By Meaghan MacDonald-Pool MSU NEWS SERVICE
BOZEMAN — A Montana State University economics professor recently published two opinion pieces on top financial websites highlighting the economic significance of the crisis in Ukraine.
Vincent Smith, co-director of the MSU Initiative for Regulation and Applied Economic Analysis in the Department of Agricultural Economics and Economics in the College of Agriculture, wrote an opinion piece for MarketWatch on March 2 highlighting how the food supply chain in the Unites States could be affected by Russia’s invasion of Ukraine. According to Smith, while there is no definitive answer to what could happen, people should be concerned because Russia and Ukraine have become major players in world grains markets, especially for wheat, and both supply about 14 percent total of the world’s production. Both counties are also important corn producers and exporters and produce other agricultural products.
As an example, spot and futures markets for wheat, corn and soybeans had surged by end of day on Feb. 24, the day of the invasion, Smith said. The Kansas City September (harvest time) futures price for hard red winter wheat increased in one day by about $0.40, reaching near $9.65 a bushel.
“Corn and soybeans futures prices also jumped, eliciting an immediate reaction … that food prices in the United States and around the world, already much higher than a year ago, could well go even higher over the next 12 months because of Russia’s reckless warmongering,” Smith added.
While prices might increase, Smith predicts Americans won’t see too much of a difference. On average, the farmer’s share is about 6 cents, or 6 percent, for every dollar spent on a loaf of bread by a U.S. consumer. So even a 20 percent rise in wheat prices would only increase the price of a $4 loaf by about 5 cents. However, Smith said, where Americans might see a more significant increase is in energy prices. If this continues, oil and natural gas prices will increase the costs of shipping wheat to mills, flour to bakers, and bread and cakes to supermarket shelves. Higher natural gas prices will also ensure that nitrogen fertilizer prices will remain at their current high rates and affect farmers and their crops.
“So, will Russia’s war cause food prices in the United States and around the globe to increase a little or a lot? The answer is that it depends on what happens over the next few days and weeks,” Smith wrote. “But yes, there are very good reasons to be concerned about how this conflict will affect families here in America and around the world.”
Smith also co-wrote an opinion blog post for the American Enterprise Institute published on March 2. Co-written by Christopher B. Barrett from Cornell University, “To address Ukraine’s humanitarian needs, suspend outdated food aid restrictions” highlights two mandates from 1954 that make the immediate delivery of aid to Ukraine challenging. According to the mandates, the U.S. Agency for International Development’s core emergency food aid program, Food for Peace, requires that almost all food aid shipments be sourced in the United States and that U.S.-flagged ships served by U.S. crews must carry at least half of such aid.
According to the authors, two decades of research has found these mandates substantially increase the costs of getting the aid to where it is needed by increasing shipping costs for individual cargoes by between 60 and 100 percent. The mandates also significantly slow down aid delivery to those who need help, by as much as four months.
“No one but Ukrainians should benefit from Congressional appropriations to help in this time of acute need,” the authors wrote. “To prevent further supply chain problems in the U.S. and war profiteering and do right by both suffering Ukrainians and American taxpayers, Congress should immediately suspend all food aid sourcing and cargo preference mandates, for now and the foreseeable future.”