Food insecurity is a grave concern. We must act now with a multilateral initiative to bolster food security. The alternative is dire: more hunger, more poverty, and more social unrest—especially for countries that have struggled to escape fragility and conflict for many years.

Kristalina Georgieva, IMF Managing Director

In recent times, the increase in the prices of food has been a major headline in many countries of the world. From the developing countries in Africa to the developed countries of the West, there is one common news – food inflation. The prices of food have been increasing at an alarming rate, and as a result, the global hunger crisis has worsened. In this article, we cover three drivers of global food inflation and shortages.

  1. Ukraine war
  2. US and Brazilian droughts
  3. Chinese lockdowns

Food shortages and inflation have the potential to create social, political and economic disruptions leading to riots, financial instability and war. They are not to be taken lightly, and despite the current hardship, we have yet to feel their full effect on global populations.

These are troubling times, but we’re firm believers that great opportunities emerge as people, companies and countries adapt to meet the challenges. Prepare for them.

Global Food Shortage: prepare for impact

People all over the world are suffering from soaring food prices by the day. In the U.S., inflation reached a record high of 8.5% in March 2022, the highest in over 40 years, compared to a mere 1.5% in March 2020. The food-at-home (grocery store or supermarket food purchases) CPI increased 1.5 percent from February 2022 to March 2022 and was 10.0 percent higher than March 2021. (USDA)

Other countries, both in advanced and developing economies, are witnessing their highest inflation rates as well. Just as the world was trying to recover from the effect of the two-year COVID-19 pandemic, the Russia-Ukraine war broke out and has since spiked global commodity prices. Supply chain disruptions prior to the war were already fueling the surging prices of food, energy, and other commodities. Coupled with extreme climate events, the world is witnessing an alarming rate of food price increases. The graph below shows the evolution of the monthly global Food Price Index between March 2010 and 2022, developed by the Food and Agriculture Organization (FAO).

Food shortages and insecurities are pressing issues in many countries around the world, with those in Africa among the most at risk of hunger. Many countries in the Middle East and North Africa are highly dependent on Ukraine and Russia for basic food commodities, from which their economies might severely suffer. Moreover, many regions in the U.S., South America, and China are facing their own shortages of food and poor harvests. All this is adding to the price pressures and food shortages imposed by the ongoing war in Ukraine.

In a previous article, we’ve discussed in detail the Russian-Ukrainian relationship, the developments of the war, and the main sanctions applied on Russia by the U.S, EU, UK, and Canada. According to the United Nations (UN), over 11 million Ukrainians have fled their homes since the start of the war, of which 5.2 million escaped to neighboring countries (map below) and almost 6.5 million are internally displaced. So far, there are no signs that the Russian President, Vladimir Putin, is serious about negotiations with Ukraine.

How is the War Contributing to Global Food Shortages?

As we’ve discussed in our previous article, Russia and Ukraine are two major providers of food commodities to the world. Together, the two countries supply major proportions of the global exports of sunflower oil, wheat, barley, and corn.

The graph below shows the 2020 shares of both Russia and Ukraine in global exports of basic food commodities. In 2020, both countries accounted for almost 73% of the global supply of sunflower oil, one of the world’s most used vegetable oils. Ukraine, alone, supplied 52% of world exports, with Russia contributing a share of 20%. Russia and Ukraine are also major global suppliers of barley and corn, which are two of the most dominant livestock feeds. In 2020, both countries exported almost one-quarter of the world’s barley supply and 14% of its corn supply.

When it comes to wheat, perhaps the most critical staple for food security in several nations, both countries account for almost a third of global exports. In 2020, Russia was the world’s largest exporter of wheat, accounting for a share of 19.5%. Ukraine came in fifth place after Russia, Canada, the U.S., and France, as it supplied 9% of the world’s wheat exports.

Who Buys Russia’s and Ukraine’s Food?

India and China, among other countries, will particularly be affected by the shortage of sunflower oil. India imports 23% of its sunflower oil from Ukraine, while China imports almost 12% of its supply from Ukraine and Russia. Moreover, several developing countries heavily rely on Russia and Ukraine for wheat. The Middle East and North Africa will particularly suffer from wheat shortages. As can be seen in the chart below, Russia and Ukraine export almost 70% of their wheat to 10 economies, Egypt and Turkey being the two largest importers. In 2020, Egypt and Turkey imported 30.3% and 12.7%, respectively, of both countries’ exports. The supply of wheat from both neighboring countries is particularly critical for Egypt, which imported a total of $4.5 billion from them in 2020, accounting for 85.6% of its total wheat imports. In Turkey, supply from Russia and Ukraine also accounted for 76.5% of its total wheat imports.

The U.S. Megadrought Situation

The U.S. Southwest and parts of the West are suffering from a megadrought that has been developing since 2000. Several states across the region are severely affected, with limited water supplies, reduced agricultural production, and more wildfires. The map below shows the U.S. drought situation on April 19, 2022. For a big part of the west, the drought classification has been transitioning more into the “Severe”, Extreme”, or “Exceptional” Drought categories.

Warnings of a megadrought happening in the U.S. Southwest have been voiced out for quite some time. In a 2016 study, scientists from Cornell University, Columbia University, and NASA warned of the risk of a megadrought, especially with the rapidly rising temperatures due to climate change. A megadrought in the American Southwest, they argued, “would impose unprecedented stress on the limited water resources of the area, making it critical to evaluate future risks not only under different climate change mitigation scenarios… regional temperature increases alone push megadrought risk above 70, 90, or 99% by the end of the century.”

A “megadrought” is a period of severe dryness that extends for several decades. According to a recent study by scientists from Columbia and Colorado Universities, the American Southwest is experiencing its driest weather in at least 1200 years. Looking at tree-ring summer soil moisture and using advanced modeling, the authors find that the period between 2000 and 2018 was the driest two decades since the 1500s and the second driest since 800 CE. This extreme drought is believed to be fueled by global warming, which according to the study “has pushed what would have been a moderate drought in southwestern North America into megadrought territory.” This problem is believed to be “just the beginning of a more extreme trend toward megadrought as global warming continues.

Water supply and agriculture in the American Southwest highly depend on the slow melt of the mountain snowpack to supply the high water demands through spring and summer. This process of slow melt is also crucial for reducing the prevalence and severity of wildfires as it increases soil and ground moisture during the hot seasons. Over the last five decades, snow has been melting earlier due to rising temperatures, which reduces moisture during the summer and leads to more fires and droughts. Higher temperature levels also increase evaporation, which reduces river flow and diminishes the reservoirs. With such extreme conditions, as populations grow rapidly, the competition for water resources is expected to heighten across sectors, states, and even between Mexico and the U.S.

Agriculture in several U.S. states has already been affected by the drier conditions and is expected to suffer even more. Drought can affect the agricultural sector in several ways, whether through reduced crop and livestock production due to less rainfall or diminished soil moisture and irrigation due to melted snowpack. Most croplands in the Southwest depend on irrigated water. As the population in the region grows rapidly, more water resources will be diverted to use in urban areas and away from irrigation, especially as temperatures and dryness continue to rise.

Last year, a first-ever water shortage from the Colorado River was declared, as water levels from the Lake Mead reservoir dropped to record lows. The Colorado River provides irrigation and drinking water to several states in the American West, including Arizona, California, Colorado, and Nevada. California, which produces over 50% of the U.S. high-value specialty crops, such as fruits, vegetables, and nuts, is particularly affected. In 2019, California alone accounted for almost 13.5% of total agriculture cash receipts in the U.S. Last August, an emergency regulation to restrict the amount of water extracted from rivers and canals feeding the Sacramento-San Joaquin Delta was approved by the California State Water Resources Control. Higher temperatures and lower water supply is expected to reduce the production of those crops, resulting in lower yields, higher food prices, and other economic challenges across the country.

Regions in the U.S. Caribbean, including Puerto Rico and the U.S. Virgin Islands, are also severely affected since the majority of crops there are rainfed. According to experts from the USDA Caribbean Climate Hub, “Of the many climate events that threaten agricultural production in the region, increasing drought is one of the most devastating.”

As a reminder, 2021 saw a severe drought across many of the US upper plain states which produce wheat. Here’s the US Drought Monitor for August and we can see North Dakota, South Dakota, Washington and Montana plus parts of Iowa were all negatively impacted.

