Input prices must come down to accommodate Black Sea deal

Nick Glaves
2 years ago

Poor Mr Putin. He can’t get anything right. He’s not even a very good bully. Okay, he might appear to be. He might even want to be. But he’s failed to grasp even the most basic rule of bullying – always pick fights you can win. Every playground thug knows that.

Now, with his army poised to ‘run out of steam’, he’s agreed a deal to allow Ukraine to export the bounty of grain that’s been trapped in silos since the war began so that he can do the same to raise the money needed to rebuild his forces.

It’s not really working out how he wanted, which is as terrifying as it is amusing. On the one hand, it’s great to see his vile and despotic plans fail in the face of the inspirational bravery of the Ukrainians. On the other, it’s hard to predict the actions of a humiliated psychopath, particularly one with a habit of using chemical weapons.

But back to the Black Sea deal.

Allowing Ukraine to export its grain is great news for lots of reasons. Food inflation is soaring, due in large part to the war of Ukraine, fuelling the cost of living crisis – a topic that has all but knocked the war out of the headlines.

Assuming the ships carrying the grain don’t fall victim to the Russian Navy or air force, millions of tons of cereals reaching the markets – even those from Russia – will bring commodity prices down and start an economic correction that will hopefully see less people in third world countries starve to death, and us finally able to bin the Oddbins Pinot Grigrio and once again reach, with smug self-satisfaction, for the Montrachet.

But just as importantly as this, it is good because it is right. Food grown then left to rot has its own special kind of treachery. It is not the same as innocent people being bombed, shot, or poisoned with noxious chemicals, but withdrawing food, weaponizing it as Putin has done, is perhaps even more deadly. It is a crime of war that leaves a bitter, but hollow, taste.

Even if this is a dim light at the end of the tunnel, the rebalancing to come is likely to be slow and hit some harder than others. The value of commodities is entirely set by perceived supply and demand and when millions of unexpected product hits the market, prices start to plummet.

Farm inputs might not quite be at the level they were early this year, but they are still high. But, for the big UK arable operations at least, the high price of wheat shielded them from the worst of the soaring fuel and fertiliser costs.

The commodities markets move quickly. Market sentiment changes minute by minute, hour by hour, day by day. The price of complicated, manufactured products simply cannot keep pace.

Once autumn drill is done there will be a window where input prices must undergo correction to match an inevitable fall in grain values. Without this, that mainstay of British agriculture – cereals – may simply become too expensive to grow. And in that circumstance, we could be facing a food crisis much closer to home.


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