The war in Ukraine, and the markets for wheat and quinoa

Earlier this week, David Ubilava (University of Sydney) wrote in The Conversation:

Russia and Ukraine between them account for almost a quarter of the world’s wheat exports.

Russia and Ukraine are also big exporters of maize (corn), barley, and other grains that much of the world relies on to make food...

Since the start of February, as war became more likely, the grains and oilseed price index compiled by the International Grains Council has jumped 17%.

The big drivers have been jumps of 28% in the price of wheat, 23% in the price of maize and 22% in the price of barley.

Russia and Ukraine account for one fifth of the world’s barley exports. Maize is a common substitute for wheat and barley.

A simple supply and demand model can explain what is going on in the world market for wheat (with the same explanation serving for maize and barley as well). Consider the wheat market shown in the diagram below. Prior to the threat of war, the market was at equilibrium, with supply S0 and demand D0. The price of wheat was P0, with Q0 units of wheat traded. Then, with supply from Ukraine and Russia disrupted, supply decreases to S1. The price of wheat goes up to P1, with less wheat (Q1) now traded.

The higher price of wheat (and barley, and maize) will ripple through a lot of other markets. Products that use wheat will face higher costs of production, decreasing supply in those markets and raising prices (the same diagram applies as that shown above).

However, it will also affect the market for other grains, which are substitutes for wheat. As those substitutes are now relatively cheaper than wheat, at least some buyers will substitute to those other grains. Consider the market for quinoa, as shown in the diagram below. [*] Initially, the market was at equilibrium, with supply S0 and demand D0. The price of quinoa was P0, with Q0 units of quinoa traded. Then, with quinoa now relatively cheaper than wheat, the demand for quinoa increases to D1. The price of quinoa goes up to P1, with more quinoa (Q1) now traded.

Given that grains (not just wheat, maize, quinoa, but rice) are such a staple source of calories in every country, then it is likely that these higher prices of all grains will have negative implications for global food security, nutrition, and poverty in the immediate future. As Ubilava concluded:

...food supply chains and global stability are certain to be tested.

It will take a village to stop this war and mitigate its repercussions. The rich and powerful of the village should do all they can to hold it together.

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[*] I was originally going to use oats for this example, but then I found out that Russia is also the world's largest supplier of oats.