An uninterrupted series of crises
The impact of the war between the Russian Federation and Ukraine can be understood in the context of the crises that have affected the world economy over the past 15 years: the 2008 global financial crisis, the economic tensions between the United States and Europe, on one hand, and China, on the other, and the coronavirus disease (COVID-19) pandemic (ECLAC, 2022a).
These crises, by disrupting global value chains, have put pressure on productive sectors, going against the globalization trend of previous decades. International trade’s slower growth and smaller contribution to world growth in recent years is a clear sign of these changes (ECLAC, 2022a).
The crises led to breakdowns in various primary and manufacturing production chains in economic sectors. Increased protectionism led to more trade barriers, while maritime transport system disruption exposed the vulnerability of the chains to exogenous changes.
Although the pandemic has had what is probably the most severe impact of any event on logistics in recent decades, the war in Ukraine has been characterized by its potential to disrupt commodity-based sectors. Because of the specialization of the countries involved in the war in terms of production and trade, the conflict has directly affected trade and international prices of crude oil, natural gas, cereals, fertilizers and metals.
Three of the four most recent episodes of food price increases occurred in the past fifteen years (2007–2008, 2010–2011 and since mid-2020); the other one took place in the 1970s. Monetary expansion played a central role in the 2007–2008 and 2010–2011 episodes, originating from measures to overcome the global financial crisis. Higher global liquidity and increased financialization of the markets contributed to driving up international prices of several food groups, as well as fuelling their volatility (Von Braun and others, 2008; ECLAC/FAO/IICA, 2011).
More recently, the breakdown of logistics and production processes caused by measures to address the COVID-19 pandemic sped up the pace of price increases. Although the relative significance of supply factors and demand factors is still being debated, both are important in the current inflationary situation (ECLAC, 2022a).
The most recent upwards trend in international food prices began in mid-2020, primarily driven by vegetable oils and grains. The pandemic-induced inflationary pressure was expected to be transitory. However, the war in Ukraine has caused further disruption to key production chains, such as those of energy and fertilizers. Not only has this prevented inflation from returning to pre-pandemic levels, it has also led to a substantial acceleration of inflation in the first seven months of 2022.
In the case of food, the current inflationary cycle is more marked and longer-lasting than the price rises of 2007–2008 and 2010–2011. The Food and Agriculture Organization of the United Nations (FAO) Food Price Index (FFPI), measured in real terms, rose 64 points between June 2020 and March 2022, reaching an all-time high2 of 156.3 points in that month (see figure 1). The index then fell 23.3 points (14.9%) between March and October 2022, but remains above the highs of the past decades.
