Cost of living: What the surge in wheat prices this week means for your daily bread
The war in Ukraine has had consequences far beyond its breached borders.
Russia’s invasion of February 2022, while foremost a devastating event for Ukraine‘s people, also prompted a surge in many key global commodity costs.
The resulting energy-led cost of living crisis was not just a by-product of the war but the wide-ranging Western sanctions that were imposed on Moscow as punishment.
The backlash did not extend, however, to Russia and Ukraine’s most important contribution to the global economy – wheat.
Together, before the war, their combined wheat exports accounted for a quarter of the world’s consumption.
Costs hit unprecedented levels in 2022 as Ukraine’s harvests were threatened, later to sit in huge silos at risk of rot.
It took a United Nations-led effort, a year ago, to get the ships moving again following a deal with Vladimir Putin – bringing futures market costs down 37% from their peak.
But the war, coupled with poor harvests due to climate challenges, has left us with a volatile market since.
Prices spiked again this week when Moscow withdrew, abruptly, from the Black Sea export agreement.
Market prices have risen by up to 18%, exacerbating fears over food shortages in the developing world with other commodities such as corn and soybean also rising again for the same reason.
Wheat costs remain, however, down almost 10% on a year ago.
It is a staple of many products, not just bread, but the cost of a loaf goes a long way to explaining price pressures on producers.
These include not just the cost of the basic ingredients but also take account of higher production costs due to energy prices, transportation costs, taxation and wages.
Data produced by Sky News shows a 1.5kg bag of self-raising flour was almost 19% higher in June than in the same month last year.
A typical pack of white sliced bread was 19.5% up at £1.35.
Corn’s cost surge since the war started has been blamed for many meat prices going up because of its importance in animal feeds.
A dozen eggs cost almost 30% more than they did a year ago.
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While wider food inflation is easing from its peaks earlier this year, the fear is that corn and wheat-based products will be on the sharp march upwards again.
However, there are several reasons to think that will not happen.
First, the market futures prices remain well down on the peaks of last year and punitive energy costs are starting to fall for businesses involved in the supply chain process.
Secondly, global wheat crop forecasts, for example, are up on last year’s total with 784 million metric tons expected by the International Grains Council compared to the 781 million harvested last year.
In short, higher prices have incentivised more global growers.
After news broke of Russia’s new block on Ukraine’s exports on Monday, ING economist James Smith told Sky’s Business Live with Ian King: “It fits into a broader, global supply picture and there, concerns seem to have eased over the last year or so.”
“That story for overall food inflation is still one of coming down over the next few months. There’s this broad measure of commodity prices for food/agriculture that the UN puts together, that’s down something like a quarter over the last year and that should feed through,” he said.