World prepares for more food price pain

New reports detail the huge risks to future food security from the war in Ukraine and how the right policy responses can help mitigate them. Nick Hughes reports.

Beyond the heart-breaking humanitarian crisis unfolding within the borders of Ukraine, the world faces a “human catastrophe” from a food crisis arising from Russia’s invasion of its neighbour. Those were the words used last week by World Bank president David Malpass in an interview with the BBC, in which he warned that record food price spikes of 37%, based on the bank’s calculations, would push hundreds of millions of people into poverty and lower nutrition.

Across the global economy, Russia’s invasion of Ukraine has triggered a series of cascading risks affecting individuals, families, businesses and governments.

For food businesses, cost pressures are beginning to bite hard across the entire supply chain. Last week, UK free-range and organic egg producers warned of future shortages as crippling cost increases force many to consider leaving the market. The cost of feeding hens has risen 50% in recent months compounded by hikes in the cost of fuel, energy and labour.

Nestlé, in its latest set of quarterly results, said it had increased prices for its products – which span confectionery and ready meals – by an average of 5.2% during the first quarter of the year to reflect significant cost inflation.

Stocks of sunflower oil – a key Ukrainian and Russian export – are critically short with suppliers warning they have “just days” of supplies left, according to The Grocer. Some UK retailers, including Iceland, Waitrose and Morrisons, have started limiting the amount of sunflower oil customers can buy. The UK government has responded by allowing suppliers to start using rapeseed oil in recipes without the need for labelling changes, although a similar relaxing of the rules to allow palm oil substitution is reportedly being held up due to “health and sustainability considerations”.

Even UK businesses that source most of their ingredients domestically face major cost hikes as UK market prices reflect global shortages. Brewer Adnams warned last month that the price of barley, which it sources from the UK, is around 30% higher than it would have been this time last year meaning inevitable price increases for customers.

Price pressures

A new report published this month by Chatham House, a think tank, sets out in detail why the war is heaping further pressure on the cost of food, energy and fertiliser at a time when global food prices were already experiencing their sharpest and most sustained increases since the 2007–08 and 2010–11 food price crises. It also highlights certain policy responses that could mitigate some of the future pain.

Russia is the world’s largest exporter of wheat and the second largest exporter of sunflower oil. Ukraine, meanwhile, is the largest exporter of sunflower oil, the fourth largest exporter of maize and the fifth largest exporter of wheat. Collectively, Russia and Ukraine account for just over a half of global trade in sunflower oil and seeds, around a quarter of all traded wheat and barley, and around a sixth of traded maize and rapeseed. Little wonder therefore that in the face of severe economic sanctions against Russia and the collapse of Ukrainian infrastructure and supply chains Chatham House reports wheat futures for the forthcoming harvest were trading 41% higher on March 23rd than on February 1st while maize futures were 17% up over the same period.

The impacts don’t end with food. Russia is responsible for about 10% of global energy production and is a major exporter of all fossil fuels. It also dominates global trade in fertilisers: the country is the largest exporter of fertilisers overall, the second largest exporter of nitrogenous fertilisers (containing nitrogen) and the third largest exporter of potassic fertilisers (containing potassium).

Russia is also an important supplier of metals and minerals, particularly of nickel, palladium, platinum and titanium, as well as aluminium, copper and uranium – key to the manufacture of critical infrastructure, machinery and certain types of packaging.

Ripple effects

Taken in the round, the severing of the West’s dependency on Russia for these – and other – key commodities is creating a cascading set of risks for citizens and businesses.

The Food and Agriculture Organisation (FAO) predicts the number of undernourished people globally will increase by between 7.6 million and 13.1 million as a result of the situation in Ukraine and the ripple effects on food prices and availability.

In the UK, the Food Foundation reported in February that 8.8% of households (4.7 million adults) had experienced food insecurity in the past month; and that was before the latest wave of price hikes hit. In its latest food prices tracking update for April, the charity cited Consumer Price Index (CPI) data showing take-home retail prices for commonly purchased food and drink items rose 5.9% in the 12 months to March 2022, up from 5.1% in the 12 months to February 2022. Prices have risen across all food categories, with the highest levels of inflation seen in oils and fat (18.2% higher than in March 2021) and milk, cheese and eggs (8.2% higher).

In its report, Chatham House notes how, when food becomes unaffordable, families are forced to buy less of it. This is set to have knock-on implications for out-of-home food businesses in particular where consumer spending is more discretionary.

Policy responses

So is there any light amid the darkness? The Chatham House report suggests there is some. In the food sector specifically, it says that incentivising agroecological approaches to farming would lessen dependence on energy-intensive synthetic fertilisers while mitigating the pollution of soil and water resources, and protecting vital ecosystems and biodiversity – an objective supported by the food and farming alliance Sustain through its sustainable farming campaign.

Chatham House says this is also the time for policy interventions that encourage healthier and more sustainable diets through reduced consumption of meat – the production of which often depends on high volumes of grain for feed – and of highly processed foods, which have a common base of staple grains yet provide low nutritional value. This in turn can reduce overall demand for crops while contributing to lower food sector emissions, more biodiverse food systems and improved public health.

But there is a warning too that measures – like ramping up domestic fossil fuel production or waiving environmental protection measures – which policy makers believe will mitigate immediate problems “can lead to bad decisions that further embed existing fragilities in economic and social systems”.

It all points to a fraught, uncertain future for food and energy security. Meanwhile for those companies, including in the hospitality sector, who make their money from selling food and drink, there really is no short-term silver bullet solution to the crippling cost of doing business.

No Comments Yet.

Leave a comment

Footprint News

Subscribe to Footprint News