By Meaghan MacDonald-Pool MSU NEWS SERVICE
BOZEMAN — A Montana State University economics professor recently published two opinion pieces on major financial websites highlighting the economic significance of the Ukraine crisis.
Vincent Smith, co-director of the MSU Initiative for Regulation and Applied Economic Analysis in the Department of Agricultural Economics and Economics at the College of Agriculture, wrote an opinion piece for MarketWatch on March 2 highlighting how the chain US food supply could be affected by Russia’s invasion of Ukraine. According to Smith, while there is no definitive answer to what might happen, people should be concerned as Russia and Ukraine have emerged as major players in world grain markets, especially for wheat, and both provide about 14% of world production. Both counties are also major producers and exporters of corn and produce other agricultural products.
For example, spot and futures markets for wheat, corn and soybeans had surged late in the day on Feb. 24, the day of the invasion, Smith said. Kansas City’s September (harvest time) futures price for hard red winter wheat rose in one day by about $0.40 to nearly $9.65 a bushel.
“Corn and soybean futures prices also jumped, prompting an immediate reaction … that food prices in the United States and around the world, already much higher than a year ago, could well rise further. over the next 12 months due to reckless Russian warmongering,” Smith added.
While prices could rise, Smith predicts Americans won’t see too much of a difference. On average, the farmer’s share is about 6 cents, or 6%, for every dollar spent on a loaf of bread by an American consumer. So even a 20% increase in wheat prices would only raise the price of a $4 loaf by about 5 cents. However, Smith said, where Americans could see a bigger 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. Rising natural gas prices will also ensure that nitrogen fertilizer prices remain at their current high rates and affect farmers and their crops.
“So will Russia’s war raise food prices a little or a lot in the United States and around the world? 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 March 2. Co-authored by Christopher B. Barrett of Cornell University, “To Meet Ukraine’s Humanitarian Needs, Suspend Outdated Restrictions on Food Aid” highlights two mandates from 1954 that complicate the immediate delivery of food. aid to Ukraine. According to the mandates, the US Agency for International Development‘s main emergency food aid program, Food for Peace, requires that nearly all food aid shipments be from the US and that US-flagged vessels served by American crews carry at least half of such aid.
According to the authors, two decades of research have shown that these mandates dramatically increase the costs of getting aid to where it is needed by increasing the cost of shipping individual shipments by 60-100%. Mandates also significantly slow the delivery of aid to those in need, by up to four months.
“No one but Ukrainians should be given congressional appropriations to help in this time of acute need,” the authors wrote. “To prevent further US supply chain problems and war profiteering and to do justice to hurting Ukrainians and US taxpayers, Congress should immediately suspend all food aid and preferential food supply mandates. freight, now and for the foreseeable future.”