What’s the biggest risk that we face today? Some may say war, others may say recession. inflation, stagflation, pandemics, and climate change. These are no doubt fair concerns, but they don’t quite measure up to the risk of actual starvation. That’s because the world is currently going through a food crisis the likes of which we haven’t seen since the World War II. That’s exactly what I’ll be covering today. I’ll be doing a deep dive on this emerging crisis and explaining exactly what it could mean for the global economy.
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What Food Crisis?
If you have no idea what this food crisis of which I speak is, then you’re lucky. That’s because even if the shelves at your local grocery store are full, you’re probably paying a lot more for the food that you’re buying. Speaking from personal experience, there was a time when it was very hard for me to get my hands on certain types of cereal. After doing some research, it appears as if there were many people around the world in similar situations. Here in the UK, we recently saw headlines about a potential chicken shortage. In other parts of the world, sunflower oil is in short supply. The corn has also become a hot commodity as people scramble to buy it before stockpiles dwindle. Are you a fan of cheesecake or cheese and bagels? Well, earlier this year was a pretty big shortage of cream cheese in the U.S. This was because of a broader shortage of dairy products, but guilty pleasures like cheesecake can’t compare with some of the other shortages that appear to be impacting the most vulnerable. See all the stories about baby formula shortages in the U.S. It seems as if this particular squeeze has been going on for almost two months. Of course, there are many more shortages out there that I won’t go over here, but you get the picture.
Numerous global agencies are chiming in on the food crisis, with the G7 saying that we could face widespread shortages in 2023. The UN food chief trumped that rhetoric by saying that the food crisis that we’re facing today is the worst that we’ve seen since World War II. Of course, the precursor to shortages is skyrocketing prices. These are happening across the board: ground beef, bacon, eggs, oranges, fish, coffee, pork, milk, butter, and other items have seen double-digit price increases in the United States. In fact, according to the Bureau of Labor Statistics’ food inflation index, food prices were up 9.4% over the last year.
Over in Europe things are better. For example, back in April in Germany, the largest discount supermarket Aldi announced that it would be hiking prices fot some food prices by almost 20% and 50%. Just think about that.
Things aren’t expected to get better anytime soon. According to the World Bank, food prices are expected to soar by almost 23% this year globally. Moreover, once we get past the stage of exorbitant food prices, we start moving into the territory of severe and acute shortages that either force people to adapt and find alternatives or, in the worst case scenario, go hungry. The reason why this is such a troubling scenario is because the concept of food shortages is almost unheard of in this day and age, at least in richer countries. We have always taken certain things for granted and the stability of our food supply chains is one of those things. So how the hell did we get here? Well, there are a number of reasons.
What’s Causing It?
The sad reality is that global food security has been a concern for more than a year. Ever since supply chains were thrown completely out of whack by the pandemic, food shortages have become a reality. Even last year, there were many countries that appeared to be in a precarious position in regards to food. This was detailed in the latest food security report, which was completed in March this year. Indeed, ever since 2020, the prices of food commodities such as wheat, sunflower oil, soybeans, etc. have been steadily creeping up. This meant that earlier this year, food prices were already at some of the highest levels that they had ever been. For example, in 2021 we saw a 28% increase in the price of food, according to the food and agriculture organization’s food price index. Food security seems also to have spooked the leader of the nation with the most mouths to feed. That’s because late last year, Xi Jinping put the focus on food security as a top priority. Perhaps he knew something the rest of us didn’t.
Either way, the whole question of food security took on a completely new meaning with Russia’s invasion of Ukraine back in February. With that invasion, the entire dynamic of the global food supply chain changed. That’s because Ukraine is considered to be one of the most important breadbaskets in the world and the most important food producer in Europe. Its land is incredibly fertile and, prior to the invasion, it exported 42% of the world’s sunflower oil, 9% of its wheat, almost 10% of its barley, and 16% of its maize. Any disruption to the exports of such a large food producer is, of course, going to cause a massive supply shock throughout the world. That shock is what we’re now beginning to feel.
It’s pretty hard to farm when you have artillery shells flying over your head and all your workers have joined the army. That’s why there was such a massive fall in the quantities of these commodities being farmed post-invasion. Not only that, but given that Russia has embargoed the Ukrainian ports on the Black Sea, for example, the grain can’t being exported. Given that the merchant fleet is unable to leave Odessa, grain has begun to pile up in storage in Ukraine. By some estimates, there could be as much as 25 million tons of grain sitting in stockpiles at risk of rotting. A dire situation. So that’s Ukraine.
