The war in Ukraine is sending shocks worldwide as it has affected food prices immensely. This war is certainly a major cause of this issue, however, it is not the only one. Climate change and inflation are also major drivers of the rise in food prices. The managing director of the International Monetary Fund (IMF), Kristalina Georgieva, told the World Economic Forum that “the anxiety about access to food at a reasonable price globally is hitting the roof”
According to the U.N., the population of food-insecure people has doubled in the last 2 years. The 135 million before the pandemic has now hit 276 million. Currently, over half a billion people are facing famine conditions, this is an increase of over 500% since 2016.
Above, you can see the food price index and food commodity index by the Food and Agriculture Organisation of the United Nations. The overall food prices have been increasing each year since 2019 and the sharp rises in commodities such as vegetable oils, cereals, and dairy are very significant.
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What are the causes of the Global Food Crisis in 2022?
The already devastated food market is continuously worsening over the past years and it has not shown any easing. Commodities that have been most affected are wheat, maize, edible oils, and fertilizers. Global commodity markets face upside risks through the following channels: reduction in grain supplies, higher energy prices, higher fertilizer prices, and trade disruption due to the shutting down of major ports.
Unlike many may believe, this crisis has been ongoing since the beginning of the pandemic, mid-2020. The lack of logistical means was creating massive issues for farmers which initially caused the rise in prices. However now, there are other major factors in play that have caused the rally in prices.
Wheat prices were already under pressure due to the war in Ukraine. The two sides of this war are some of the world’s biggest wheat producers. Combined, they produce approximately 25% of the global supply. As the invasion began, the price of wheat has been surging and it had already risen 80% over the previous year.
The outlook of prices was already very dramatic and the war certainly exacerbated the situation. According to the U.N. food agency, the prices reached their all-time high in February, followed by another high in March. The 2 sides of this war make up for a great portion of the global supply. Ukraine is the world’s 4th largest corn supplier. As Ukraine has taken great damage to its ports and their agricultural infrastructure, the output is far from optimal and it is expected to last years.
Indonesia has banned the majority of palm oil exports in late April, in order to ensure the availability of sufficient domestic supplies. This ban has cut off supplies from the world’s largest edible oil producer.
A devastating heatwave has impacted India’s wheat harvest which is another major reason for the rallying prices. In May, the People of New Delhi witnessed temperatures of nearly 50 degrees Celcius. With the harvest issues in the country, the government announced a ban on wheat exports which took part in prices hitting record levels.
What countries will have the biggest hit?
Many different countries across the globe are facing high inflation of food prices at the retail level which reflects the labor shortages, increase in fertilizer prices currency devaluations, and many other factors. Underdeveloped and developing countries seem to be more affected by the current food crisis, since these countries are considered low- and middle-income, a greater proportion of their populations’ income is spent on food.
Kenya, Somalia, and Ethiopia are suffering gravely from this food crisis. The number of people who suffer from extreme hunger has more than doubled in these countries in the past year, from 10 million to over 23 million today. It is reported by the U.N. that in these countries, one person is expected to die every 48 seconds from acute hunger caused by armed conflicts, COVID-19, climate change, inflation, and the war in Ukraine.
That is not all, These international shocks have brought many countries nearing a breakdown. Sri Lanka is facing extreme shortages of food, fuel, and medicine aside from the rapidly rising inflation and these factors are driving the country into a wholesale economic emergency. Many humanitarian agencies are warning that Afghanistan is close to famine and it has been going on for months. Additionally, Lebanon has been in an economic crisis for over a year.
Below, you can see an illustration of countries and the percentage of their population that are in crisis, by the World Food Program;
Larger economies are also getting hit significantly. The U.S. inflation has hit 8.6% which is a 40-year high. Since 1981, food prices accounted for the greatest share in this inflation value. According to the Labor department, food costs in the country were up over 9% and prices of foods like eggs, meats, poultry, and fish go up over 14% relative to last year.
In China, fresh vegetable prices have rallied and are currently 24% higher than a year ago. The Chinese policy implemented against the Coronavirus caused a significant slowdown in their economy which contributed to inflation around the world aside from the supply chain issues that arose.
Since the start of this year, 90% of emerging and developing economies faced food price inflations greater than 5% and many more experienced double digits. Over 70% of all countries experienced food price inflation that exceeded their overall inflation. Thus it is reasonable to say that there is no country that will not be affected by this crisis. Different countries will be affected to different extents depending on their economic stability, wealth and capacity for food production. More countries are expected to limit exports as there is major uncertainty about the future global food supply
What to expect following months and years?
The Secretary-General of the U.N. António Guterres has warned people concerning the global food shortage in the coming months. According to the estimations of the U.N., global food prices have risen by over 30%, fertilizers by 50%, and oil prices by over 65%.
In order to confront the challenges that the world is facing at the moment, Guterres has urged a five-step plan. These steps are to increase supplies of food and fertilizers, social protection systems with countries, more access to international finance, further government help for smallholder food producers, and better funding for humanitarian operations to reduce famine and hunger. However, the question is how do we achieve these?
As of the beginning of June, the Agricultural Price Index of the World Bank fell by 5% over the last 2 weeks, nevertheless, it is still 40% higher than in January 2021
Access to fertilizers is expected to become a challenge over the next few months which is very likely to impact the global food production across many different crops in different regions. Since March, the price of fertilizers has risen by 20% since January, they are almost three times as high as this time last year. Russia and Belarus account for up to 38% of potassic fertilizers, 17% of compound fertilizers, and 15% of nitrogenous fertilizers, hence, the shortage and rally in prices.
Ukraine war has altered the trade patterns, consumption and production of commodities across the globe. According to the World Bank, high food prices are expected to be sustained over the next 3 years, and thus, domestic food price inflations are expected to remain. Food, fertilizer, and fuel prices are expected to be significantly higher in 2022 and decrease to a small extent in 2023. However, the projections show that prices will remain elevated in 2024.
It takes one issue to become a major problem for this world, high temperatures in India can cause shortages on the other side of the world. It is extremely unclear what may happen next, that will exacerbate the current crisis, however, we can say that easing in prices do not seem to be coming our way anytime soon.
References
- FAO Food Price Index | World Food Situation | Food and Agriculture Organization of the United Nations. (2022, April 8). http://Www.fao.org. https://www.fao.org/worldfoodsituation/foodpricesindex/en/
- Global Report on Food Crises – 2022 | World Food Programme. (n.d.). http://Www.wfp.org. https://www.wfp.org/publications/global-report-food-crises-2022
- Global Report on Food Crises: acute food insecurity hits new highs. (n.d.). Newsroom. https://www.fao.org/newsroom/detail/global-report-on-food-crises-acute-food-insecurity-hits-new-highs/en
- Griffiths, R. (2022, May 23). With food prices climbing, the U.N. is warning of crippling global shortages. NPR. https://www.npr.org/2022/05/23/1100592132/united-nations-food-shortages?t=1655214249904
