Food is getting more expensive and less available – Covid-19, Brexit, the invasion of Ukraine and the cost-of-living crisis is affecting the global food supply chain at every level. There are actions that both companies and the government need to take to mitigate risks where possible.
You are probably not familiar with the ‘Global Alliance for Food Security’. None of the senior UK officials to whom I mentioned it recently knew of its existence. Yet, in the future, it is possible that it could be as important as that of the WTO, NATO and WHO.
Created by the World Bank and the G7 this year, the Alliance’s purpose is to co-ordinate the global response of governments and international agencies to what the UN Secretary General describes as “an impending global food crisis worse than that which threatens the world’s energy supplies”.
In the past year, almost every economy has suffered significant supply chain disruption caused by the pandemic. Across the developed world this has resulted in gaps on supermarket shelves and labour shortages. In the UK, the situation has been further disrupted caused by the nation’s turbulent exit from the EU. This has only been worsened when three months ago, Russia’s invasion of Ukraine wrought devastation and destruction, provoked the biggest humanitarian crisis in Europe since 1945, pushed up energy costs and unleashed a global food crisis.
Ukraine is one of the world’s most important food exporters. Much necessary production could be lost this year, either left in the ground or stuck in the ports. Taken together, Russia (whose food exports are effectively cut off) and Ukraine export over a fifth of the world’s wheat and barley and three quarters of its food oil. Russia is also the major source for fertiliser production, including - with Belarus - 40% of global potash. The NFU has warned of the serious impacts on crops if the fertiliser issue (lack of clarity on pricing) is not dealt with immediately.
The net result is that more than 12% of the world’s traded calories are no longer available to more than 95% of its population. Wheat prices have risen more than 50% this year and alternative food sources – like rice – are also driven up. Fertiliser prices are at record levels and animal feed prices have also significantly increased.
As prices rise and the availability of basic foods declines, more than 1.6 billion people globally cannot properly afford the basic level of food they need. In the UK, the number of people relying on donated food - already higher than two million - is projected to climb to four million by the end of the year, driven by food price inflation of over 10%.
The geopolitical impacts
In developing economies, the rising cost of living and availability will set back economic growth and restrict government spending. Social unrest will grow and provide a breeding ground for populist politics and - potentially extremism. North Africa (where food costs account for 40% of household income), the Horn of Africa and Yemen would be of particular concern given their extreme reliance on Ukrainian and Russian grain exports.
That is what the Bank of England Governor Andrew Bailey meant by the ‘apocalyptic’ consequences of global food price rises. It will be the work of the Alliance to avoid or mitigate this apocalypse but there is a role for companies to play.
- Audit supply chains for areas of risk in affected markets. Corporates need to identify pressure points in geographies where the impact of price rises and non-availability will be particularly felt – there is real potential for disruption.
- Assess and plan out your operating footprint in the event of food price rises and non-availability. Risks might include social unrest, government instability and the possibility of knee-jerk policy changes and industrial action impacting workplaces.
- Plan to pivot to alternative production strategies – Companies need to consider their exposure to the possibility of public pressure to use foodstuffs only for food and not for other industrial purposes - for example, by conversion into biofuels or alcohol production.
- Mitigate any future reaction to current commercial strategies - Evaluate the possibility of individual or corporate investors coming under reputational criticism for their actions in a global food crisis and put in place mitigation plans.
- Identify where you can leverage your commercial brand for good - Examine the opportunity in hard hit locations to assist local workforces in food purchases and consider switching corporate social investment into community food relief - it may become the dominant narrative of the next years.
- Banning domestic exports:
Export bans, ostensibly to ensure the domestic availability of goods, do not work in practice and often make things worse. Bans of specific exports often incentivise producers to hoard or shift their production to non-limited products, can benefit urban populations over rural, increase global volatility and actually worsen global food security in the long term, even if countries see an initial temporary benefit.
To date, 26 countries have cut food exports, accounting for another 15% of traded calories. India recently placed restrictions on wheat exports (after promising not to) and could soon extend them to rice. The majority of trade in grain is bilateral with countries relying on one other market, so general export bans threaten these specific country-to-country relationships. In a world where 80% of nations are net importers of food, the potential is for very significant dislocation of trade and reprisals should not be discounted.
Even countries - like the UK - which are annually net exporters of food have seasonal peaks when markets are predominantly made up of imports.
- Audit national food supply chains - identify any critical foodstuffs for humans or animals with single source or very limited supply. Audit availability of seeds and fertilisers and prioritise arrangements for substitution or replacement.
- Support international agencies - such as the EU, IMF and World Bank - to offer support for the poorest populations. They should also attach conditions to ensure that the food or financial help actually reaches those in need. Join those international agencies in considering immediate short-term debt relief for the poorest economies.
- Temporarily relax relevant regulations – Consider the impact of implementing short-term relaxation of rules that require petrol and diesel contain to include biofuels, though of course, such derogations should be kept under regular review. Some Nordic counties have already made this move.
- Alleviate supply chain pain points - Do all they can to support efforts to move Ukrainian grain by road and rail through Romania, Moldova and the Baltic republics. This needs to be done in the coming weeks, before stocks begin to degrade.
Ian Wright is a Senior Advisor at Flint and leads Flint’s Food and Drink advisory and market access practice. Ian is co-chair of the UK Food & Drink Sector Council. Prior to Flint, he was Chief Executive of the FDF (the representative body for the industry) from 2015-2021 and Corporate Relations Director of Diageo (2000-2014).
To find out more about how Flint can help you navigate the risks of this, or any other food and drink issues, please get in touch.