(Bloomberg) —
The risk of global food shortages poses a serious threat to millions of people in developing countries. Much less critical, but also important, are the longer-term environmental obstacles that such a disaster can pose to sustainability.
For the analysts at Bank of America Corp. the record increase in food prices clearly illustrates the risks at the interface of environmental and social crises. And the impact is huge, ranging from agriculture and grocery retailers to wholesalers, hospitality and gaming companies, and even telecom operators.
Rising food prices not only heighten concerns about poverty, hunger and political instability, they also shed light on the climate crisis, as more than a third of greenhouse gas emissions are linked to the production, distribution and consumption of food. Feeding the world while moving towards more sustainable practices has been hard enough. The Kremlin’s aggression has suddenly made a dire situation much worse.
For investors, the risks are ever-present, said Kay Hope, London-based head of ESG for global fixed income research at Bank of America. In the short term, Russia’s war against Ukraine caused food prices to rise more than 36% year-on-year in March. While this surge could take a few months to reach consumers, it will likely weigh on broader financial markets, she said.
Read more: The Worst Way to Respond to a Global Food Crisis
Russia and Ukraine are responsible for about 25% of world wheat exports, 65% of sunflower oil, 20% of barley and 18% of corn. Wheat prices are at record highs this week and continued to rise on Monday after India decided to restrict exports, further highlighting how tight global supplies are due to Vladimir Putin’s war.
And there are concerns about the fertilizer market, too, Hope said. Sanctions against Russia and its ally Belarus, as well as the aftermath of devastation in Ukraine, will almost certainly reduce fertilizer availability, as these nations account for a large portion of the world’s supply.
Putting all of this together, it’s not hard to see how disruptions in the grain market could ultimately lead to global food shortages.
“In the UK, there’s already a limit to the amount of vegetable oil we can buy in the supermarket,” Hope said. “This is an alarming prospect of what could lie ahead for nations everywhere.”
Separately, US Treasury Secretary Janet Yellen and Bank of England Governor Andrew Bailey discussed the food crisis on Monday. Yellen said Russia’s recent invasion of Ukraine has created a global crisis by worsening food security problems, while Bailey warned that rising food costs could have “apocalyptic” consequences for the poorest in society and the world economy.
“This is a major concern, not just for this country, but for developing countries,” Bailey said.
In the US, the Department of Agriculture estimated just last month that food prices could rise by 5% to 6% this year — at least double the earlier forecast of around 2.5%.
In the long term, climate change and its impact on the food supply is a major problem not only for emerging countries but also for developed markets. As the world warms, it becomes more difficult to grow enough food and ensure it gets to enough places to support a growing world population, Hope said.
The potential social consequences are huge, as the world will need to feed up to 10 billion people by 2050, up from 7.7 billion in 2020. And food security means tackling climate change, and that’s a huge undertaking.
In a report titled “Food Security: Environmental Meets Social,” Bank of America analysts said climate change will alter what can be grown where, while also amplifying extreme weather patterns and affecting the spread of pests and diseases.
They added that about a third of the food produced annually is lost or wasted and that wasted food accounts for about 8% to 10% of greenhouse gas emissions. Equally alarming is the fact that about a quarter of this food waste could feed nearly 900 million starving people.
Citing data from Global Food Security UK, the analysts concluded that this sad state of affairs “could lead to food production shocks, food price spikes, food crises and potential civil unrest”.
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