Food insecurity is a bigger problem than energy

The writer is a senior fellow at Harvard Kennedy School and chief economist at Kroll

Governments are spending a lot of time and resources trying to mitigate the soaring cost of energy following Russia’s invasion of Ukraine. But the war has sown the seeds of an even bigger crisis that is not getting nearly the same amount of attention. A global food shortage is pushing food prices to record levels, with economic and political implications for developed countries and a threat of famine and debt distress in the emerging world. Much more must be done.

Russia’s invasion turbocharged existing food insecurity. Ukraine and Russia account for over one-tenth of all calories traded globally. They produces 30 per cent of world wheat exports as well as 60 per cent of its sunflower oil. At least 26 countries rely on Russia and / or Ukraine for more than half of their grains.

According to the UN Food and Agriculture Organization, the war will leave 20-30 per cent of Ukraine’s farmland unplanted or unharvested for the 2022 season. Grains already harvested are stranded because Ukraine’s ports have been blocked by Russia, the focus of a recent G7 foreign ministers meeting. While Russian farmers can still produce, exports have been hampered by sanctions.

Russia, the world’s largest fertilizer exporter, announced an export ban in early March. Exports from Belarus, nominally allied with Russia, have had sanctions imposed on them. China imposed an export ban on fertilizer last summer. There is now a disastrous global fertilizer shortage. Prices have jumped, leading farmers to rotate crops or use fewer nutrients, likely leading to lower yields.

Food prices have exploded, up almost 30 per cent on the year in April, according to the FAO food price index. It is a crisis felt most acutely in the developing world. Food purchases account for at least half of total household expenditures in low income countries, and many emerging market governments provide food subsidies. These are getting harder to maintain, as rising borrowing costs limit fiscal space and food prices soar. According to the World Bank, 10mn people are pushed into extreme poverty worldwide for every percentage point increase in food prices.

In many emerging markets, food insecurity is already a source of social unrest and geopolitical risk. Rising food and energy prices have sparked protests in Sri Lanka, Tunisia and Peru. Developed economies are exposed as well. Nearly 10mn Britons cut back on food consumption or missed meals in April, and France plans to issue food vouchers to the poorest households. Inflation led by food and energy prices is a US campaign issue that may lead to a change in who controls Congress.

Economists Alan Blinder and Jeremy Rudd argue that stagflation in the 1970s was caused by energy and food price spikes. A food insecurity crisis should worry central bankers. Trade restrictions imposed by a number of countries to protect local supplies have a multiplier effect that accelerates food inflation. Export restrictions on Russian sunflower oil prompted Indonesia to ban palm oil exports in April. Last week India imposed a wheat export ban.

Global efforts to provide food assistance have historically been awkward and sometimes counterproductive. The US, the world’s largest provider of food aid, requires it to be in the form of American-grown food, rather than cash. And at least half of it must be sent on American-owned ships. As a result, a recently approved food aid bill for African nations will see the US spend $ 388mn to transport $ 282mn in food products.

Economists and food assistance experts say the world should focus on sending cash and expertise, rather than just food stocks. It is much less expensive and much more efficient to help farmers produce locally, adapting crops to their climate and soil conditions. Food and fertilizer exporters such as the US, Canada, the EU, Argentina and Brazil should agree not to impose trade restrictions and India should remove its ones. The US and EU, along with the UN, should consider ways to get harvested grain out of Ukraine. Though it may be unlikely, China could contribute by dropping its export ban on fertilizer and reducing its stockpiling of corn, rice and wheat.

Plans are well under way to help countries make up for the loss of Russian energy exports. And falling demand, as declining pandemic aid slows growth, should also bring energy prices down. But the food crisis will be longer-lasting and affect millions more people. The war will end but climate change will continue to affect food supplies. Global leaders should remember the admonition that you reap what you sow.

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