Agricultural food prices jumped 36.6% y-o-y in March after the Ukraine war started as Ukraine and Russia produce 65% of sunflower oil exports and over 25% of wheat exports. Agricultural food prices had already risen 28% in 2021, as per the world bank data.
Moreover, Russia is also the largest exporter of fertilizers, including 23% of global ammonia exports, 14% of urea and 10% of processed phosphorus and 21% of potash exports. Major buyers include Brazil, China, the US and India, the report said.
“Food price shocks hit lower-income countries the hardest - this is already being reflected in sovereign spread widening in emerging markets. Agricultural food prices are passed through to consumer prices in 2-5 months in emerging markets compared to 9-11 months in developed markets.
Economies in Sub-Saharan Africa, India and Brazil have a pass-through lag of less than one quarter. BofA economists expect a more imminent spillover to EM food inflation from the latest price surge," the report warned.
The research report further warned that lower fertilizer availability globally will likely reduce yields. Sanctions on Russia and Belarus and the war in Ukraine will likely reduce global fertilizer availability.
Russian fertilizer producers face logistical and compliance challenges as well as owners who may be subject to sanctions. “It is possible that some could eventually be included in US, EU and/or UK sanctions," the report highlighted.
The percentage of spending that goes towards food is substantially higher in a country like India or Thailand, where food comprises 40+% of the CPI basket, compared to the US or Korea, where the food component of the CPI basket is less than 15%, the report said.
“Because food comprises a much larger portion of the overall spending basket in emerging economies, consumers there are likely to be much more exposed to the rise in agricultural commodity prices than wealthier countries," the report further said.
