Global Shortages of Food, Fertilizer and Minerals Are Coming Soon - Thanks to Russia’s Invasion
Plus, Will Your Portfolio Take a Hit as 750 Companies Pull out of Russia?
Well, the Russian invasion of Ukraine persists. The human devastation is just unfathomable, unconscionable. But we need to talk about the economic implications of this. This is, after all, a personal finance show, as pale as that is in comparison to the human toll. There are 750 Western companies that were doing business with Russia in Russia, and they've all cut operations there because of the sanctions. We're talking about a fifth of the companies in the S&P 500.
Mercedes-Benz says that shutting down its operations in Russia means they're losing $2 billion. British Petroleum says they're going to lose $25 billion. Swedish telecom company Ericsson is losing $100 million. McDonald's gets nearly 10% of its global revenue from Russia and Ukraine. McDonald's has 62,000 employees in Russia and they've had to shut everything down. Heineken is losing nearly half a billion dollars. Exxon is losing $4 billion. Shell and Citigroup both losing $5 billion apiece.
Will big insurance companies actually pay business continuity insurance claims?
All of these companies are losing massive amounts of money. They also have business continuity insurance. In the event of a war, they aren't able to operate their businesses and they have insurance to reimburse them. So will they file a claim? Will the insurance companies pay those claims? And what will it cost them to do so? Well, all of this is uncertain. The insurers have not yet agreed that this is a war. Sure, it's an invasion by Russia of Ukraine, but the countries where the companies are based are not themselves at war. You see, just because these companies have been ordered by their governments to adhere to the sanctions, well, that's not a declaration of war by itself. And we need to recognize that the insurance companies are. Fighting this entire issue, leaving the companies on the hook for their losses, meaning their shareholders are on the hook for their losses.
With Ukrainian exports on hold, global food shortages and price hikes are on the horizon
Russia's invasion is also creating global shortages of food, fertilizer and minerals. Cooking oil is already being rationed worldwide because Ukraine was the world's largest exporter of sunflower oil. But it's now limiting those exports. And not just of sunflower oil, but also limiting exports of wheat, oats, cattle, pigs, iron, maize, barley.
This is all understandable. The Ukrainians are struggling to feed themselves because of the war. They can't worry about feeding people in other countries too. And because of the sanctions, Russia is no longer exporting anything either. Russia is the world's largest exporter (or was anyway) of wheat, pigs, iron, nickel, natural gas, major supplier of coal, crude oil. All of those exports have stopped. The dominoes are starting to fall. With Ukraine stopping their exports because it needs all the food it has, with Russia stopping its exports because nobody's allowed to take it, other countries are starting to do the same thing. Indonesia produces more than half of the world's palm oil, and they've halted their exports. Palm oil is a key ingredient in packaged foods, detergent, cosmetics. So you can expect shortages and price increases for all of those goods. Turkey has stopped exporting butter, beef, lamb, goats, vegetable oils.
No wonder all these prices are at record highs and still rising. All told, so far there are 47 curbs on exports just this year on food and fertilizer alone. All due to Putin's invasion of Ukraine.
And the worse it gets, the worse it gets. India is the world's second largest producer of wheat, and India has now stopped exporting wheat. The Commerce Ministry says they have to focus on their own needs. China has begun ordering its companies to stop selling fertilizer to other countries. They started doing that last summer to preserve supplies at home. There was a report written by the Peterson Institute for International Economics, and in that report they wrote that with Russia having cut off its exports, China's ban is going to be even more harmful. They wrote, "China's decision to take fertilizer supplies off world markets to ensure its own food security only pushes the problem to others". In sub-Saharan Africa they're already facing a severe shock from rising food and fuel prices. Food is 40% of consumer spending and 85% of the wheat that they eat is imported. Brazil can't get fertilizer. The World Bank, as a result of all of this, says prices for agricultural products and for metals. It's going to rise 20% this year. Wheat's going to rise 40%. This is the scenario we're in and it doesn't look like it's going to end anytime soon.