Geopolitical and climatic events are impacting the food system’s resilience. McKinsey & Company has recently presented research on current food security challenges, further consequences, future prospects and considerations that may mitigate the impact.
Current global food security challenges
The COVID-19 pandemic, supply chain strains and climatic events – were already disrupting the global agri-food sector and pushing food prices up when russia invaded Ukraine on February 24.
Today, russia’s war against Ukraine continues to put additional pressure on global food security: a drop in food exports from Ukraine and, and knock-on effects that could further constrain global food supply. The current export deficit has largely been due to the reduced ability to export grain out of the Black Sea region. If the deal signed on July 22 fully delivers on its promise, much of the short-term problem could be alleviated. The signed agreement intended to free approximately 20 million tons of grain has brought some relative relief to the market, enabling the price of some cereals to return to preinvasion levels. The blockade of Black Sea ports caused by the war in Ukraine severely restricted food supply access. This situation has provoked numerous countries to try to protect their food access by curbing grain exports. Besides, the grain supply to world markets could be limited by more than 10 million tons due to unfavorable weather conditions in India and Western Europe.
The consequences of a looming food crisis may be more pronounced and ultimately result in a deficit of roughly 15 million to 20 million metric tons of wheat and corn from the world’s supply of exported grain in 2022. The deficit in 2023 could reach roughly 23 million to 40 million metric tons, according to worst-case scenario, assuming a prolonged crisis. The larger deficit represents a year’s worth of nutritional intake for up to 250 million people, the equivalent of 3 % of the global population.
McKinsey’s experts believe there are four dimensions of the unfolding and constantly changing crisis:
Experts assume that the crop production in Ukraine will decline in the next harvesting season due to 4 reasons: reduced harvest area (ongoing military actions and land mines), farmers’ lack of liquidity (inability to ship a large part of last year’s harvest), decreased yields (reduced access to fertilizers, disrupted crop production technologies, less advanced plant protection), and ripple effects from increased diesel and fertilizer costs.
While high global food prices will affect all countries, some are more exposed than others. Some, including China, the United States, and countries within the European Union, are relatively well protected. They have high local production, high stock levels, and high purchasing power. But numerous countries, including Bangladesh, Ethiopia, Somalia, and Yemen, are highly vulnerable. They rely heavily on grain imports, have limited stocks, and have low purchasing power. These countries may be hit hard by food price increases. More than 1.4 billion people live in such areas, mostly in Africa and Asia; if the global shortage continues and countries deplete their reserves, this figure could increase to about 1.9 billion people. As food supplies constrict, these nations will face elevated inflation, which will exacerbate budgetary stress as they attempt to protect their populations from rising food prices. If they cannot do so, malnutrition levels could rise. And by the way now these countries experience increased pressure on financial and fiscal systems to handle inflation, ensure sufficient trade, and provide subsidies to the neediest. This often results in increased external debt and slower GDP growth.
The pandemic has depleted countries’ budgets and currency reserves and sent their debts to record levels, making them less resilient in the face of price hikes. Food purchases represent a larger-than-usual share of consumer spending, and unemployment is high in many countries; if governments can’t dampen the shock, households will have no choice but to dedicate more of their budgets to buying food. Russia’s war against Ukraine is shaking important pillars of the global food system in an already precarious conditions.
In the short term, three fundamental steps according to McKinsey experts can help reduce risks:
Potential transformational steps to take include the following: