Causes of the Current Global Food Crisis
The dark shadow of a food crisis now looms over the world, against the backdrop of the COVID-19 pandemic and the protracted war between Russia and Ukraine.
While academia has yet to define “food crisis,” it generally refers to panic and market disorder, sharp declines in production, and rapid price increases caused by food shortages. Whether or not the current global food crisis has reached an alarming level, in-depth analyses and rational judgments must be conducted in conjunction with the aforementioned relevant phenomenon.
Overall, the FAO Food Price Index (FFPI) averaged 158.5 points in April, remaining above 130 points for seven months in a row, up 29.8% year on year, and down 0.8 points from the historical high of 159.7 points set in March. In fact, global food prices did not begin to rise until recently. Since the outbreak of the COVID-19 pandemic in 2020, global food prices have been on the rise, and this has intensified recently. In terms of price levels, the United Nations World Food Program recently announced that the world may be facing the most serious food crisis since World War II, with poorer countries and countries that rely heavily on imports bearing the most painful cost of soaring food prices.
With high food prices, an estimated 137 million people around the world need assistance due to hunger and undernutrition.
In contrast, there is currently no apparent shortage of the overall global food supply. The total export volume of wheat and corn between the two warring countries Russia and Ukraine accounts for 30% and 20% of the world, respectively. The war directly threatens the export of their grain. That said, even during the war Ukraine’s exports have not completely stalled. In March, Ukraine managed to export 309,000 tons of wheat, about half of what it was in the same month last year. The export volume of Russian wheat has surged to 1.7 million tons. According to relevant forecasts, Russia’s wheat exports in April reached 2.1 million tons, double the same period last year. Of course, there are also unspoken concerns as a result of the war. It is a foregone conclusion that Ukraine’s grain production will decline, with estimates ranging from 20% to 50%.
In addition, the current hot weather in India and the humidity in the northern United States also pose a threat to the production of wheat and corn this year. However, despite the threat of a reduction in regional production, in early May FAO predicted that the total global grain production will sustain the growth trend. The 21-year grain output was 2.72 billion tons and 2.78 billion tons, respectively. Among them, global wheat production increased to 782 million tons in 2022. Compared with the consumption of 787 million tons, the gap was around 5 million tons, and the overall situation was precarious. Global rice production in 2021/22 is forecast at 520.8 million tons, up 0.7% year-on-year. Country-wise, total U.S. wheat production increased to 50 million tons, and Brazil’s 2022 corn production has been expected to hit a record high. There is no food crisis in terms of the total amount of global food supply and demand, but the structural issue should not be overlooked. Relevant statistics show that only 12 countries produce and export 70% of food globally. Grain producing and exporting countries are concentrated, whereas importing countries are dispersed, emphasizing the regional contradiction between grain supply and demand. Because of this, naturally, the market is fragile. This is especially true in a world where relations between nations tend to be adversarial rather than cooperative. With this, uneven distribution of food and potential concerns could very well cause structural and regional food crises.
It should be noted that in the last two years, there have been unfavorable signs of a possible worsening of tensions in the food market. The conflict between Russia and Ukraine has added to global food supply concerns and pushed food prices up. As a result, many countries are increasingly restricting agricultural exports such as grains and edible oil. The emergence of a new round of food trade protectionism is expected to widen the “structural” gap between global food supply and demand, and market speculation has exacerbated the situation. Accordingly, the current global “food crisis” does not stem from a total food supply breakdown.
Its emergence and development have been influenced by several unfavorable factors, including the COVID-19 pandemic, regional wars, high oil prices, and extreme weather. More importantly, once the normal market order is disrupted, the uneven distribution of food and the disparity in consumption affordability may cause food prices to rise, leading to a global food crisis.
Another crucial trend is that under the backdrop of the COVID-19 pandemic, the Russia-Ukraine war, and de-globalization waves, most of the world’s industrial and agricultural commodity supply chains could be systematically restructured. Changes in demand and supply flows will occur during this process, raising the cost of production and trade. The rapid increase in the cost of fertilizers, diesel, and other raw materials, as well as rising prices in energy usage and cross-regional long-distance transportation, are already having an impact on global food production. Such change is more long-term than the annual change. This cannot be resolved simply by adjusting production in one or more countries. Under the current circumstances, while food prices have fallen back in April, the peak period of high global food prices may be far from over, and the world may still be in the early stage of a food crisis.
Final analysis conclusion:
The current global food crisis is not caused by the lack of food supply in the absolute sense. Instead, the reasons behind it include the special supply and demand pattern, global geopolitical tension, the in-depth development of “de-globalization” and the rise of protectionism. The global grain market order has been highly volatile. Worryingly, the current global food crisis could be just the beginning.
Writer by Lantao Li
Graduated from Beijing Normal University in 2013 with a PhD degree of Natural Resources and Harbin Institute of Technology with a bachelor degree of Transportation, is an assistant researcher in macroeconomics at Anbound Consulting which is an independent think tank headquartered in Beijing.
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