Why the food crisis might get worse before anything gets better

From sunflower oil to wheat and other grains, prices of basic staple foods and the fertilizer they need to grow are increasing worldwide as Russia’s invasion of Ukraine adds stress to an already fragile food system. Spiking energy prices are making it more difficult to transport commodities and squeezing household budgets.

“If prices increase by 15% within a year and you spend more than half of your income on food, that has a major effect,” said Friederike Greb, an economist in the World Food Programme’s research assessment and monitoring division. “We are in this difficult commodity market price situation right now, on top of everything that we were already dealing with.”

For the world’s poorest, it’s not only the war in Ukraine that’s exacerbating food insecurity. Climate change has affected agricultural productivity in areas across the word, from Afghanistan and the Horn of Africa to Central America. Last year, around 139 million people faced crisis or worse levels of acute food insecurity across two dozen countries and territories where conflict and insecurity were considered the primary driver. In 2020 — the year that COVID-19 was declared a pandemic — 118 million more people became food insecure compared with 2019.

The World Bank predicts that the global wheat supply will decline for the second consecutive year as grain in Ukraine, which exported 10% of the world’s wheat supply in 2021, remains stuck in ports blockaded by Russian forces.

Ukrainian President Volodymyr Zelenskyy said about half of the country's grain export supply — 22 million tons — is sitting in silos, waiting to be exported. A new harvest is due to come in, putting pressure on the timeline for moving the supply. U.K. Prime Minister Boris Johnson’s office called on the G-7 group of major industrial nations "to find ways to resume the export of grain from Ukraine to avert a global food crisis.”

“If Russia allows Ukraine to export, and the world opens up the food market to Russia, that will alleviate part of our price problem. And we'll get more product on the market,” said Kim Anderson, a professor of agricultural economics at Oklahoma State University. He warned that the conflict in Europe will make fertilizers ever more expensive.

Fertilizer prices have more than doubled in the past year, according to World Bank data.

International institutions like the United Nations, multilateral development banks, and the G-7 have announced plans to combat rising prices and provide food aid to people who are already hungry. However, bringing prices down and ensuring that a price shock crisis does not turn into actual shortages will require more international coordination and national planning, according to World Bank economists.

World Bank President David Malpass warned last week that hoarding could become an issue, both for food and fertilizers.

“Advanced economies [are] buying the energy supplies that they need. … But then the developing countries and the poor around the world are left with less fertilizer and less ability to plant crops for the next crop cycle,” he said during an event hosted by the U.S. Chamber of Commerce, arguing that more production needs to come online.

But even where additional acres are available in the United States, supply wouldn’t be impacted until 2023, Anderson said.

“In terms of wheat, there is not much farmers can do,” he said, highlighting that current yields in the key wheat growing regions of the U.S. are half of the normal amount due to drought conditions that were followed by heavy rains causing late planting.

For the moment, the world is not experiencing a food shortage but an affordability crisis. Enough food is being produced, but people cannot afford it in places such as Egypt, the world’s largest wheat importer, and Lebanon, where the prices of 13 essential foods have increased by a weighted average of 81% in three months.

“There is adequate product. However, it costs twice as much, which makes it available to your richer nations and restricts the distribution to your poor nations,” Anderson said. “Because of the weather conditions around [North America], your supply of bread flour wheat has declined for the third year in a row.”

The prices of grains and oils have risen by more than a third in the past year, while prices for other foods have increased by nearly 30%, according to data from World Bank’s monthly “pink sheets,” which track commodities monthly.

The price rises are starting to have real effects on people’s lives in lower-income countries. Last week, bakers in Burkina Faso went on a brief strike to protest after the government limited their ability to raise prices on baguettes.

Malpass said shortages will lead to fragility and populism, while ratings agency Moody’s Investors Service warned that social tensions could escalate in places such as Egypt if food prices continue to rise.

Malpass urged rich countries to reveal production plans so that markets are aware of efforts to increase output, helping “with price expectations and with inflation expectations.”

Some commodity stocks are down too, which has an impact on prices, Anderson said. Normally, a bushel of Oklahoma wheat is about $5, but this has more than doubled to north of $11.

Greb of WFP said accurate data outlining exports, imports, and stocks of commodities is necessary.

“That is key if you want to avoid panic buying, because that’s something that we also saw [in the food price crisis of 2007] — that especially in the rice market it wasn’t clear that supplies were much more ample than what people thought, and then everybody started buying,” she said. “If households buy and then traders buy and countries buy, that drives prices up considerably.”

Export restrictions contribute to spiking prices and must be avoided, Greb said. So far, around 30 countries have put limits on overseas sales — including India, which banned wheat exports entirely. Indonesia prohibited palm oil exports in April but reversed the move weeks later.

Governments and donors can take some short-term actions to help relieve price stress on farmers and households.

Government social safety net programs, some created during the pandemic, can help get cash to vulnerable people suffering the worst effects of higher prices to bolster purchasing power.

Access to credit could also help. During the pandemic, researchers in low-income countries observed that consumption remained stable, in part because people were able to borrow. But increased household debt levels could bring a new set of problems down the line.

“It's clearly not a long-term strategy for consumers or not a good one. But in the short term, it can help a lot just because changes in agricultural productivity are really slow to come around,” said Nicholas Magnan, an associate professor of agricultural economics at the University of Georgia.

World Bank economist Peter Nagle said that “there aren't easy solutions” in the short term, but he urged a shift to more renewable energy to help alleviate pressure on fertilizers, which are dependent on intensive energy inputs, like oil and gas. He also warned that continued adverse weather conditions could further hurt agricultural yields.

Instead of “throwing money” at subsidies for fertilizer, which would only increase demand and drive the price up further, international financial institutions should use funding to create country “soil maps,” said Maximo Torero, chief economist at the Food and Agriculture Organization. These can provide insight into which types of fertilizers are needed in what areas, improving productivity and efficiency, which will help build resilience in the medium term, he said.

Improving efficiency is “the major solution,” Torero said. “Most of the subsidies today are distortive, are against climate, and are for cereals. Why [don’t we] repurpose them in a different way?”

Farmers may be able to avoid the worst shocks by modifying their fertilizer schedule — applying more organic options like manure now and delaying the use of other fertilizers until later in the season when supply may have stabilized, he said.

Some parts of the world, such as West Africa and Latin America, could be tapped to increase grain production, but it will take time for those to come online, according to John Baffes, an economist at the World Bank.

For now, rice — which accounts for about 20% of global caloric consumption — is an important bellwether for the future of global food supply.

“If we start seeing spikes in rice prices, that's when I would start to worry that this is not just price but something that affected the entire commodity spectrum,” Baffes said. “If it spreads in a big way into the rice market, that would be a reflection of shortages.”