However, Russia is also a really large soft commodity exporter. It exports 21% of the world’s sunflower oil, 14% of its wheat, and almost 10% of its barley. Although Russia’s farmlands have not been damaged by conflict, exports of these goods have been restricted, partly because of and in retaliation against western sanctions and partly to secure its own food supply. So what you effectively have is a situation where over 64% of the world’s supply of sunflower oil is at risk of serious disruption, along with 23% of its wheat and 20% of its barley, to give you an idea of just how much that is on the global food tables. An analysis by a senior research fellow at the international food policy institute estimates that Russia and Ukraine account for 12% of the global calories that the world trades in.
I should also add that the invasion has had an additional impact here on the cost of these end products. It’s not just that there’s likely to be less supply but those commodities which are exported will command a much higher price. That’s because of the added costs of extraction and transport, higher fuel prices.
Could it Get Worse?
So if things appear dire, that’s because they are. Firstly, even if the war in Ukraine was to end tomorrow, the damage for this year has already been done. That’s because goods take their time to move through global supply chains and given how slow those are, the impacts are likely to be felt all the way till the end of the year.
On top of that, the most arable parts of Ukraine are in the east of the country, which happens to be where most of the fighting is taking place. Arable land is being destroyed either by the conflict or by Russia’s scorched earth policy. There are abounding of farms being stripped of their equipment and landmines being buried in the fields. According to the chief executive of one of Ukraine’s largest farming companies, they’ve been unable to plant corn and sunflowers on 30,00 hectares thanks to mines and unexploded shells. You only need to extrapolate this out to all the farmland in the east and you get an idea of the magnitude of the problem. Who knows how long it could take before this land can be used again and how long before it can be harvested?
Many people believe that the Ukrainian government’s prediction that 25% less land will be planted this spring than usual is overly optimistic. So that’s the grim reality of the war on the ground, but even if Ukraine manages to start some of the harvesting again, it could still have to contend with a Russian embargo on its Black Sea ports. This could be seen as retribution by Putin. If his recent actions tell us anything, it’s that he likes to settle scores.
Yes, there are attempts afoot to move this grain through other modes of transport like rail, but even that has issues given the different configurations for rail cars. And speaking of retribution, Putin has recently imposed export controls on Russian potash. For those who don’t know, potash is a key ingredient in the production of fertilizer, and Russia, as the world’s second largest producer, accounts for 18% of global exports. It’s a pretty big deal that Russia has restricted this because it means that those countries that were reliant on fertilizer to increase the yields of their crops will have to find alternatives. Countries like Brazil receive a quarter of all their fertilizer from Russia. Any disruptions to these shipments could have severe implications for the planting season of Brazilian soybeans this summer.
Did you know that Brazil is the largest producer of soybeans and that this commodity is a vital ingredient for livestock and poultry feed? Essentially, less soybean production means fewer meat and chicken production shortages and higher prices for both vegans and non-vegans alike. This was just one example of how farmers around the world are dependent on fertilizer for all types of food production. It’s hard to appreciate just how interconnected the world’s food supply chain is until it’s so badly disrupted. Despite how much people would like to make this about Russia and Ukraine, there are a number of other regions that are facing difficult harvests for reasons unrelated to Putin’s war.
Firstly, did you know that there’s a drought taking place across large swathes of U.S. farmland that’s essential for the farming of all types of crops? According to the USDA’s drought monitor, approximately 12% of soybean production is in a drought-affected area. It’s 21% for corn and an unbelievable 68% for wheat. Kansas is the top wheat-producing state. It goes without saying that drought is not good for crop yields in states like Kansas. State experts are predicting that output will fall well below the five-year average. This will, of course, result in less supply and higher prices.
On top of the droughts in the Midwest and the United States, you also have the sorry twist of flooding in other parts of the country, a pretty painful irony if you ask me. Excessive rains have led to a late planting of wheat in regions like Minnesota and the Dakotas. Late planting implies less than optimal conditions for yielding the most wheat. Only 8% of the wheat has been seeded in places like North Dakota. This compares to a full two-thirds at this time last year.
Of course, these same drought and flooding fears are also playing out across the border in the prairie fields of Canada. Quite simply, North America is being battered by unseasonal weather patterns that just couldn’t have come at a worse time. Let’s now move halfway across the world to another country that’s facing muted production, and that is China.
Now, if you’ll recall, I mentioned that food security was one of Xi Jinping’s main concerns. Well, last year, China had record-breaking floods, which have created big difficulties for food production. This is because the rains have damaged about 30 million acres of crops across the country. What this naturally means is that China has had to rely on imports to make up for the shortfall in yields this year. However, perhaps the biggest risk to China’s food supply in the short to medium term has been its response to the latest COVID outbreaks. As you’ll no doubt know, China has held tight to its zero-cover policy, which has had unbelievable impacts on its economy and the global supply chain
The lockdowns and damage to supply chains have ironically further contributed to the CDC’s food security concerns. These lock-downs have led to severe shortages of labor, fertilizer, and seeds. According to official data, more than a third of farmers in three northern provinces have insufficient agricultural inputs after authorities sealed off villages in response to a cholera outbreak. These three provinces account for more than 20% of China’s grain production.
