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War in Ukraine: The Rationale "Wait-and-See" Mode of Global Food Markets

Author

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  • Nicolas Legrand

    (SMART - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Rennes Angers - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement)

Abstract

Russia's invasion of Ukraine is a major shock at the heart of the breadbasket of Europe at a time when global stocks are running short. With inelastic supply and demand for such basic goods and lack of inventories to cushion the shock, the basic economics of storage arbitrage explain the commodity price spikes needed to ration the war-related supply shortage. In this paper, I show that to make sense of the chaotic price fluctuations requires a consistent empirical tool such as the storage model with rational expectations. Empirical analysis of the unfolding commodity shock using a storage model lens suggests that the global food market is currently in a "wait-and-see" mode, with price movements reflecting a loss in the size of the global share of caloric production from Ukraine. I show also that the supply and demand outlook for the next two years is aligned to the price expectations of market participants and send the signal that the world should prepare for a period of scarcer supply and high and volatile food prices, for as long as the conflict lasts. Sound policymaking in this context could rely on this normative device to ease the suffering of the most vulnerable populations who are at risk of hunger and malnourishment.

Suggested Citation

  • Nicolas Legrand, 2022. "War in Ukraine: The Rationale "Wait-and-See" Mode of Global Food Markets ," Working Papers hal-03809794, HAL.
    • Handle: RePEc:hal:wpaper:hal-03809794
    Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-03809794v1
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    Cited by:

    1. Stanislav Yugay & Linde Götz & Miranda Svanidze, 2024. "Impact of the Ruble exchange rate regime and Russia's war in Ukraine on wheat prices in Russia," Agricultural Economics, International Association of Agricultural Economists, vol. 55(2), pages 384-411, March.
    2. Goyal, Raghav & Steinbach, Sandro, 2023. "Agricultural commodity markets in the wake of the black sea grain initiative," Economics Letters, Elsevier, vol. 231(C).
    3. Mariusz Hamulczuk & Karolina Pawlak & Joanna Stefańczyk & Jarosław Gołębiewski, 2023. "Agri-Food Supply and Retail Food Prices during the Russia–Ukraine Conflict’s Early Stage: Implications for Food Security," Agriculture, MDPI, vol. 13(11), pages 1-17, November.
    4. Artiom Volkov & Mangirdas Morkūnas & Maria Crescimanno, 2025. "Is common agricultural policy competent to steer EU agriculture in turbulent times? Evidence from the European dairy sector," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 13(1), pages 1-24, December.

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    JEL classification:

    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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