Figure 6 – 2021 U.S. Drought Intensity

The graphic below shows the extent of the impact on wheat production comparing data from 2020 to those of 2021.

Figure 7 – Wheat Producing States

Source: Statista

With climate change, it isn’t so much the increase in temperature negatively impacting crops. This will hurt them, to be sure. However, it’s the persistence of the weather pattern that causes the problem. In this case, the drought persisted for a long period of time and dramatically reduced wheat output. Therefore, we closely monitor droughts for severity and length to understand their impact and to gauge if the pattern will continue to persist. So far, the droughts from last year are appearing to inflict crop damage for 2022 and potentially exacerbate the current global food shortages.

Even More Droughts in South America

Dryer conditions in the continent are not restricted to the U.S. Brazil, Argentina, and Paraguay, which are the three top producers of agricultural products in South America, are also experiencing extreme droughts that are affecting their production of many agricultural goods including soybean, corn, coffee, and sugar. In 2020, Brazil was responsible for 50% of global soybean exports, making it the largest producer and exporter of the crop in the World. The U.S., Argentina, Paraguay, and Canada were also among the top 5 exporters of soybean.

In 2022, Brazilian soy production is expected to drop by 13% as per the predictions of Gro Intelligence.  Major losses are expected in the soybean production from South America this year. The estimated magnitude of loss in Soybean production across the three South American countries ranges from a conservative 9.5 million tonnes according to the United States Department of Agriculture, to as high as 20 million tonnes according to the Brazilian agency AgRural. The graphic below shows widespread drought developing in South America (and Africa).

Figure 8 – Global Drought Intensity

Source: Drought.gov

Argentina and Brazil are also the second and third exporters of corn in the world, respectively. Together, they account for almost one-third of its global exports. They are only preceded by the U.S. and followed by the Ukraine, both of which are facing challenges of their own. Gro Intelligence predicts that Argentina will harvest 10% less of its corn production in 2022. Coffee bean production is also forecasted to drop by 20% in 2022/2023 in Brazil. According to experts from Gro Intelligence, even if the harvest from the U.S. was plentiful, the world would still not be able to compensate for the deep loss from South America’s crop reductions.

Which Countries Will Suffer the Most?

According to the Global Hunger Index (GHI), a tool that comprehensively tracks hunger at the global, regional, and national levels, most nations, and especially 47 countries, will fail to reach a low level of hunger by 2030. Food insecurities are driven by the setback from the COVID-19 pandemic, disrupted supply chains, extreme weather conditions due to climate change, and the war in Ukraine. This puts the world off track in the bid to achieve the 2030 UN Sustainable Development Goals (SDGs) agenda of zero hunger, no poverty, and good health and wellbeing.

Based on data over 2016-2020, the 2021 GHI scores show that hunger is deemed “extremely alarming” in Somalia and “alarming” in 9 countries, including Burundi, Central African Republic, Chad, Comoros, Congo, Madagascar, South Sudan, Syria, Yemen. Moreover, the hunger situation is considered “serious” in 37 countries, which include, among others, Afghanistan, Angola, Benin, Côte d’Ivoire, Ethiopia, Sudan, and Venezuela. The graph below shows the GHI score for different regions across the globe. The African Sahara and South Asia are the two regions with the highest risk of hunger according to the 2021 GHI scores.

Figure 9 – Global Hunger Index by Region

 

Another relevant analysis is the Hunger Hotspots Report of the World Food Programme (WFP) and the Food and Agriculture Organization (FAO), the UN’s food branch. It found food insecurity is soaring across 20 “hunger hotspots.” Those 20 countries and regions suffer from severe economic shocks, political conflicts and instability, natural risks, and inadequate humanitarian access. The four countries with the highest risk include Ethiopia, Nigeria, South Sudan, and Yemen. Those four countries either have areas where people are experiencing, or expected to experience, starvation and death. The report comes as “an early warning for urgent humanitarian action,” as the food insecurity situation is expected to worsen even further, putting millions of lives at risk. The negative impact of climate change is to blame to a great extent. According to the WFP and FAO, climate change “is no longer a glimpse into the future, but the daily reality for communities around the world.” Among the other countries of concern are Afghanistan, the Central African Republic, the Democratic Republic of the Congo, Haiti, Honduras, Sudan, and Syria.

