According to the World Bank, global food prices are on track to rise 23% this year, after having risen 31% in 2021, and the cost of the inputs and fuel required to produce and move the food that the world will need tomorrow is also rising. The result: immediate distress and the likelihood of reduced farm yields for as long as the next four years.

We live in a world where more than 40% of caloric intake comes from just three crops—wheat, corn, and rice. Production of these grains is concentrated in just a few regions, and a scant few players dominate each step of the value chain. Because of this high level of concentration, disruptions in the supply chain in any critical region can have devastating ripple effects across the rest of the world. Many countries that are most exposed also suffer from high debt loads and uncertain weather conditions attributable to climate change.

An estimated 1.7 billion people—most of them in developing economies—could suffer greatly, due to severely heightened levels of food insecurity, energy prices, and debt burdens, according to the UN Task Team for the Global Crisis Response Group. And the effects will be felt disproportionately. Most residents of countries where food makes up less than 10% of consumer spending (such as the US, Australia, and the UK) will be modestly impacted by rising food prices. But the effects will be far more severe in the many countries around the world where food comprises over 40% of consumer spending (including Pakistan, Guatemala, Kenya, and Nigeria, to name a few) and for the most vulnerable populations in every country.

Critically, the looming global food crisis isn’t about the world’s capacity to produce enough food. Rather, it is about the inability of our food systems to store and distribute enough food—and the inputs that are needed to produce it securely and equitably—in the face of the disruption caused by the war in Ukraine. Global trade is and will remain an integral part of modern food systems. But many problems that have arisen are symptoms of larger, systemic issues in our long, highly intermediated, complex, and fragile global supply chains.

In this article, the first in a series exploring the impact of the Ukraine war on global food systems, we explore the nature and effects of the current crisis and examine how our food systems can be shaped to react quickly when humanitarian needs are most pressing. Critical to the solution is the ability to give people everywhere the means to take matters into their own hands, minimizing the impact of the crisis by ensuring that they have the inputs and tools they need to grow and access sustainable, affordable, and nutritious food, now and in the longer term. In an upcoming article, we will explore a series of key scenarios for the future of the world’s food systems and look at ways to strengthen the resilience of the global food chain through the lens of those scenarios.

Insecurity on the Rise

The war in Ukraine began less than three months ago, but its negative effects on global food systems—coming on top of higher food and fertilizer prices brought on by the COVID-19 pandemic—have been swift. Although the immediate causes of each crisis differ, this is the third major food crisis we’ve faced in the past couple of decades, including the rapid escalation of food prices in 2007–2008 and again in 2010–2011. (See “Not Learning from the Past.”) Several factors underlie all three crises, including chronic underinvestment in local food systems by both governments and the private sector, and a lack of the diversity, resilience, and flexibility needed to respond rapidly to sudden shocks related to weather, market disruption, or geopolitical conflict. However, the current crisis could be far more catastrophic than those that have preceded it.

NOT LEARNING FROM THE PAST

First, the supply of food available to a large portion of the world—predominately cereals and edible oils, which are staples worldwide—is falling. Together, Russia and Ukraine supply about 12% of the total food calories traded around the world, and both are critical exporters of key commodities such as wheat (28% of global trade) and sunflower oil (69%). The UN’s World Food Programme (WFP) buys from Ukraine half of the wheat that it distributes around the world. Even more alarmingly, as exports from these countries tumble, other leading food-exporting countries have announced export bans or licensing restrictions designed to protect their own food stockpiles. For example, Indonesia, which produces roughly 60% of global palm oil supplies, recently banned all exports of palm oil products. The impact on countries that rely on imported food has been severe.

As a result, prices are skyrocketing—not just for food, but for fertilizer and fuel as well. The FAO Food Price Index averaged 158.5 points in April 2022, 30% above its value in the corresponding month last year. Outstripping inflation in most countries, these increases significantly reduce household purchasing power, especially for the most vulnerable populations, which typically spend the highest share of their household income on food. Prices of staple commodities are increasing in countries around the world. Wheat prices have increased 18% in Kenya, for example, and the price of imported rice has risen a shocking 50% in Haiti. Even the US Consumer Price Index, often seen as a proxy for food price inflation, is going up, jumping 8.5% in March, the highest year-on-year increase since 1981.

Just as troubling is the increase in the cost of key agricultural inputs, notably fertilizer and fuel. For example, the price of Black Sea urea, a key fertilizer ingredient, exceeded $900 a ton in March 2022, up from $350 a ton in March 2021, due to a combination of sanctions and transport disruptions. Rising fertilizer prices mean that farmers in both net-importing and net-exporting countries must revise their plans—planting fewer crops, planting different crops that have lower fertilizer requirements (such as fewer nitrogen-hungry cereals), or skipping fertilizer altogether and hoping for the best—all of which can damage the global food supply chain. Because about half of the world’s people rely on food outputs that use fertilizer, a drop in fertilizer supply could severely affect exposed populations for up to four years if action is not taken immediately to boost supplies. And the ripple effects of disruptions to the fertilizer supply chain will reach consumers worldwide.

The war’s impact on the price of fuel has been equally dramatic. Aside from the added cost to farmers of the fuel they need to power their equipment, last-mile inland transportation can account for as much as 40% of food costs in many developing countries. So as fuel prices go up, the total cost of food increases, creating a vicious cycle.

Making matters worse, the current crisis coincides with high debt levels in many developing economies, due in part to public spending in response to the challenges presented by COVID-19. As a result, governments are struggling to support fast-rising food, fertilizer, and fuel costs—and in many cases are rolling back food subsidies or eliminating them altogether.

Adding to the pressure on global food systems is the current La Niña weather phenomenon, which, if it plays out as it did in 2012, will further depress the 2022 global harvest. Droughts in the Middle East are already pointing toward poor regional harvests, and the March heat wave in India has adversely affected India's wheat crop, reducing the country’s anticipated output to 6% below initial estimates. Hungary just experienced its fourth consecutive winter drought, and harvests in the south of Brazil are likely to be adversely affected by lack of precipitation.

According to the UN, 193 million people in 53 countries already faced “acute food insecurity” in 2021. That number was 40 million higher than the previous record level in 2020. Now, Russia’s invasion of Ukraine has strained fragile global food systems to the breaking point. (See Exhibit 1.) The full effects, in both the short term and the medium term, have yet to be fully revealed.

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Source: Boston Consulting Group