Another province that’s had its farming supply severely curtailed is Jilin. According to the provincial government, about one-third of farmers in the region did not have enough fertilizer at the end of March. This was just before they were supposed to begin their planting.
The fact is that China seems to have risked mass starvation for the unattainable goal of zero COVID, and if you ask residents of Shanghai, I’m sure they could attest to that.
Okay, so that’s a bit of an overview of the current situation that we find ourselves in. I’m sure there are many other regions that are struggling with their food production and I don’t have the time to go over them all here, but the point is that all this has created a highly volatile situation for global food supplies and this can have much more severe impacts than just hunger.
Threat to Civilisation
First, it’s worth pointing out that food security is leading to a massive reversal of trade and globalization. Countries are now beginning to restrict their exports for fear of running out of their own local supplies of essential commodities. For example, back in April, Indonesia banned palm oil exports. This was one of the most drastic cases of food protectionism that we’ve seen since the invasion of Ukraine. Palm oil is an essential commodity which is used for a number of foodstuffs. To understand just how big this ban is, you need to take a look at this chart.
Indonesia is the largest exporter of edible oils in the world as it accounts for a full third of all palm oil exports. With our shortage of sunflower oil, pretty soon people will have nothing to cook their food with.
If you thought that the export controls by Indonesia were bad, then the actions by India last week are going to be even more severe. That’s because the country has prohibited wheat exports in a bid to shore up local supplies. This set off alarm bells in other countries that may have been relying on Indian wheat imports to help shore up their local demand.
What do you do as a country if you start having concerns about your own food security? Well, you impose your own restrictions. This causes a chain reaction where countries all start restricting exports to the point where trade dries up and those countries that rely on imports quite frankly starve. The countries that are these food imports are those in particularly volatile regions of the world.
Countries in Africa and the Middle East are particularly vulnerable to this. For example, did you know that 80% of Egypt’s wheat comes from Russia and Ukraine? At least 60% of Lebanon’s wheat comes from the warring nations. I’ll remind you that food shortages and high prices were one of the contributing factors to the Arab Spring in 2011, which had its origins in, you guessed it, Egypt. It’s also not as if Lebanon isn’t going through its own share of economic trouble with a collapsing currency and crazy levels of inflation. Countries in Africa aren’t faring that much better either.
According to the report by the UN on the impact of the invasion, Benin and Somalia get all of their wheat from either Ukraine or Russia. These are countries that are not the most stable at the best of times, so when you throw a food crisis into the mix, it’s akin to throwing a match into a tinderbox.
Even if you don’t think that a food crisis in the Middle East or Africa is something you should personally be concerned about, I have news for you. As I mentioned, these food crises tend to have a way of turning into political crises, which then further devolve into mass unrest, which has an unfortunate tendency to result in conflict and starvation. This leads to a mass exodus of people from the countries in question. This has the dual effect of draining the country of labor vital for growing food in the future. It also puts a strain on those other countries where refugees migrate to
Quite simply, it isn’t really a stretch to assume that a global food crisis could lead to massive geopolitical turmoil the likes of which we haven’t seen for quite some time. This all reminds me of an article that I once read in Scientific American magazine over 10 years ago. It made the argument that food shortages could actually lead to a collapse of civilization. At the time, I thought that it was more science fiction, but in light of what we’re seeing today, science fiction could soon become unbearably real.
Now a few final thoughts from me. The truth is that I am really concerned about these global food shortages. It’s something that I’ve noticed personally during my grocery store visits, and I didn’t fully appreciate how bad it was globally. Of course, there’s very little that we can do on a personal level to avoid a global food crisis. If governments decide to go the food protectionist route, all we can do is point out how nonsensical it is for global progress. However, we can make concerted efforts in our own daily lives to shore up our own food security. There’s nothing stopping you from buying dried goods in bulk. Some of these can last for over five years if stored in the right conditions. Dry milk and dairy products could come in handy for a rainy day. Freeze-dried meats that have been professionally packaged can have a shelf life of nearly 15 years. On the other hand, perhaps you’re lucky enough to have a garden. There’s nothing stopping you from planting a few vegetables, herbs, and spices. Not only is it more sustainable than buying the items, but it’s more cost-effective, not to mention the sense of pride in growing your own food.
You may think that this advice is silly and that you see nothing but abundance when you head down to the shops, and I really do hope that all these concerns about a global food crisis are overblown, but given all the crazy, frightening stuff that’s been going on recently, we really can’t rule anything out. Are you also worried about the food crisis, or do you think that it’s all overblown?
[This article is a transcription of a video made by Coin Bureau]
Original video: https://youtu.be/EdkJj2KyNi4 ]