The Banking Executive Magazine - April 2022 Issue

Conflict in Ukraine against inflation, like raising interest rates and tightening liquidity, which do little to address cost-push pressure and could cause a real economic downturn. But the challenges are greater still in the developing world, leaving poli- cymakers with even less wiggle room. The dramatic recent in- crease in oil prices obvi- ously affects oil-importing countries directly, and will feed into all other prices through rising input and transport costs. The conflict in Ukraine is also increasing global food prices, creating even more pain in developing countries where hunger had already increased dra- matically during the pandemic. Be- fore the war, Ukraine was the world’s fifth-largest wheat exporter, and also a major exporter of barley, corn, rapeseed, and sunflower oil. The prices of these commodities in global trade have risen significantly, adding to recent increases in crop prices generally. Additional danger also displays itself as financial investors who had been betting on speculative asset markets will need to find other places to park their money, and food futures could emerge as a favored destination. In the first five days of March, the price of wheat futures at the Chicago Board of Trade increased by 40%, putting it on track for its largest weekly increase since 1959. Crop production in developing countries could also be hit by fertil- izer shortages. Russia, the world’s largest wheat exporter, is also a major fertilizer producer, and disrup- tions to these exports will push global food prices even higher. This scenario also occurred during peaceful times, just before the global financial crisis, and it was a dark and depressing story even then. The food crisis that resulted from financial- market speculation in 2007-08 led to massive increases in hunger and devastated the lives of hundreds of millions of people in developing countries. That crisis occurred even though global supply and demand of food items did not change much. But now, with real reductions in global food supply almost inevitable, the price rises could be greater and longer-lasting. If speculative pressure increases, already fragile economies will be damaged even more. It may not be sur- prising that the G7 is not expressing much concern about these real and pressing dangers. But multilateral or- ganizations surely need to step up in this time of crisis, at the very least by providing compensatory financing to help the developing world cope with multiple price shocks, and suggest- ing and enabling regulations to prevent speculation in essential markets. the BANKING EXECUTIVE 34 ISSUE 160 APRIL 2022 The price of wheat utures at the Chicago Board of Trade increased by 40%, putting it on track for its largest weekly increase since 1959. If speculative pressure increases, already fragile economies will be damaged even more. The conflict in Ukraine is also increasing global food prices, creating even more pain in developing countries where hunger had already increased dramatically during the pandemic Financial investors who had been betting on speculative asset markets will need to find other places to park their money, and food futures could emerge as a favored destination