Commodities prices soar over Russia supply fears

This is an audio transcript of the FT News Briefing podcast episode: Commodities prices soar over Russia supply fears

Marc Filippino
Good morning from the Financial Times. Today is Friday, March 4th, and this is your FT News Briefing.

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Russian forces continue to lay waste to Ukrainian cities yesterday, and the US announced new sanctions on oligarchs. Meanwhile, prices of global commodities like wheat, corn skyrocketed on supply fears, and big western brands continued their mass exodus from Russia.

Andrew Edgecliffe-Johnson
It is as sudden as the entry into the market we saw more than 30 years ago, and I think it raises one more very interesting question which brands will take their place.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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Russian missiles rained down on the Ukrainian port of Mariupol in the cities of Chernihiv and Kharkiv on Thursday. Meanwhile, Russian President Vladimir Putin said in a video address that he would never give up his conviction that Russians and Ukrainians are one people. As Putin vowed to press on with his war, US President Joe Biden announced more sanctions on several Russian oligarchs and government officials. Here’s the FT’s US political correspondent Lauren Fedor with more on that.

Lauren Fedor
This list of individuals who are facing these fresh sanctions runs more than 50 people. I’m not going to run you through every single one of them, but some of the biggest names include the Russian billionaire Alisher Usmanov. It also includes Dmitry Peskov, who’s the Kremlin spokesman. Interestingly, these sanctions for a lot of these individuals are pertaining not just to them, but to their families as well. So we see as you go down the list, you’ll see individuals who it’s not just themselves, but their spouses, their children. And the White House really wanted to put the squeeze on Putin and put the squeeze on people close to Putin.

Marc Filippino
So can we expect more sanctions from Biden?

Lauren Fedor
It’s definitely fair to say that there could be still more to come. In fact, the White House said yesterday that this could just be the first set of sanctions against individual oligarchs. You know, it’s also important to remember that we’re just talking about the US, which is obviously significant and important. But the US made these announcements in conjunction and shortly after similar sanctions were announced by the EU, by the UK government. So there’s really a global co-ordinated effort here to crack down on a lot of these individuals.

Marc Filippino
Lauren Fedor is the FT’s US political correspondent.

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Yesterday, three of the biggest global professional service groups announced their exit or suspension of business in Russia. They’re the latest western companies to flee the country in the wake of Moscow’s invasion of Ukraine. The FT’s Andrew Edgecliffe-Johnson is following this and has the details.

Andrew Edgecliffe-Johnson
What’s happening this week is a very rapidly snowballing exit from Russia by major multinationals. We’ve seen this with companies as big as Exxon, BP and Shell. We’ve seen it through big brands like Apple and Google and Facebook, you know, curtailing their services in the country. But now you have companies that actually employ a lot of people in Russia. Accenture employed 2,300 people in Russia. It is firing every one of those people now and closing down its entire Russia operation. McKinsey and BCG are not going that far. They’re suspending operations. They’re saying we’re not going to take on new work in Russia. So I think what we’re seeing is a real escalation now of anxiety among western multinationals about the ability to do business in Russia right now.

Marc Filippino
Edge, how much of this is just, you know, companies looking for good PR?

Andrew Edgecliffe-Johnson
I think I would frame it more as reputational risk, even than PR element. I think at the same time, there is a real consideration about can you practically do business in Russia any more if the banking system is completely frozen? If you can’t get your accounts there audited. If you may not be able to get any profits you’re making in Russia out of the country. And if the rouble is devalued and interest rates have been worked up to 20 per cent. So I think it’s a real mix of these practical considerations. A reading on the grim outlook for the Russian economy, which was seen as a potential growth market just a month or two ago, and a reputational consideration that goes beyond the usual PR fluff.

Marc Filippino
So Edge, this is obviously meant to show that these companies disagree with Russia’s war in Ukraine and, you know, maybe even punish Russia. But, you know, are they actually hurting Russia or are they just hurting everyday Russians?

