Winnipeg Free Press

Winnipeg Free Press (Newspaper) - March 8, 2022, Winnipeg, Manitoba C M Y K PAGE A7 NEWS I TOPIC ● WINNIPEGFREEPRESS.COM A7TUESDAY, MARCH 8, 2022 THINK TANK PERSPECTIVES EDITOR: BRAD OSWALD 204-697-7269 ● BRAD.OSWALD@FREEPRESS.MB.CA ● WINNIPEGFREEPRESS.COM A7 TUESDAY MARCH 8, 2022 Ideas, Issues, Insights War threatens agri-food sector H UMANITY was dealt another blow with Russia’s invasion of Ukraine. Just thinking of the human cost is unbearable. And the agri-food sector has already been impacted by the conflict in more ways than one. Ukraine is Europe’s breadbasket, so this conflict will affect global commodity markets in a meaningful way. Wheat and corn futures are slowly nearing record levels. Ukraine is the ninth-largest producer of wheat in the world, producing slightly less than Canada yearly. Ukraine is also the fifth-largest producer of corn, with 13 per cent of all global exports. Agricultural activity takes up about 70 per cent of the country’s land and about 25 per cent of the world’s black soil is in Ukraine. The country has exceptional growing conditions. But this conflict obviously includes Russia. And the two countries together account for 25 per cent of global wheat exports. Barley and rye are also heavily produced in the region. These factors combined could compromise many agri-food companies’ access to key ingre- dients. The invasion has led to a ban on all commer- cial vessels in the inland Sea of Azov, which is the main connection to the Black Sea, where Ukrainian ports are located. Almost 90 per cent of Ukrainian grain exports are transported by sea, and marine logistics in the region have been severely compromised. Given what has been happening around the world over the last several months with sup- ply-chain issues resulting from the COVID-19 pandemic, saying that food-price inflation will occur as a result of this conflict is an understate- ment. If you think Canada is immune to all of this, given our domestic agriculture production, think again. Agricultural commodities are traded on world markets, and what happens in Ukraine and Russia affects us. The world, especially the agri- food world, is deeply interconnected. Oil is trading at around US$100 a barrel, the highest it’s been in more than six years. Russia exports about five million barrels of crude a day, and about half of that goes to Europe. Countries are trying to penalize President Vlad- imir Putin’s regime without disrupting Russia’s energy exports, which shows how incredibly del- icate the situation is and how Putin strategically chose his moment to invade. And if energy costs haven’t been a factor in the current food inflation problem, they certainly are now. We expect an impact on transportation fees within weeks, if not days. The fertilizer market has also been affected by this conflict. The region is a significant exporter of nitrogen, potassium and phosphorus fertilizers. The invasion increased fertilizer prices globally by more than $200 a tonne overnight. The higher prices aren’t great news for farmers looking to increase yields this year. Fertilizer was already quite expensive before the conflict in Ukraine. Canadian farmers are likely to do well on the markets, but prohibitively expensive fertilizer prices could impact agricultural output in the northern hemisphere, including Canada. If Mother Nature doesn’t co-operate, this could be another challenging year for our farmers. Price-gouging in the industry has always been an issue, and U.S. agriculture secretary Tom Vilsack has already notified companies not to inflate fertilizer prices unnecessarily. It’s not a sector most consumers know about, but without the proper soil science supported by effective fertilizers, the cost of our food just wouldn’t be the same. And make no mistake, China is Russia’s ally. Pu- tin is not only seeking to regain lost Soviet terri- tory, he’s focused on restoring Russian influence. And controlling global food supply chains with China is one way to do it. Given their production, the two countries combined are agriculturally influential. So western economies are being destabilized — again. For two years, it was a virus; now, it’s a tyrant. This conflict will bring a new layer of uncer- tainty to the agri-food sector at the worst possible time. And as consumers, we need to take a deep breath and hope the conflict doesn’t last long. But we’ve been down this awful road before, so the prospects aren’t great. In the meantime, we need to support Ukrainians, since they’re the victims of evil. