Russia and Ukraine account for about 30 percent of world-wide wheat exports, and although much of what they produced from the harvest in 2021 has already been shipped, there is some that remains in store.
There are also concerns about the extent to which harvests in the summer of 2022 might be reduced by the war, and the prospects for the plantings for the 2023 crop as farmers cope with working in a war zone.
The situation has recently been improved by the apparent agreement by Russia to permit exports from Odessa, but it may be some time before grain begins to flow in quantity from Ukrainian ports.
The UK imports almost no wheat from Ukraine or Russia for human consumption. Most of the wheat we use is grown in Britain. Imports account for only 15 percent of our requirements, and these come mainly from Germany and Canada.
But while we are not experiencing supply problems or availability issues, prices of wheat have risen steeply on all markets. Between February 16 and March 3, the quotation for wheat on the London futures market rose by 28 percent.
There were very similar increases elsewhere (eg France, USA), as all markets are connected. Market prices have since moderated in response to better news from Ukraine and the expectations of reasonable harvests in the northern hemisphere, including the UK.
This sharp jump in market prices followed earlier increases as a result of relatively poor harvests in 2021, and despite recent declines they remain well up year on year.
It is inevitable that in time they will feed through in increased consumer prices for a range of foodstuffs that depend on grain as a key input. These include items like bread but also a range of other foods such as eggs, meat and more. This is likely to lead to a higher level of UK food price inflation, sustained over a longer period than had already been anticipated.
The crisis has also led to increased costs for energy – another key ingredient for food manufacturers – and the fertiliser which farmers need for their crops. As with grain, these will have an inflationary impact on the economy and put additional pressure on household budgets. Regrettably, unlike grain, there is as yet no prospect of an agreement likely to moderate the disruption to energy and fertiliser markets.
A statement on the situation in Ukraine can be found on our site.