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Jhe effects of coronavirus, inflation and supply chain disruptions are being felt around the world, with political unrest on the rise and consumer prices for food and energy spiraling out of control .

Russia’s invasion of Ukraine has exacerbated the problem of soaring prices. History shows that huge increases in staple food prices can not only have a profound economic impact, but can also presage far-reaching political and social upheavals, which often last more than one growing season.

The impact of war

Russia’s invasion of Ukraine could end up being a catalyst that will lead to greater political instability in all corners of the globe. Ukraine is responsible for the production of up to 7% of all wheat in the world and is the largest supplier of this product to North Africa and the Middle East, parts of which do not have the capacity to produce wheat in the domestic market. Egypt imports almost 80% of its wheat from Russia and Ukraine.

To understand the potential long-term impact of current geopolitical tensions, it is important to remember the self-immolation of a 26-year-old street vendor named Mohamed Bouazizi in Tunisia in December 2010. Bouazizi’s public protest would spark a series of events known as the Arab Spring, a wave of anti-government protests and uprisings across North Africa and the Middle East.

The Arab Spring has spread to Yemen, Bahrain, Libya, Syria, Algeria, Jordan, Morocco and Oman. This wave of protests was largely the result of catastrophic public policies of long-standing authoritarian regimes, an objectively low quality of life and unaffordable food prices.

When food prices rise, people take to the streets

Yaneer Bar-Yam’s team from the New England Complex Systems Institute (NECSI) observed the correlation between global food price spikes from 2007 and violent uprisings in North Africa and the Middle East from 2010, and reported its findings to the US government, anticipating that more uprisings might be on the way.

The vertical blue line above indicates the date NECSI notified the US government of its findings, with each vertical red line indicating an individual uprising and the number in parentheses representing the estimated death toll for each. This report was originally written just four days before the Jasmine Revolution in Tunisia, which later influenced similar uprisings in the region.

The simple conclusion is that when food prices become unaffordable for people in politically unstable and poor countries, these populations are much more likely to revolt and protest.

Bar-Yam’s team also noted that the drive to shift some of the corn supply from food to ethanol, along with the deregulation of commodities in the United States over the past two decades, exacerbated the food crisis in the Middle East and the Arab Spring revolts.

Once again, we are now seeing global tensions over crude oil supply and major food inflation due to shortages and supply chain disruptions. Given the problems affecting oil supply, one would logically expect policy makers to divert grain resources to fuel production. Time will tell if history is about to repeat itself.

Damage to Ukraine

The disruption of Ukraine’s agricultural industry is evident, with much of the country’s most productive agricultural regions being annexed or destroyed by Russia.

Although Ukraine reported record wheat production last year, the destruction of supply routes such as bridges, railroads and ports has left the country with a stockpile of staples it may not need. not be able to export. The main disruption to Ukraine’s wheat trade occurred in the Black Sea, with Russian forces essentially blocking the main route between Ukraine and the Middle East.

Are we entering a new commodities super-cycle?

It’s the nature of commodities in general, and certainly food products, that we can’t produce instantaneously anymore. Farmers must acquire seeds and plant them within specific time frames. Wheat takes months to grow, requiring multiple applications of fertilizer or pesticides. Harvesting can be very urgent, while storing and getting wheat to international markets requires time and functioning supply chains. The spring planting season has already been disrupted and it is impossible to know how many future planting seasons will be disrupted.

The chart above shows the price of the Teucrium Wheat Fund over the past two years. Prices rose after the pandemic, then jumped after Russia invaded Ukraine. Given the complexity of the global food supply chain, the war in Ukraine and the possibility of further economic and political fallout, commodities like wheat are expected to remain in short supply and we could see prices continue to rise. .

Commodities have been neglected for many years as supply has increased, prices have fallen and supply chains have become more efficient. Today, with inflation rising, global supply chains stretched to breaking point and major suppliers disrupted by geopolitical disputes, we may be at the start of the next commodity super cycle.

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