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University. © Troy Media Highway blame game crosses the line POLITICS is a mean game, but this goes too far. During question period in the Manitoba legis- lature last Wednesday, Flin Flon NDP MLA Tom Lindsey suggested the Stefanson government is responsible for the accident that killed NDP MLA Danielle Adams last December. In his first question, he said this: “As we all know, our friend and colleague Danielle Adams passed away as a result of a collision on Highway 6, Dec. 9, just south of Thompson. “We should commit ourselves to ensuring high- way con di tions on Highway 6 and other northern roadways are improved. Winter con di tions make travel difficult at the best of times. Now, with the added pressure of more heavy vehicles headed for winter roads and also headed for northern mines, the situation is just getting worse. “Will the minister bring forward a plan to address concerns regarding Highway 6 and other northern highways, and will the minister commit to that today?” That sounds like a reasonable question, but then, in his supplemental question, he said this: “Madam Speaker, mourning her loss and the oth- er Manitobans who’ve lost their lives travelling on treacherous roads that aren’t maintained properly simply isn’t enough. “Madam Speaker, dozens of positions in high- way maintenance are vacant. It doesn’t matter what the budget is for snow clearing, there’s no people to do the work. Northern roads and highways like No. 6 are not being cleared quickly enough and are not being cleared properly. In some instances, travellers in both directions are forced to travel a narrow lane down the middle of the highway. “Will the minister commit to filling those vacant positions today and ensure roadways are maintained?” With that question, Lindsey blamed the provin- cial government for Adams’ death. It’s a serious accusation, but does it square with the facts as we know them? No, it doesn’t. I wrote about this exact issue 10 years ago (“Snow’s coming, and fewer plows on highways,” Nov. 1, 2012). That column is still available for viewing on the Free Press website. In that piece, I discussed the Selinger govern- ment’s decision to eliminate the 11:30 p.m. to 7:30 a.m. snow-clearing shift for the Trans-Canada and Perimeter highways, provincial highways 6, 10, 16, 59 and 75, and Inkster Boulevard during non-storm conditions. As Lindsey indicated, Adams was driving on Highway 6 when the collision between a semi and Adams’ car happened. In my 2012 column, I asked these questions: “If an accident happens on a blustery winter night in rural Manitoba and a victim requires urgent medical care that is only available in Winnipeg, what will happen? Will the highway be closed? If it isn’t, will the ambulance crew be willing, or even permitted, to make the trip on highways that have not been plowed, sanded or salted?” I ended the piece with this warning: “If the Selinger government has done even the most ru- dimentary cost-benefit analysis of its plan to park the plows, it will know that the potential costs far exceed the theoretical savings, and that the lives of Manitobans are being put at risk.” The reality is we don’t know if the current road-clearing schedule is better or worse than the schedule implemented by the Selinger govern- ment in 2012. All we know is that the RCMP say that driving conditions were poor at the time of the crash, and that neither speed nor alcohol appears to have been a factor. We also know, however, that the adequacy of snow clearing on Manitoba highways has been a hot-button issue in Manitoba politics for decades, with the government of the day always being accused of not doing enough to keep roads clear in the winter. And we know that it’s impossible to keep every mile of all of our highways clear 24 hours per day, especially at a time when we are receiving near-record levels of snowfall. That’s why most Manitobans check road conditions before they venture out. Lindsey knows that too, which means he should know better than to make such an outrageous accusation. Politics is often described as a blood sport, but a line is a crossed when a politician literally uses the blood of a deceased colleague to score the cheapest of political points. Lindsey crossed that line last Wednesday. Deveryn Ross is a political commentator living in Brandon. deverynrossletters@gmail.com Twitter: @deverynross A new financial weapon emerges THE forces of good have found courage. From ordinary Ukrainians preparing Molotov cock- tails to Germany’s leader proclaiming an end to his nation’s geopolitical passivity, the shifts have been extraordinary. But the Ukraine war has brought another development. The West has invented a new weapon. The weapon consists of freezing a country’s reserves of gold and foreign currency. This manoeuvre has always been possible in theory, but few had imagined using it. Now its power has been laid bare. Overnight, it can turn a financially sound economy into a basket case. Until last week, Russia’s stockpile of US$630 