although they do point out that income shocks such as food price hikes “can be a trigger to engage in violent events”.

De Winne and Peersman do not see this changing. “It is unlikely that the implications of these results will become less important in the future," they write. "For example, the demand for cereals in sub-Saharan Africa will approximately triple by 2050 and, unless there is significant local agricultural intensification and massive cropland expansion, [the region] will depend much more on imports of cereals than it does today.” 

The importance of wheat in tackling hunger targets

These shocks are forecast to carry on if wheat prices keep on increasing, which Dr Anna Szczepańska-Przekota at Koszalin University of Technology in Poland believes will continue to happen. 

“The most important factors affecting prices over the next few years are oil prices, which are showing an upward trend,” she says. “Moreover, the unstable political situation is not conducive to falling oil prices. Rising production costs, including nitrogen fertilisers and plant protection chemicals, translate rather into the forecast of high wheat prices.”

This is particularly alarming due to wheat’s role in tackling the global hunger problem, explains the FAO’s Collier, as the widespread availability of the crop is crucial to meeting the 2030 targets for the UN’s second Sustainable Development Goal – achieving zero hunger.  

“Wheat is a very important staple food commodity for many parts of the world, specifically the Near and Middle East and northern Africa, and we have seen several countries [in these regions] have had reduced harvests this past year,” says Collier.

This means that the FAO saw “higher import needs in those countries, making it even more important for there to be global availability of wheat in order to supply enough of the food staple in those countries”, says Collier, who adds that all of Asia is also a major consumer of wheat and the crop “plays a major role in food security”.

The aforementioned reduced harvests in 2021 coupled with the strong demand from wheat-importing countries have made global wheat markets tighter than usual in 2022, explains Collier, adding that this also translates to increased vulnerability to any – even potential – supply shock.

With both Russia and Ukraine being major exporters of wheat, the ongoing war is only going to add pressure to wheat markets, she says.  

Along with the harvest issues, logistic disruptions and high energy and transport costs are also affecting wheat prices. With Russia also being a major supplier of natural gas and fertilisers, sanctions could potentially disrupt wheat markets and make prices shoot up even further, says Collier.

Wheat powerhouses and problems ahead

The importance of Russia and Ukraine when it comes to wheat production is clear. Globally, Russia is the country that exports the largest amount of wheat, followed by Canada, the US, France and Ukraine, according to FAOStat data.

When it comes to production, China is the country that grows the largest amount of wheat, followed by India, Russia, the US, France and Ukraine (the reason they don't export as much being due to domestic consumption). 

The countries that import the largest amount of wheat are Egypt, Indonesia, Turkey, China, Nigeria and Italy. 

However, wheat production is at risk from climate change, and the countries that produce the highest levels of the crop could change as a result of this.

According to the FAO’s latest report on the state of the world’s land and water resources for food and agriculture, in the case of a high-emission scenario where global temperatures hike up to a 4.2°C increase, there will be shifts in lands suitable for rainfed wheat.

“Wheat production would increase in Argentina, Australia, Canada, Chile and Northern Eurasia, and decline in most of Central Africa and parts of Brazil, Central Asia and India,” reads the report.

This potential changing landscape, with the implications it could have on the production and import and export levels of wheat, is even more worrying when taking into consideration that the world's population is set to increase to at least 8.5 billion by 2030.

In the short-term, however, 2022 harvests are going to be crucial, as wheat markets are poised to be "really tight", according to Collier. This will be further exacerbated by the Russia-Ukraine war, and the world can only hope that a strong wheat harvest will save the most vulnerable countries from increased food instability.

This article originally appeared on Just Food sister site Investment Monitor.

15 March update: Russia moves to shore up domestic food supply through export curbs

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For more on Just Food’s coverage on how the conflict is affecting the food industry, please visit our dedicated microsite.

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  • A breakdown of the trend’s prominence across sectors
  • Insights into consumer online penetration, preferred electronic devices and engagement
  • The key drivers and challenges impacting the digital lifestyles trend
  • A spotlight on key innovations set to reshape the consumer landscape
  • Analysis of what’s next for digital innovations and how brands can leverage the trend
Download this report to keep in touch with the more digital consumer.
by GlobalData
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