Global food security challenges amid war and climate change
By Daniel Aminetzah, Artem Baroyan, Nicolas Denis, Sarah Dewilde, Nelson Ferreira, Oleksandr Kravchenko, Julien Revellat, and Ivan Verlan, representing views from McKinsey’s Agriculture Practice.
The COVID-19 pandemic. Supply chain strains. Climatic events. These disruptions were already pushing food prices up when Russia invaded Ukraine in late February. Today, war in one of the world’s six breadbasket regions[1] and in the Black Sea, a critical supply and transit hub for wheat and fertilizers, is tilting global food security into a state of high risk.
A deal signed on 22 July intended to free approximately 20 million tons of grain stuck in Black Sea ports[2] has brought some relief, enabling the price of several cereals to return to preinvasion levels.[3] However, though the grain deal may alleviate some logistical problems in ports, the outcome is uncertain, as is the quality of the grain that has been sitting in Ukrainian silos for five to six months.
These concerns are converging with longer-term complications that began in early 2020 when the COVID-19 pandemic began convulsing global supply chains. Next, monetary and fiscal policies aimed at alleviating the pandemic’s impact pushed up commodity prices starting in mid-2020. Even before the invasion, prices for wheat and corn were 40% to 50% higher than the average price over the past decade. Fast-forward to the 2022 blockade of Black Sea ports. As a result, numerous countries have tried to protect their food access by curbing grain exports. Add to this picture the recent heat waves in India and the dry summer in Western Europe that together could limit world grain supply by more than 10 million tons. Lastly, while the price of grain has come down, fertilizer prices remain high, causing some farmers to use them sparingly.
The conflict in Ukraine is shaking important pillars of the global food system in an already precarious context. Managing the circumstances and supporting the best possible outcomes may require decisive action and collaboration.
Exhibit 1
Global export volumes have declined—and next year could be worse
The world’s grain mostly comes from six growing regions, including Ukraine and Russia, which together produce roughly 28% of the wheat and 15% of the corn exported globally.
Sea logistic constraints alone have lowered export volumes from Ukraine by an estimated 16 million to 19 million metric tons (however, if grain soon start flowing in large amounts from Black Sea ports, exports could be higher) and 2 million to 3 million metric tons from Russia. Roughly 5% of the 400 million metric tons traded globally may seem like a relatively small amount, but it may be enough to cause significant disruption to the two-year commodity cycle.
Supply has tightened further as countries have attempted to shield domestic markets with trade restrictions. Roughly 40 new export bans and export licensing requirements were introduced between the beginning of the war and May 2022.[1]
Impact by country varies—and is potentially devastating for some
While high global food prices affect all countries, some are more exposed than others. Numerous countries rely heavily on grain imports, have limited stocks, and have low purchasing power. These countries may be hit hard by price increases.
In many nations, local currencies have devalued sharply in 2022, making US dollar–denominated imported commodities such as wheat and oil even more costly for locals. Largely due to the COVID-19 pandemic, these countries are already experiencing higher-than-usual budget deficits and levels of unemployment. 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.
When examining the conditions that were present leading up to the 2007–08 global food crisis and the 2010–11 food price hike that contributed to the Arab Spring, we observe even higher risks to the global food system today.
Exhibit 2
Exhibit 3
Mitigations may help avoid the worst outcomes and prevent future crises
Stakeholders around the world may be able to take actions to avert the worst scenarios. In the short term, three fundamental steps can help, starting with unblocking and de-risking Black Sea logistic routes. Second, reducing trade restrictions and releasing buffer stocks can improve global supply. Finally, providing financial aid to the most impacted areas and populations can reduce human suffering.
While thinking about how to mitigate the current crisis, stakeholders should plan for how to avoid the next one. Fundamental changes to global behavior, coming from both the public and private sectors, could boost the global food system’s resilience. Potential steps including sustainably transforming agriculture to boost yields (especially in importing countries with fast-growing population), finding ways to reduce global food waste, and optimizing land use for food and biomass production. It’s also essential to accelerate the development and adoption of alternative meat and encourage the consumption of the most efficient proteins.
Historically, supply shocks within the food system have led to inflation, lower fiscal strength, and malnutrition—and in some cases, to periods of political instability and violence. Depending on the duration and severity of the war, the caloric requirements of 250 million people could be lacking from the global supply. These sobering statistics underscore the magnitude and urgency of the situation.
References:
[1] Globally, there are six breadbaskets that together supply roughly 60 to 70 percent of global agricultural commodities.
[2] Matina Stevis-Gridneff, “Russia agrees to let Ukraine ship grain, easing world food shortage,” New York Times, July 22, 2022.
[3] Caitlin Ostroff, “Wheat, corn prices fall as Ukraine dispatches grain,” Wall Street Journal, August 1, 2022.
[4] IFPRI Blog, “From bad to worse: How Russia-Ukraine war-related export restrictions exacerbate global food insecurity,” blog entry by Joseph Glauber et al., April 13, 2022.
Exhibit 4