billion in central bank reserves was assumed to protect it against sanctions. If western powers refused to lend Russia euros or dollars, the state had enough on hand to keep servicing existing debts and pay for imports. If financial traders dumped the ruble, Russia’s central bank could support the currency’s value by using foreign reserves to buy it. These assumptions are now dead. With west- ern institutions refusing to deal with Russia’s central bank, roughly half its reserves have been paralyzed. The result is panic. The cen- tral bank has been stripped of its credibility as a defender of the ruble, so the currency has fallen sharply against the dollar. Russian authorities have fought back by hiking interest rates to 20 per cent, imposing austerity on ordinary Russians to slow the flow of currency out. Fearing that the financial system is on the brink of collapse, citizens are lining up at ATMs. President Vladimir Putin’s claim to stand for economic stability has been shredded. This shredding extends a profound shift in geoeconomics. Until a few years ago, cred- itors were assumed to have the upper hand over debtors. U.S.-led international financial institutions — the World Bank, the Internation- al Monetary Fund — used creditor power to impose policy conditions on borrowers. Japan’s position as a huge purchaser of U.S. Treasury securities was thought to give it leverage during the U.S.-Japan trade wars of the 1980s and 1990s. What might happen, strat- egists wondered, if the Japanese dumped their Treasury holdings, causing a jump in U.S. bor- rowing costs and a meltdown on Wall Street? Later, as China grew to be a massive creditor, the same fear returned with a vengeance. As a U.S. military ally, Japan was unlikely to have a big enough beef with Washington to resort to a financial attack, but China was a different story. My former Council on Foreign Relations colleague Brad Setser wrote brilliantly about the circumstances under which China might use its creditor status as an offensive weapon. Setser turned out to be wrong, but not for the reasons his critics had expected. The stan- dard objection was that, by starting to sell its Treasury securities, China would destroy the value of the rest of its holdings — damaging its own interests. Russia’s invasion of Ukraine is the latest illustration of why this objection was naive. In wartime, nations routinely damage themselves in the hope of inflicting greater damage on their adversaries. The real reason Setser was wrong emerged in 2008. The financial crisis drove the Federal Reserve to improvise quantitative easing, an- other manoeuvre that had always been possible in theory but untried in practice. When the Fed’s QE experiment succeeded, geoeconomics changed. Debtors now had a superpower, and creditors’ leverage had been broken. Quantitative easing was primarily a tool to manage the economic aftershocks from the crisis on Wall Street. But there was a China angle, too. The Chinese state owned oodles of Treasury and mortgage bonds, and it was determined to get its money back. Quantitative easing demonstrated how the Fed could deal with these demands: it could print money and buy the bonds China wanted to sell. That buried the idea that a future Chinese threat to dump U.S. bonds could work as a weapon. With its sanctions on Russia, the West is driv- ing creditor impotence to the next level. Rus- sia’s status as a large official creditor not only fails to give it leverage over the West, it also has little defensive value. It turns out being a creditor is not a source of power after all. What matters is having a financial system that commands global trust, based on an inde- pendent central bank and an independent legal system. Autocratic creditors, China foremost among them, are not going to like this. But so long as democratic nations remain open and fair, they stand to have the upper hand in geoeconomic competition. They will issue the world’s most popular and stable currencies, so savers every- where will want to hold them. They will host the most efficient and least politicized financial markets, attracting lenders and borrowers. This will give the West the ability to freeze enemy assets and block enemy payments, just as it is doing now — provided, of course, that it has the courage to do so. Sebastian Mallaby is the Paul A. Volcker senior fellow for international economics at the Council on Foreign Relations and a contributing columnist for the Washington Post. — The Washington Post SYLVAIN CHARLEBOIS SEBASTIAN MALLABY DEVERYN ROSS MIKAELA MACKENZIE / WINNIPEG FREE PRESS Gas prices topped $1.63 per litre in Winnipeg on March 3. Fuel costs will have a major impact on the agri-food sector, meaning even higher prices at the grocery store. A_07_Mar-08-22_FP_01.indd 7 2022-03-07 4:43 PM ;