Pandemic-related shipping disruptions and adverse weather have played their part in plunging global wheat supplies to a five-year low in 2021, while prices hit an all-time high.
According to the International Monetary Fund, between April 2020 and December 2021, the price of wheat soared by 80%.
This resulted in a rise spike in January with flour and prepared flour mixes up 10.3% year-over-year, and end products like doughnuts, crackers and pies up 9.9%.
Kellogg CFO Amit Banati told investors earlier this month that wheat inflation is putting pressure on the breakfast cereal maker.
Now, add to that mix the Russian invasion of Ukraine.
Breadbasket of Europe
Before the COVID-19 outbreak, Russia and Ukraine were two of the top five largest exporters of wheat – together producing around 29% of the world’s wheat. The countries are also key suppliers of barley, sunflower seed oil and corn, among other products.
Countries like Turkey and Egypt get almost 70% of their wheat imports from Russia and Ukraine, while the latter is also the top seller of corn to China. In fact, “Ukraine replaced the US as China’s top corn supplier in 2021,” said Dawn Tiura, president of Sourcing Industry Group.
David Laborde, a senior research fellow at the International Food Policy Research Institute, told The New York Times the crisis could “have an immediate impact on the global wheat market stability”.
The real risk for global supply will be on what happens over the next four months, when the next wheat harvest is set to begin.
“By then, if farmers could not harvest due to lasting military operations, or if port facilities and railroads have been damaged, the situation will be particularly gloomy,” he said.
Alan Holland, CEO of sourcing technology company Keelvar, also told media sources a prolonged conflict would create bread shortages.
Ukraine is considered the ‘breadbasket of Europe’ and an invasion would result in the food supply chain getting “hit hard,” said Holland.
According to UK Flour Millers, although the UK grows most of its own wheat – with additional supply coming in from Germany, France and Canada – the rising crisis in Ukraine will likely trigger higher prices of wheat-based products locally.
Meanwhile, Grupo Bimbo has temporarily suspended operations at its Dnipro plant in Ukraine to ensure the safety of its workers.
The world’s largest bread manufacturer operates in the Ukraine under the brand of Bimbo QSR, providing baked goods to quick service restaurants.
It also operates in Russia, but has not announced whether its presence there would be affected.
Nestlé, too – which has three factories and a 5,000+ workforce in Ukraine – has announced a temporary closure of its factories, warehouses and supply chain in the country.
Mondelez International has also warned that it would close its plants in Ukraine if the situation became ‘too dangerous’.
The Oreo maker employs more than 4,300 people in Eastern Europe to produce local brands like Jubilee biscuits and Korna chocolate, and CEO Dirk Van de Put said its number one concern was to ensure these people are safe.
“We have big business in both countries. If that means we have to close plants because it is too dangerous, we will do so,” he told Reuters.
As a precaution, Mondelez took immediate steps to safeguard its information technology network against attacks.