What About China and Its Lockdown?

With its strict Zero-Covid policy, several cities in China have been in full or partial lockdown for more than a month now, as the country faces its worst-ever COVID-19 outbreak. With China’s mass testing, almost an average of 30 thousand new confirmed cases are reported daily. A peak of 51 deaths was reported on April 25. Despite the high incidence of new cases, the daily death rate is much lower compared to the 2020 outbreak. The graphic below demonstrates the 7-day evolution of new confirmed cases in mainland China.

Figure 10 – Daily New COVID-19 Cases, 7-day Average

 

Almost 4.5 million people in Shanghai are restricted to their homes, while 7.9 million are allowed to only wander in their neighborhoods. Many are not even allowed to buy their basic groceries. Food distribution systems have broken down and people are running hungry. Not only is the price of online grocery shopping expensive, but many e-commerce merchants suspended deliveries to Shanghai as the number of cases elevated. A plastic bag containing a single carrot, one cabbage, one yam, and a few chicken wings that had already gone bad is what Wu Peiying, a 27-year-old Shanghai resident, reported receiving over two weeks. Despite the Chinese government’s claim of abundant food and medical goods, the city has been suffering from extreme food shortages since its lockdown.

The problem isn’t just that people aren’t able to buy their food in Shanghai. Other provinces such as Jilin, Liaoning and Heilongjiang have also been facing strict lockdowns for over a month, causing a serious agricultural crisis all over the country. Together, those three provinces account for 20% of the country’s grain output, such as corn and rice. With such lockdowns, the agricultural sector is suffering from grave shortages of labor, seeds, and fertilizers, just as farmers are preparing for their important spring planting season. Almost one-third of the farmers in northeastern Jilin, Liaoning and Heilongjiang provinces are short of agricultural inputs following the lockdown. For decades now, China’s policy has been to achieve self-sufficiency in basic food commodities. The shortage in grain production challenges such goals and forces China to resort to more imports, which adds to the spiraling global inflation fueled by shortages in different countries.

Now, almost 75% of Beijing’s 22 million residents are being mass-tested for COVID as warnings of an “urgent and grim” situation in Beijing are circulating. If the populous Beijing enters a city-wide lockdown like that in Shanghai, food shortages might even intensify, worsening the situation for Chinese citizens and adding to the already rising global food prices. 

Conclusion

Food shortages across the globe are causing major increases in the prices of food and increasing the risk of food insecurity among most countries. A combination of factors, including the Russia-Ukraine war, severe droughts in the U.S. and South America, and China’s extreme lockdowns, are contributing to the current situation. Millions of lives are put at risk every day, especially in Africa and Asia, as the threats of global hunger linger.

Almost a decade ago, rising wheat prices triggered a series of riots that led to the “Arab Spring.” In 2010, the world witnessed a shortage of wheat and other grains as harvests from major producers were stripped by droughts in Russia, Ukraine, China and Argentina. In addition to this, the storms in Canada, Australia, and Brazil also contributed to the decreased harvest, and the consequent shortage in wheat and other grains. Many Middle Eastern countries depend on imported wheat to feed their populations. Egypt for example, imports around 50% of its caloric intake. When grain prices increased in 2007-2008, Egypt’s bread prices increased by almost 40%, leading to severe political and social unrest.

Today, the situation is even grimmer. The recent droughts appear to be the worst in modern history, climate change is causing massive challenges for farmers worldwide, and the Russia-Ukraine war is stripping the world of a major part of its food supply. This is coupled with the supply chain disruptions and rising fuel prices following the COVID-19 pandemic. If the 2010 wheat crisis triggered massive unrest in several countries, one must wonder what the current situation of rising prices across all commodities might do to the world.

The global food supply is critically low. The global economy is in a dire state, and the world, as it is, can’t afford to go through any other major disruption. Any major disruption, like a disruption to the Middle East or Nigerian oil supply, for instance, while Russian oil supply is being blocked due to sanctions, could lead to a sharp drop in global economic growth or sporadic outbreaks of violence between countries. A debt default by Tunisia or Sri Lanka has the potential to trigger more defaults across developing countries struggling with debt and inflation.

These are troubling times, but we’re firm believers that great opportunities emerge as people, companies and countries adapt to meet the challenges. Prepare for them.