Conflict Brings a New Challenge to Global Food Security

17 June 2022
7 Minute Read

February 24 marked the beginning of one of the largest military conflicts to break out in Europe since World War II, as Russian military forces invaded Ukraine. The unprovoked and devastating attack ratcheted up geopolitical tensions and triggered a massive humanitarian crisis.

The conflict has created huge transportation and logistical challenges for food trade, both domestic and international. Physical damage to Ukraine’s infrastructure has hindered the movement of food commodities, a majority of which are transported by rail and truck to ports on the Black Sea and Sea of Azov. Some of Ukraine’s infrastructure, such as roadways, was in disrepair even before the war; since the conflict erupted, eastern Ukrainian ports have been destroyed or heavily damaged—and the Russian navy controls the Black Sea, bringing shipping to a near standstill.

Conflict in One of the World’s Breadbaskets

The widespread destruction and disruption in Ukraine and retaliatory measures by world governments pose new challenges to the global problem of food insecurity. It follows on the heels of the COVID-19 pandemic, which had already exacerbated food security issues.

Russia and Ukraine are two economies that play critical roles in the world’s food supply. Between 2018 and 2020, the two countries accounted for nearly 35% of the global wheat market (Display). And it may be somewhat surprising that they also account, collectively, for more than 70% of global trade in sunflower oil, which is used for cooking. Ukraine’s share alone accounts for about half of the world market.

Russia and Ukraine Play Critical Roles in Global Food Supply
Percentage Share of Global Markets by Volume, 2018–2020
Russia's and Ukraine's shares of global agricultural commodities

Past performance does not guarantee future results.
Excludes intra-European Union trade
Data through December 31, 2020
Source: International Food Policy Research Institute

The stakes of the conflict are very high. According to the World Food Program, 811 million people went to bed hungry globally even before the war’s outbreak. In fact, we’ve witnessed a dramatic increase in the number of people experiencing acute food insecurity since 2019—from 135 million up to 276 million people. Even before the war, extreme food insecurity existed, especially in sub-Saharan Africa but also in nations such as Afghanistan and Iraq. Many of those challenged areas face painful shortages of vital food imports.

Export Restrictions Disrupt the Food Supply Chain

Growing cases of interventions in the global food system through export restrictions is a major concern for food security. Indonesia was one of the more recent nations to react—in early May, the Southeast Asian country imposed export restrictions on its sizable palm oil market production. India also announced restrictions on wheat exports in May, although the actual extent remains unclear.

Fertilizer market disruptions are an added wrinkle to the current food crisis. Russia and its ally Belarus are responsible for a tremendous volume of world fertilizer exports—not only to Europe but also to some of the countries facing the greatest food insecurity. The fertilizers affected include potassium and nitrogen—which require a substantial amount of energy to produce.

The nitrogen crisis highlights the link between food security and energy prices. The sizable spikes in energy prices that have taken place both before and after the outbreak of hostilities limit the ability of the global food system to respond to the disruptions.

How Does the Current Crisis Differ from 2007–2008?

Combine this fragile food system with severe hunger, amplified by a wartime disruption to commodities ranging from grains to food oils—and factor in impacts to energy prices and fertilizer—and you have a unique crisis. It’s also a very different one from the 2007–2008 crisis.

In that earlier episode, the world had already experienced a steady rise in wheat prices, leading to spillover effects that impacted rice markets. At the time, Vietnam and Thailand, the major rice exporters, were considering imposing export restrictions until Japan stepped in to release significant rice reserves, helping to settle food markets.

The current crisis includes huge uncertainties related to how long the war will last and how intense and sustained the disruptions will be. This bout will likely be more intense and is already having knock-on effects on fertilizer market prices, which we didn’t see in 2007–2008. An example of an unanticipated knock-on effect that we didn’t see in that earlier episode is Russian farmers facing shortages of machinery replacement parts.

The 2007–2008 food crisis was less about declining global production than about panic buying and other food-system interventions. Right now, from the perspective of total calories impacted by export restrictions, we’re already at the maximum level from 2008 (Display). More than 15% of global trade has been impacted, so the world is really into uncharted territory.

