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

Nicolas Legrand

No 327330, Working Papers from Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2)

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.

Keywords: Demand and Price Analysis; International Relations/Trade; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 28 p.
Date: 2022-10-24
New Economics Papers: this item is included in nep-tra
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Citations: View citations in EconPapers (3)

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https://ageconsearch.umn.edu/record/327330/files/WP%2022-07.pdf (application/pdf)

Related works:
Working Paper: War in Ukraine: The rational “ wait‐and‐see ” mode of global food markets (2023)
Working Paper: War in Ukraine: The Rationale "Wait-and-See" Mode of Global Food Markets * (2022)
Working Paper: War in Ukraine: The Rationale “Wait-and-See” Mode of Global Food Markets (2022)
Working Paper: War in Ukraine: The Rationale “Wait-and-See” Mode of Global Food Markets (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:inrasl:327330

DOI: 10.22004/ag.econ.327330

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