The impact of the war in Ukraine will be felt far beyond European shores. With Russia and Ukraine together being responsible for 12% of all calories traded, and natural gas forming an important component in fertilisers, the war is exacerbating food inflation. Coming at a time when many of the dominated capitalist countries have built up massive debts in the wake of the coronavirus pandemic, the war is adding to a perfect storm that will provoke class struggle on a global scale.
What is causing food inflation?
The war in Ukraine will exacerbate many of the problems the world economy was already facing before the start of the conflict. Food inflation is no exception. Supply chains had already been disrupted by the pandemic, causing bottlenecks in distribution and increasing the cost of shipping.
Added to these price pressures, the soaring cost of energy has pushed up the cost of transportation even further. Extreme weather conditions, such as a severe drought in the Middle East, have also disrupted food production in many countries. This has pushed up demand for food imports to make up for lost production. It is estimated that Iran, for example, will need to import 7 million tons of wheat this year, up from 4.8 million in the previous year.
The war in Ukraine will exacerbate many of the problems the world economy was already facing before the start of the conflict – food inflation is no exception / Image: Socialist Appeal
The invasion of Ukraine has exacerbated these problems. Russia and Ukraine are the world’s largest and fifth-largest exporters of wheat respectively. The disruption that the war has brought has meant that wheat prices increased by around 35% in the three weeks after the war began. The price has since fallen somewhat, but it still remains at its highest level since 2008.
Enough food certainly exists to feed the world’s population, but the chaos of the war and the anarchy of the market mean there is no quick fix for these problems. Exports of foodstuffs that have already been produced have been severely disrupted. It is far from easy to export via the Black Sea in the middle of a war. In fact, there are now 140 merchant vessels trapped in port for their own safety, unable to be used to export more food.
The war also risks future harvests. The UN’s Food and Agriculture Organisation has said that up to 30 percent of Ukraine’s arable land in 2022 is likely to go unplanted or unharvested due to the conflict.
Given these supply problems, one might expect production to be ramped up elsewhere to meet demand. But in order to do this, farmers need fertiliser. But an important component of fertiliser is natural gas, and the price of that has also shot up. The Guardian reported on 8 March, that prices of fertiliser in the UK were nearing £1,000 a tonne, up from around £650 just a week beforehand.
The market is not only incapable of solving this problem – it will make it worse. The only reason for a capitalist to invest in something is in order to make a profit. Therefore, the surging prices of food are likely to be aggravated by capitalists speculating on the market. From the point of view of the capitalists, it does not matter if hundreds of millions of people go hungry, as long as they can make a tidy profit.
In response to the crisis, countries around the world have reacted with protectionist measures. Already, Russia and Ukraine have banned grain exports, whilst Argentina, Hungary, Indonesia and Turkey have all brought in restrictions on the export of food. It was not so long ago that the ideologists of capitalism would regularly praise the unstoppable force of globalisation. What we see now, though, is that, in a world of growing competition between antagonistic nation states, when there is a crisis, each ruling class attempts to export its problems abroad. The food crisis is no exception to this rule. The consequences for humanity have the potential to be catastrophic.
We are seeing a potent combination of pressures on the supply of food and increased transportation costs precisely at a time when demand is high. The barriers of private property and the nation state mean that this problem cannot be solved in a capitalist system, without large numbers of people going hungry.
“Social unrest on a widespread scale”
It is often said that war is the midwife of revolution. This war may prove no different. At the start of February this year, the New York Times quoted Maurice Obstfeld, the former chief economist at the IMF, who warned that increasing food prices were making him worry about “social unrest on a widespread scale”. He said this, moreover, before the war in Ukraine had even begun. He was right to be worried. After all, one of the causes of the French Revolution was precisely surging food prices. In addition to this, if we take a look at a graph of wheat prices over the past 25 years, we can see two peaks. One peak is the current price and the other is in 2008. As Foreign Policy reports, this surge in the price of food meant that the period of 2005 to 2011 saw 250% more food riots globally than are seen on average. This eventually also led to the Arab Spring, also referred to by some at the time as a ‘Hunger Revolution’.
One of the countries most exposed to the effects of the war is Egypt. Since it produces less than half of the food it needs to feed its population, it has to rely on imports. It is the world’s biggest importer of wheat, 86% of which comes from Russia and Ukraine. Like many countries, in order to allow Egyptians to eat, the government subsidises the price of bread. However, as prices increase, it becomes more and more difficult to maintain this subsidy. The finance ministry had set a budget of $255 per ton for this year, but the price has now risen to $350.
