The World Bank warns the Ukraine war is set to cause the "largest commodity shock" since the 1970s with cotton prices expected to be nearly 40% higher in 2022.
The World Bank, which aims to fight global poverty, has revealed in its latest Commodity Markets Outlook report, the Ukraine-Russia War combined with Covid lockdowns in China and weather-related challenges has led to the increase in prices for cotton, energy and food.
The report explains the war in Ukraine has dealt a major shock to commodity markets, altering global patterns of trade, production, and consumption in ways that will keep prices at historically high levels through to the end of 2024.
It points out the increase in energy prices over the past two years has been the largest since the 1973 oil crisis. While, price increases for food, of which Russia and Ukraine are large producers, and fertilisers, which rely on natural gas as a production input, have been the largest since 2008.
The World Bank’s Vice President for Equitable Growth, Finance, and Institutions, Indermit Gill says: “Overall, this is the largest commodity shock we’ve experienced since the 1970s. As was the case then, the shock is being aggravated by a surge in restrictions in trade of food, fuel and fertilisers.”
The report also explains cotton prices continued an upward trend that began in early May 2020 to reach an 11-year high in March with prices increasing for 20 of the past 23 months. The World Bank states the overall price strength reflects gradual improvement in the outlook for global demand, which is expected to average 26.2 mmt in the current season, which is 2% higher than 2020-2021. It says this outlook is a marked improvement over the previous season’s pandemic-related contraction of more than 13%.
n terms of energy, which affects every part of the apparel supply chain, prices are expected to rise more than 50% in 2022 before easing in 2023 and 2024.
Non-energy prices, including agriculture and metals, are projected to increase almost 20 percent in 2022 and will also moderate in the following years.
Nevertheless, the World Bank believes commodity prices will remain well above the most recent five-year average. It adds that in the event of a prolonged war, or additional sanctions on Russia, prices could be even higher and more volatile than currently projected.
Ayhan Kose, Director of the World Bank’s Prospects Group points out: “Commodity markets are experiencing one of the largest supply shocks in decades because of the war in Ukraine. The resulting increase in food and energy prices is taking a significant human and economic toll — and it will likely stall progress in reducing poverty. Higher commodity prices exacerbate already elevated inflationary pressures around the world.”