Is a perfect storm hitting global food supply?

By
Pieter Cleppe
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The damage Russia’s invasion of Ukraine has caused to global food supply chains appears to be even greater than feared. There are estimates that Ukraine’s agricultural production that is destined for the world market would be halved. The global shortage of fertilisers, also exacerbated by the war, threatens to reduce harvests. Combined with drought, the UN’s Food and Agriculture Organisation (FAO) therefore now warns that «Targeted humanitarian action is urgently needed to save lives and livelihoods in the 20 hunger hotspots» it has identified.

In addition, India has now decided to suspend the export of wheat indefinitely. This is to “ensure domestic food security”, although loopholes would remain for some countries. This is also the result of a heat wave in India that would result in the loss of more than 15 percentof the harvest. This while only a few weeks ago, countries like India were counted on to alleviate the global food shortage.

Javier Blas, a Bloomberg Energy and commodities columnist, comments:

“My biggest concern is the copycat effect of India’s wheat export ban. Not just in wheat (and corn), but crucially in rice. If rice exporters panic (and there’s not reason thanks to a record expected harvest) and follow suit, it’s game over for global food security.»

A perfect storm

Across the world, commodities have already risen by 23 percent in one year, obviously also as a result of the Covid fall-out as well as money printing. No immediate change seems to be in sight.

In fact, Abdolreza Abbassian, the FAO’s former head of agro-markets, warns: «The real danger is the 2022-2023 season, and it will bring down governments.”

Before the war, Ukraine supplied 11 percent of the world’s traded wheat, 15 percent of barley, 17 percent of maize and 46 percent of sunflower and safflower seeds, which is why supermarkets in France, the U.K. and elsewhere were already restricting sales of vegetable oil. Some 30 percent of Ukrainian land is currently occupied, unsafe or too damaged to farm, so this is a massive challenge.

On top of this, China is also hoarding more crops than usual, there have been export restrictions on Argentinean beef and Russian fertiliser, and countries like Kazakhstan and Serbia already imposed similar restrictions before the conflict.

The role of the EU’s anti-deforestation policies

Another important development is Indonesia’s decision to stop exporting palm oil, a crucial ingredient of the global food chain. The EU has been planning to impose far-reaching new restrictions on the import of palm oil. The motivation for this is to counter ‘deforestation’.

The EU’s approach is questionable, however. 84% of the world’s palm oil production takes place in Indonesia and Malaysia. The independent World Resources Institute recently specifically identified Indonesia and Malaysia as “bright spots of hope for forests”. Deforestation is obviously a problem, but according to the FAO, deforestation in Asia is not as problematic as in Africa and South America.

A better, more targeted, approach would be – as also suggested by the World Wildlife Fund (WWF) – “support sustainable palm oil and avoid boycotts, since we know substitutions with other vegetable oils can lead to even further environmental and social harm.”. In Malaysia, which fortunately, unlike Indonesia, continues to export palm oil, 90 percent of its production has a sustainability label, so all is well on that front.

In this regard, it should also be mentioned that palm oil has a particularly high yield, compared to the alternatives. A study published by “Nature”, for example, makes it clear that to keep pace with global demand, an expansion of palm oil production by only 36 million hectares of additional land would be needed, compared to 204 million hectares for soybeans. In other words, a rethink of the EU’s approach seems to be in order.

The largest food crisis in history?

A new expert report by the so-called “International Panel of Experts on Sustainable Food Systems” predicts that the new global food crisis could be the “largest crisis in history”. David Beasley, the director of the UN World Food Programme, has been warning for several weeks now about the impact of war on global food production. Only this week he said of the Russian naval blockade of Ukraine: ” The longer ports in the Odesa area remain closed, the more devastating this global hunger crisis will become. Is it too much to ask to allow food to flow so that millions can eat?” He adds that for this reason Europe may soon start to worry about much larger migration flows from Africa.

The EU is now trying to help direct food supplies from Ukraine by road and rail, but this is far from easy. Countries like Brazil are currently helping out, but Brazil’s agribusiness depends for more than a quarter on the import of fertiliser from Russia and Belarus, which is already subject to export restrictions. Top European officials fear that Russian President Vladimir Putin may use food supply as an economic weapon, with export restrictions on agri-food products, fertilisers and energy to be expected.

In any case, already, food prices are on the rise in Western Europe, by as much as 10 percent a year. Food is only a limited part of family budgets, so it will not lead to hunger riots like the “Arab Spring”, but this does mean a reduction in the quality of life for many.

The question is what can be done about all this immediately. One key step must be to avoid burdening our farmers with even more patronising behaviour. In this sense, it is good that the – green – German Minister of Agriculture is asking the European Commission to postpone new regulations on crop rotation. In Belgium and the Netherlands, policymakers should also review their controversial nitrogen policies, which involve spending huge sums of taxpayers’ money to shut down farms. A lot of this has its roots in EU environmental regulations. On the 24th of February, a new era has begun, and much of the EU’s regulatory approach is no longer fit for purpose.

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