Two peaks are clearly noticeable in the price of wheat over the past 25 years – one peak is the current price and the other is in 2008. During the previous surge in prices, food riots increased by 250% compared to average / Image: Trading Economics
Indeed, late last year, President El-Sisi called for a revision of the bread subsidy. This is not something that any ruling class or its representatives can consider lightly. When this was done in the 1970s, it triggered riots. It is not at all improbable that more unrest could follow if El-Sisi follows through with his threats. After all, food price inflation is seen not just in the price of wheat, but in a wide array of different foodstuffs. And the effects of this are now being felt. The Financial Times recently interviewed a mother of two, who said that she is “barely managing”, pointing to the increase in the price of cooking oil as causing particular difficulties. Ukraine is also the biggest producer of sunflower oil in the world.
Consciousness, in general, is quite conservative. People hold on to the old traditions, morality and way of life for as long as they can. However, it must eventually reach a breaking point. Big events shake people out of their previous way of thinking. What we see is that the price of basic necessities – not mere luxuries, but things that are needed to live – are becoming too expensive. Millions of people are being forced to ask: why is this happening? Why are most of us suffering whilst a few individuals at the top seem to be thriving? Is there a better way to organise our lives? When this questioning occurs on a mass scale, it has revolutionary implications.
Egypt is not alone in this. Tunisia imports approximately 70% of its cereals. Food subsidies are under threat as a result of the strain on public finances. Subsidised baguettes are sold for 190 millimes, but the cost of production has now reached 420. Lebanon only has capacity to store one month’s worth of reserves due to the explosion that rocked Beirut in August 2020, and 80% of the wheat that it imports comes from Ukraine.
In 2019-20, Turkey was the third-largest importer of wheat in the world, with Russia and Ukraine being its top two sources. The inflation rate in the country had already hit over 54% in February, before the impact of the war was felt. There are endless other examples in different countries facing similar prospects. In one country after another, we are seeing extremely high levels of inflation on the basic goods that people need to survive. This will mean that people are forced into action, not to improve their living standards, but merely to remain at the same level as they were before.
Submerging economies
Even before the impact of the war was felt, the World Bank was reporting that more than half of so-called low-income countries were already in “debt distress or at high risk of it”. They were, in other words, already facing difficulties servicing their debts. The World Bank warned further that “debt in low- and middle-income countries has climbed to levels without precedent in modern times.”
This situation is compounded by the prospect of the increase of interest rates in the advanced capitalist countries as central banks try to dampen inflation. The US central bank has already increased its rate from almost zero to 0.25%-0.5% and Fed officials are speaking about increasing this to 2.75% next year. There is also talk that the ECB could raise interest rates in the coming year. When interest rates are increased in advanced capitalist countries, this can cause an outflow of capital from the less advanced capitalist countries to the more advanced. This in turn leads to the local currency depreciating, which only pushes up the cost of imports even further, as well as making it harder to repay debts in foreign currencies.
The question is not if but when we will see a renewal of a revolutionary wave / Image: Chris Belstan Flickr
To illustrate the situation faced by many of these countries, we can look at the example of Tunisia. The country has a fiscal deficit of over 8% of GDP and the amount of money it pays just to service the debt is estimated at 9% of GDP. To add to this, over 66% of Tunisia’s debt was in foreign currency at the end of June 2021. Tunisia is far from alone. Late last year (again, before the impact of this war could be felt), The Guardian quoted a study claiming that 100 countries would have to reduce their budget deficits in the coming period due to the amount of debt they were in. Meanwhile HSBC has reported that it is monitoring what it calls the “fragile four” – Indonesia, Brazil, Mexico and South Africa – which have high dollarised debts, putting them at particularly high risk.
This debt must eventually be paid back. It will be paid back through austerity measures, such as cutting subsidies on fuel or food, which many people rely on. This will only provoke fierce class struggle in one country after another.
As Lenin said, there is no final crisis of capitalism. Crises can always be overcome, but only by creating a deeper crisis, either further down the line or in another part of the world. And capitalism will be able to get out of this crisis: over the bones of the working class. The crisis sparked by the COVID-19 pandemic was overcome by massive spending in the advanced capitalist countries. This ‘solution’, however, has pushed many of the less advanced capitalist countries over the edge. It means that, for the ruling classes of many countries, there won’t be a choice between either social stability or economic stability, since neither option will be available.
This is the situation facing Sri Lanka. It has debt and interest payments of $7bn which are due to be paid this year. However, as the Financial Times points out, it only has an estimated $500m in usable foreign currency reserves. In the face of mounting inflation, shortages of fuel and other imports, there have been protests of thousands of people in Colombo.
The situation in Sri Lanka shows what sort of period we are living in. Before the outbreak of the pandemic, in one country after another, you had mass protests, revolutions and insurrections. This was, for a short period of time, cut across by the pandemic. However, not only were none of the underlying causes of these movements solved, but they were enormously exacerbated.
The question is not if but when we will see a renewal of the revolutionary wave that we saw in 2019, but on an even higher level. However, as the recent events in Kazakhstan show, the only way to ensure that these movements are successful is if they have a leadership that is up to the task. If you wish to get rid of this rotten system of hunger, poverty and war, you should involve yourself in the urgent task of building that leadership that can lead the working class to victory on a worldwide scale.