Global Food Crisis
2022 could bring about the worst famine in decades
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Commodity prices began shooting up when the printing presses were turned on during the first lockdowns in 2020. They have never looked back and the invasion of Ukraine has only exacerbated things.
This BBC article interviewed the boss of Yara International (Svein Tore Holsether) which operates in more than 60 countries and buys a great deal of raw materials from Russia. Mr Holsether said “we were in a difficult situation before the war…..and now it's additional disruption to the supply chains and we're getting close to the most important part of this season for the Northern hemisphere, where a lot of fertiliser needs to move on and that will quite likely be impacted."
He added "Half the world's population gets food as a result of fertilisers... and if that's removed from the field for some crops, [the yield] will drop by 50%. For me, it's not whether we are moving into a global food crisis - it's how large the crisis will be."
One of the reasons Putin may have decided to invade now is that it is a key time for food production and so may have thought the West would not want to risk causing a food crisis.
Russia and Ukraine are some of the biggest producers in agriculture and food globally. They supply almost a third of the world’s wheat and barley exports, 20 percent of maize and almost 80% of sunflower oil.
Wheat is currently the highest it has been for over 40 years, if not longer and the crisis has only just begun.
Furthermore, much of this is shipped through the Black Sea which has basically closed now due to a ship being struck by a missile last week meaning obtaining insurance is virtually impossible. Over 90 percent of Russia’s agricultural exports go out via the Black Sea so this has effectively shut down Russian exports.
Other countries have also clocked on quickly and implemented their own protectionist policies. Hungary has stopped all grain export in the last week and is concentrating on stocking up its supplies. Moldova has imposed a ban on exports of wheat, corn and sugar from 1 March due to lack of supply.
Not only will food exports be affected but Russia also produces enormous amounts of nutrients, like potash and phosphate, key ingredients in fertilisers, which enable plants and crops to grow. One quarter of key nutrients used in European food production come from Russia.
Russia had already imposed a two month ban on its own fertiliser exports, due to end on April 1, but whether it does or not is anyone’s guess.
To make matters even worse, towards the end of last year, some of China’s major fertiliser companies started banning the export of phosphate, until at least June 2022. This was to guarantee the country’s own food supply but again lends the question as to whether China knew what was coming.
And to top things off, due to rising natural gas prices, there is also a nitrogen fertiliser shortage.
Due to the already massive price rises in natural gas and fertilisers, many farmers had put off buying enough fertiliser, hoping for prices to drop some time this year. Most fertilisation that needs completing has been done already but a second lot needs doing in May/June. Without this, crops will fail or yields will be substantially lower.
China is fully prepared for this situation and has been stockpiling for months. According to the Sydney Morning Herald article, China “holds 84 per cent of the world’s copper, 70 per cent of its corn and 51 per cent of its wheat. ‘China has bought enormous quantities of US soy in recent weeks,’ said Rabobank. One might ask if Xi Jinping knew something in advance.”
Furthermore, after the Chinese culled massive amounts of pigs due to Africa swine flu, a few years ago, they have been buying up pigs and pig food from all around the world to replenish their stocks.
Even when we include China, globally, we only have 5 weeks of wheat stores.
Abdolreza Abbassian, the ex-head of agro-markets at the UN’s Food and Agriculture Organisation said “I have never seen anything like it in 30 years and I fear that prices are going to go much higher in the 2022-2023 season. The situation is just awful and at some point people are going to realise what may be coming. We’re all going to have to tighten our belts, and the mood could get very nasty even in OECD countries like Britain,”.
Whilst the UK produces around 60% of its domestic food consumption, it is largely self-sufficient in production of grains. It produces over 100% of domestic consumption of oats and barley and over 90% of wheat.
Last year, however, grain production dramatically dropped (40% drop in yields) due to bad weather so hopefully a good crop will return this year. If we do end up having another bad year then we be in further trouble.
However, without fertilisers, the UK may still only be able to yield only 50% of what it usually does and that is if the weather plays ball.
The upcoming food crisis will hit people extremely hard and as with every crisis the poor will be disproportionately affected. In Western countries we may be able to avoid people actually starving but the costs will be high, both financially and for the rest of the world.
As we are already seeing, countries will stockpile as much as they can for their own populations, meaning little spare to export. Ambrose Evans-Pritchard at the Telegraph predicts that a billion of the world’s poorest will go hungry due to the Russian invasion.
The last two years have already pushed 100 million more people into abject poverty. Analysts were already warning of massive food price rises and how it would affect Africa before the war started. $6.9 billion worth of agricultural products are imported into Africa from Russia and Ukraine, so if this stops there will be a major famine.
If crops aren’t planted soon, wheat prices are likely to double or triple and that is a conservative estimate. If fertilisers don’t become readily available soon then yields will drop by as much as 50% meaning there just won’t be the supply to go around. Those with the deepest pockets will scavenge what is available leaving the poorest to starve.
I asked in a previous post, “are we in the eye of the storm”. It seems we very much were and I haven't even talked about high energy prices, hyperinflation or the upcoming global recession/depression.
When food crises occur, civil unrest quickly follows. We saw this with the Arab Spring after the financial crisis and we are likely to see similar things in many places around the world going forwards.
Whatever happens, don’t allow the blame to be placed squarely on the Russian invasion of Ukraine. Terrible lockdown policies and money printing started this all off and that must never be forgotten. This is also likely a continuation form the 2008 financial crisis, where the can was kicked down the road until now, but that is for another article.
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