Andrew Edgecliffe-Johnson
Yeah, this is a concern for a lot of companies that if they get this response wrong, they’re not going to be harming Vladimir Putin. They’re going to be harming the average Russian consumer. And I think a lot of companies have hesitated about what to do for that very reason. It depends an awful lot on the business you’re in. If you are in the grain trading business or the oil business, it’s a very different equation from if you’re selling food and drink, for example, to the Russian people.

Marc Filippino
And we’re going to talk about the grain business in just a minute, but first Edge, is this the end of an era? You know, what do you make of all these western companies pulling back from Russia?

Andrew Edgecliffe-Johnson
I think we all remember what a moment it was when that first McDonald’s opened in Moscow in 1990 or when Russians could finally buy Levi Strauss jeans on something other than the black market. This was seen in the west as a triumph of western corporate capitalism. And it was very much encouraged by western democracies. So the US state department encouraged some of these moves into the Russian markets by western brands, for example. But I think the exit we’re seeing now, while it doesn’t yet affect all of those brands, is as significant. It is as sudden as the entry into the market we saw more than 30 years ago. And I think it raises one more very interesting question, which is if US brands are not available, then which brands will take their place? And my colleagues in Moscow have spoken to several people there who say, well, if we can’t buy an iPhone, we’re going to buy a Xiaomi phone from China instead. So I think this may create a very unexpected opportunity for Chinese brands to take the place of US brands instead. Thanks, Edge.

Andrew Edgecliffe-Johnson
Thanks, Marc.

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Marc Filippino
Russia’s war on Ukraine is fuelling a record increase in global commodity prices. It’s affecting everything from oil to aluminium to coal. Gas prices are at a new record high, and wheat is jumping too. To explain what’s going on with food supplies, I’m joined by our commodities correspondent Emiko Terazono. Hi Emiko.

Emiko Terazono
Hi, Marc. How are you?

Marc Filippino
I’m doing well. So how bad are the supply problems relating to wheat and other grains because of the war in Ukraine?

Emiko Terazono
So Marc it’s pretty serious. All the ports where grain is loaded from Ukraine are closed. And Russia also has its main grain ports in the Black Sea, which is essentially closed as well because there are no vessels that are going in or out. So grain flows from both Russia and Ukraine are virtually halted.

Marc Filippino
So which importer countries are being affected the worst?

Emiko Terazono
So both Ukraine and Russia send a lot of their grains to the Middle East, to north Africa and especially South Asia. And a lot of these countries are already struggling with food insecurity. Some of them have stocks, inventories like Egypt. But, you know, countries like Lebanon, Libya, Syria, they all rely on wheat from Ukraine, and they are going to struggle.

Marc Filippino
So Emiko, if commodities from Russia and Ukraine continue to be blocked because of the war, what are the alternative sources of supply?

Emiko Terazono
So EU is a big supply source, as is the US, Brazil and China for wheat. Argentina’s an exporter as well. But the problem has been that last year a lot of these countries have been hit by drought. Australia supposedly having a fantastic harvest. But my colleagues, they’re telling me that a lot of the supplies are now contracted out, so there’s very little spare that’s going to be able to go around.

Marc Filippino
So Emiko, what are the political implications for countries that depend on these imports from Ukraine and Russia?

Emiko Terazono
I think political instability is the greatest fear when you have shortage of food. It tends to act as a trigger for things like riots and unrest. ‘07 and ‘08, the food crisis and food shortages led to widespread riots and protests in more than 40 countries around the world. And in ‘09-’10, you had the Arab Spring. Now it wasn’t all down to food prices, but it’s just another thing that could lead to instability.

Marc Filippino
Emiko Terazono is the FT’s commodities correspondent. Thanks, Emiko.

Emiko Terazono
Thanks, Marc.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We’d help this week from Peter Barber and Gavin Kallmann. Our executive producers Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

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