As policymakers and international donors try to mitigate the effects of the Ukraine crisis on the world’s food system, there may be lessons from the 2007-2008 global food price spike on what to do — and not to do.
In 2007-2008, the price of wheat went up 136% while the prices of rice, a staple for more than half of the world’s population, doubled. The price hikes led to widespread social and political unrest, with public protests against increased food costs taking place around the world.
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This time around, because Ukraine exports 9% of global wheat and Russia exports 19%, the conflict threatens the global supply of that key grain as well as other commodities such as sunflower oil. Elevated prices of fuel and inputs such as fertilizer — also a major Russian export of which Moscow is now restricting shipments abroad — further endanger the world’s ability to get food to where it’s needed, and threaten to make millions of more people hungry.
Food shortages could be "real," U.S. President Joe Biden warned last week while visiting Brussels, noting that Russia and Ukraine are a “breadbasket.” He said the Group of Seven leading industrial nations was talking about how to boost output in their agricultural hubs and reduce trade restrictions on food exports.
The current spike in prices comes on the back of rising inflation over the past year. Even before Russia invaded Ukraine, economists at the World Bank were sounding the alarm over price hikes on basic agricultural goods and inputs such as fertilizer. If Ukraine is unable to plant its winter wheat, prices could rise further and countries may scramble to find alternative supplies.
Because each country’s vulnerability to food price shocks will be unique, it’s hard to provide blanket recommendations that will apply to mitigating them everywhere, said Derek Headey, senior research fellow at the International Food Policy Research Institute. It’s also very difficult to “disentangle” the exact causes of high food prices due to the complexity of the food supply chain, he said.
In 2007-2008, the recent increase in international trade — which did help developing economies maintain growth even as the West experienced the financial crisis — exacerbated the increase in food prices because “there just literally weren’t enough ships and ports to handle the increased demand,” Headey said. Residual COVID-19-related supply chain and shipping issues create similar bottlenecks now, he said, as goods still struggle to make it around the world in a timely manner.
“There’s this complex, multidirectional causality between shipping costs, fuel prices, fertilizer prices, but those non-food commodity price inflation is putting a lot of pressure on food, and most of this happened before the Russian invasion of Ukraine,” Headey said.
“We thought 2007-08 was a perfect storm, this one seems like a more perfect storm. Because in addition to the tail end of COVID impacts, high shipping costs … supply bottlenecks, and high fuel prices — and now suddenly we’re talking about some huge removal of exports in wheat and few other commodities.”
Here are three key lessons from last time that experts say could be relevant now:
Some of the price hikes in the last global food crisis weren’t initially the cause of reduced supply, but rather hoarding: Rice went up not because production had gone down and the grain was less available, but because major producers such as India and Vietnam banned exports. This protectionist measure did then affect global supply, pushing prices higher everywhere.
World Bank President David Malpass has warned that a major driver of a food crisis would be hoarding of resources, particularly by high-income countries, and he urged governments to refrain from behaviors that would exacerbate problems.
Avoiding export bans as the world faces the fallout from the war in Ukraine is one of the most important ways to ensure the crisis in Eastern Europe doesn’t impact global food supply, said Ian Mitchell, senior policy fellow at the Center for Global Development.
“If you’re in a small country, there’s almost nothing you can do about the price in the short term. … Most countries need to be thinking about the finance policy response.”
— Ian Mitchell, senior policy fellow, Center for Global Development“Most of the human population survives on carbohydrates from grains,” Mitchell said. “My main message to agriculture ministries is ‘don’t panic and ban exports in a knee-jerk way.’”
While Ukraine itself has banned exports in an attempt to ensure its people have access to food, other countries such as Hungary have also announced grain export bans.
The crisis now comes against a background that is significantly different from 2008, in part because of the pandemic, which made the global poor more vulnerable and less able to withstand price shocks, Headey said.
The World Bank estimates 95 million additional people were driven into poverty over the past two years. The anti-poverty lender has openly expressed concerns about the undoing of key development gains in recent decades. The International Monetary Fund, for its part, is currently reworking its global outlook and is increasingly concerned there will be a set of recessions this year in weakened economies that had yet to recover from the pandemic.
Learning from 2008, experts say in order to mitigate further effects, interventions should be focused on enabling producers to continue operating and increasing production where possible, while avoiding commodity price fixing that eliminates incentives for farmers to do so.
However, because of the pandemic, many governments don’t have the fiscal space to provide subsidies for inputs such as fertilizers that farmers may not be able to afford or to provide other support they may have been able to in the 2000s when they weren’t as cash strapped. At least a dozen countries are expected to be unable to service their existing debts over the coming year and many more are on the edge.
IMF has warned that sub-Saharan nations are among those vulnerable to shocks. “The conflict comes when most countries have minimal policy space to counter the effects of the shock,” the fund said about the region. African nations are more exposed than Asian ones, in part because of diet: the latter grouping can more easily shift to rice, IMF noted.
Countries should also consider how they might be able to redirect any domestic resources they do have: For example, a country such as Angola is vulnerable to food price spikes, Mitchell said — but because the government is liable to benefit from increased oil prices, they could divert that additional revenue to boosting food security. Strengthening social safety nets can help prevent additional people from slipping into poverty.
“If you’re in a small country, there’s almost nothing you can do about the price in the short term. And so therefore most countries need to be thinking about the finance policy response and thinking about cash transfers and so on,” Mitchell said.
Both IMF and the World Bank declined to make experts available for on-the-record conversations for this article.
Better data will also help: 15 years ago, there wasn’t a clear way to share real-time information about agricultural outputs that could help predict shortages and attempt to mitigate them before food security was affected. In response to the price spikes in 2007-2008, the Group of 20 biggest economies created the Agricultural Market Information System, which monitors global food supply, and the Group on Earth Observations Global Agricultural Monitoring, which uses satellite data to monitor crop production and weather data.
With this crisis potentially on a large scale, and spreading across the globe, the governments of the G-20 will likely be crucial to quick solutions.
The alarm over the war’s impact on global food security demonstrates the need for more investment in agriculture so local food systems are more resilient to such shocks, according to Enock Chikava, interim director of agricultural development at the Gates Foundation. He said external shocks and conflict will always exist, but making sure agricultural production is decentralized will boost long-term food security.
“For many many places, food security was never top of mind, because food was there. Food was there, but it was coming from somewhere else … people are more aware of what food security means,” Chikava said. “We need resilient food systems.”