The horrific war in Ukraine is causing tremendous pain to those who remain there and to those who are fleeing—a situation that leaders should continue to support however they can. But recent reports, along with our own analysis, have shown that the war could also trigger a major crisis in our global food system.
As recently as February, the global food market seemed resilient, with producers responding appropriately to price signals in the marketplace. But the war has shaken up that semblance of strength, creating massive humanitarian, economic, and societal risk, in the short term and beyond.
The UN Task Team for the Global Crisis Response Group says that as many as 1.7 billion people in 107 economies will be severely exposed to the impact of the war due to food insecurity, rising energy prices, and/or mounting debt burden.
The rising food insecurity from this war is the result of three converging crises:
- Import Crisis. Global commodity production is highly concentrated, with Russia and Ukraine accounting for about 12% of the total calories traded in the world. But blocked ports in Ukraine and the sanctions against Russia are preventing food exports to the countries that largely rely on those two markets. Both countries are also responsible for a significant amount of the world’s fertilizer, and the current situation could suppress harvests both for self-consumption and for other exports in many parts of the world.
- Price Crisis. The collective global food shortage is causing a price hike that’s making it impossible for the world’s poorest and most vulnerable to be able to afford what’s available. The FAO Food Price Index averaged 159.3 points in March, up 12.6% from February. Fertilizer prices are also increasing drastically, nearly tripling in the past year. And European fertilizer plants have begun cutting production due to high energy costs, leading to concerns over a reduction in fertilizer use in production powerhouses like the US and Brazil. This could have a huge impact on the global wheat, soybean, and corn supply chains—and on consumer prices.
- Debt Crisis. About 60% of low-income countries are currently in or at high risk of debt distress, compared with 30% in 2015. This is largely a result of ongoing crises (COVID-19, climate, and conflict) and unprecedented government spending aimed at addressing the economic and medical consequences of the pandemic.
Leaders in the public and private sectors can act and build support now in order to prepare for the range of potential impacts and lessen their severity.
First, we can support Ukrainian farmers by facilitating imports of key farm inputs to ensure planting and harvesting, where possible. We can also help provide alternative logistics, such as, for example, creative use of land transport to unblock the 15 million tons of corn currently stuck inside the country.
Second, we need to facilitate humanitarian assistance for the countries most in need, and we have to do so right away. This means enabling global flows of food (especially for humanitarian assistance) and streamlining any response for near-term deficits, including having supplies at the ready when they’re needed and providing cash transfers as relevant.
And finally, we need to immediately begin coordinating medium-term investments to allow farmers to plant during the current season. Among other things, this will require ensuring the distribution of fertilizer and bolstering technical assistance to enable farmers to produce more with existing fertilizer.
The food insecurity caused by these crises drives multiple points of instability in already fragile environments around the world. We’ve seen this happen before, although not to the degree we may witness this time. A similar web of instability in 2007 to 2008 sparked riots across 25 countries.
Averting a meltdown of the global food system will take a coordinated, multisector response that focuses on the knock-on effects of Russia’s invasion of Ukraine and develops tailored, country-specific action plans, prioritizing the many places around the world that will experience the worst impacts of these converging crises.
We have a team at BCG working closely with global food system leaders and will have a broader report on this topic soon. In the meantime, as we look around the corner to prepare for second-order impacts, food security should be near the top of the list, adding to the misery and destruction this war has already caused for so many millions.
Please see below for our latest Executive Perspective update on the war in Ukraine.
Until next time,
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Rich Lesser
Global Chair
| Further Reading War in Ukraine: Global Update and Perspective on Industrial Sector Impact  Many industrial sectors were already grappling with a range of crises. Here are the added implications of the war so far—and ways in which business leaders and policymakers can respond.READ MORE → |
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