Export Restrictions Pose a Major Challenge
Share of Global Trade, in Calories, Impacted by Export Restrictions
Share of global calories subject to export restrictions in current and past crises

Past performance does not guarantee future results.
Week represents week of year
Data through April 12, 2022
Source: International Food Policy Research Institute

Evaluating a Range of Food Supply Outcomes

Given the many moving parts to this crisis—not only geopolitical but physical—it can help to put dimensions around potential outcomes, whether they’re more favorable or less favorable. Researchers at Columbia University and their colleagues are currently conducting research to explore a range of scenarios, including a quick peace agreement, protracted stalemate, intensifying conflict, and intensifying conflict combined with global trade repercussions.

The goal is to get a sense of the potential impacts on food supplies at the country level and also on global commodity prices, using a model that incorporates global commodity inventories and production levels. For the worst-case scenario for wheat markets, as just one example, we could see wheat prices spike higher than during crises in 2007–08 and in 2010–11, when prices surged again after a brief relief period related to the global economic downturn.

Under a worst-case scenario, many countries could see wheat supply impaired by as much as 25%, presenting a major gap to be filled. Many of these nations happen to rely heavily on wheat imported from Russia and Ukraine. They also may lack the means—in terms of financial capacity—to find new trade partners that reduce this regional dependence, especially when prices are high.

Responding to an Enormous Global Challenge

What can be done to address the crisis? Reducing food waste has long been a top agenda item among key global stakeholders, particularly United Nations agencies, given that as much as 30% to 40% of food is wasted somewhere along the supply chain.

More effective policies on food waste could help, though their impact is likely to be more long-term in nature. Rising food prices, of course, will naturally provide an incentive to reduce food waste, but the heart of the matter is more persistent: supply chains are quite complex and highly interdependent, given the high level of trade globalization.

While it’s important that countries be able to produce some share of staple foods domestically, trade will always be vital. Each country has to balance the risks of domestic production with its risk of local concentration and the risks of trade, which have become painfully clear in the current crisis.

North Korea is an interesting case study. China is by far its largest trade partner, but most of North Korea’s food is produced domestically. While this model reduces the country’s external food dependence and the direct impacts of global systemic trade disruption, it also magnifies the risk of a severe weather event, such as flooding, that could hurt local food production.

There are no easy answers or choices in national food supply management: it’s a question of balancing the risks of each path of food supply and identifying ways to reduce systemic risk from import disruptions. One way to tackle this issue would be to build up a more diversified roster of trade partners, over time, for the food commodities that a country imports.

Exploring the Climate Dimensions of Global Food Supply

Food production and climate are inextricably linked, which begs the question of whether global climate change will make it riskier to concentrate food production in specific regions or countries.

Among the takeaways from Climate Change and Land, a wide-ranging report from the Intergovernmental Panel on Climate Change, is the growing risk of extreme weather events. Droughts, high temperatures, heavy rains and other hazards will likely impair the structure of the world food supply in coming decades. The report notes regional threats such as warming compounded by drying in the Mediterranean and food-security risks in the drylands in parts of Africa, Asia and South America.

Corn production is highly concentrated in the US, with just a few states responsible for the majority of US production. A significant amount of maize is exported to global trade partners. Given that climate extremes affect sizable—and multiple—areas, highly concentrated food commodities like corn are more at risk from regional climate extremes than those such as wheat, for which production is more distributed.

The impact of the war also highlights a key risk to be managed as the world transforms its global climate policy. Part of the drive to slow climate change has involved transforming global agricultural systems to reduce, and even capture, greenhouse gas emissions. The war is a stark reminder that even as we move toward more sustainable food systems, we can’t downplay the risk of these types of disruptions.

We believe that it helps to take a broader view of our food system and how it’s interconnected with the world’s energy production systems. The world’s food supply depends on many variables: food production, transportation, energy sources, energy prices and even fertilizer prices. It’s vital to consider all these dimensions as we continue on our transition to more climate-resilient—and less climate-impactful—food sources.

The authors wish to acknowledge the contributions of Markus Schneider, Senior Economist—EEMEA at AB and Joseph Sun, CFA, Research Analyst—Sustainable Thematic Equities at AB.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams and are subject to revision over time.


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