When the Covid-19 pandemic struck early in 2020, fear began to mount around global food supply chains. Supermarket shortages in the United States—driven by panic buying and the retooling of supply chains from institutions and restaurants to retail vendors—prompted early fears of food price spikes domestically, while virus containment measures and uncertainty regarding global commodity trade sparked concern globally.

Parallels were quickly drawn to the 2007–08 global food price crisis, as some countries began putting in place export restrictions to protect food supplies for their own populations in the face of the pandemic. In 2007–08, major climate-related crop losses in breadbaskets combined with skyrocketing oil prices and a global recession to produce record-high food prices, compounded by a domino of export restrictions. This came at the expense of nations relying on food imports, resulting in widespread social unrest.

But despite those fears (and, indeed, some early protectionist behavior), global agricultural trade did not grind to a halt during the Covid-19 pandemic, and the prices of staple foods like maize, wheat, and rice remained stable across most global markets. Food prices even fell slightly early in the pandemic, and export restrictions peaked at about 22 nations, representing less than 5 percent of global grain trade—a fraction of the disruption experienced more than a decade before.

Today, there is no food shortage taking place at the global level. In fact, international organizations are predicting record grain harvests for 2021. In that way, this moment is not reminiscent of 2007–08. Yet slowly, for the past 12 months, food prices have begun to climb. The UN Food and Agriculture Organization (FAO) Food Price Index—a measuring stick for the price of commonly traded global foods—rose nearly 5 percent between April and May, reaching levels almost 40 percent higher than this time last year. This represented the single largest month-to-month and year-to-year increase in a decade.

So, what is driving the current rise in food prices, and how does it affect the world’s most vulnerable people?

Lingering Covid-19 Supply Chain Shocks

Lingering effects of Covid-19 supply chain disruptions continue to plague the global food system. While these supply chain issues never managed to stop food trade outright, backups and slow-downs at border crossings due to increased pandemic-related restrictions still occur. Relatedly, freight costs are on the rise as the wait for carriers and shipping containers continues to grow in many shipping corridors.

It’s not that there is a global shortage of these things, it’s that many are in the wrong place, being stored in importing country ports after Covid-19 forced many ships to dock. As the location of ships and containers goes through the painful (and slow) process of realigning with supply and demand, the cost of moving grain between major markets has more than doubled from pre-pandemic levels. Some are referring to the simultaneous rise in food and freight costs as a “ double whammy ” for food import-dependent nations.

Countries in North Africa and the Middle East import more than 90 percent of their food, while sub-Saharan Africa boasts a nearly $45 billion annual food import bill. The global recession caused by the pandemic disproportionately affected developing nations relying on extractive resources like oil and gas or tourism to power their economies. Poor macroeconomic conditions affected GDP in many developing nations and led to the depreciation of local currencies and higher food import prices.

Developing nations, then, are suffering from a triple whammy: higher commodity prices, increased freight costs and wait times, and reduced purchasing power.

Increased Demand

Even as stress on freight and shipping has increased, some major economies are beginning to roar back to life as the pandemic fades. Supercharged demand (for meat, especially, and the grain required to produce it) from major food-importing nations have put upward pressure on prices of animal feed grains like corn and soybeans. China, for example, is recovering from an outbreak of African swine fever that killed much of its hog herd last year and drove pork prices upward.

Meanwhile, as drivers return to the roads in the United States and Europe, the demand for biofuels is picking up swiftly as the global transport economy begins to restart. Low stocks of palm oil, a source of biodiesel, due to poor weather conditions and Covid-19–related production changes have contributed especially to this uptick.

Market indications of steady demand across each of these food, feed, and fuel sectors signal to traders that further price increases may be in store and have led to recent speculative buying, pushing prices higher.

Weather-Related Supply Shocks

These economic dynamics are playing out amid an intensifying climate crisis. There are some fears of yield and production losses due to drought in major breadbaskets. Brazil has recently cut its corn crop projection by almost 10 percent in the midst of the worst drought in nearly a century, which is showing no signs of abatement.

In the United States, meanwhile, North and South Dakota are generally experiencing unseasonably high temperatures and a lack of rain as their cropping season begins. In its July monthly crop report, the U.S. Department of Agriculture (USDA) estimates that wheat production will fall by 40 percent this year in the Northern Plains and Pacific Northwest. The harvest of durum wheat (typically used in pasta) in the United States is likely to fall from 69 million bushels last year to 37 million this year.

This comes after Texas was rocked by the winter storm that affected both food crops and livestock. One insurer there believes that $600 million worth of food was wiped out, with the storm destroying leafy greens, onions, and citrus fruit including lemons, limes, and grapefruit.

Food prices for U.S. consumers, as measured by the Consumer Price Index, have yet to return to pre-pandemic levels, lingering at levels almost 2.5 percent higher than this time last year, and buoyed especially by increased meat prices. In fact, anticipating even higher food prices, the United States’ largest wholesaler for some 3,000 grocery stores, Associated Wholesale Grocers, recently purchased 15 to 20 percent more inventory, hedging against future prices increases.

The market is in speculation mode, with farm futures climbing as observers note grain production could be just one major event away from skyrocketing prices.

Global Is Not Local

The FAO Food Price Index should be viewed for what it is: an assessment of global trade prices. These global trends hide local market conditions, as most of the food produced on the planet is not traded internationally. What the FAO index captures—global trade—gives us a general signal of trends, though it is easily manipulated by large commodity buyers like China.

Local food systems can be sheltered from these trends, for better or worse. Only 20 percent of food supply chains in Africa and South Asia operate like they do in the United States, with commercial farmers providing food through sophisticated channels destined for modern supermarkets. Instead, food is largely provided by small-scale farmers moving food through informal markets, relying on a complex network of small businesses.

Earlier in the Covid-19 pandemic, as global food prices were falling on trading markets, some places experienced tremendous price hikes because of local supply chain breaks, lockdowns, and quarantine measures that affected the informal sector—sellers, traders, shop owners, and the like. In the UN World Food Programme’s local market assessments, the prices of food increased by more than 10 percent in 15 developing countries in the first quarter of 2020.

Local food supply chains, then, will either magnify these global price increases or insulate local communities from them. For most food import-dependent countries, it will be the former.

A Global Stability Crisis

In 1857, the German statistician Ernst Engel made a simple but powerful observation: people who are poor spend a greater share of their income on food. This observation, known as Engel’s law, means even modest price increases today are unwelcome given the impact that Covid-19 has on household incomes especially across the developing world.

In 2020, the global economy contracted by approximately 5 percent, resulting in the shedding of the equivalent of 500 million full-time jobs, many of them in the informal economy in developing countries. Income and livelihood losses have come to define the Covid-19 era.

A major story of Covid-19 has been the large number of people in urban areas that have been suddenly thrust into hunger because of the pandemic, largely because of job losses in the informal sector and across sectors like tourism, transport, and hospitality. Traditionally, hunger has been considered a rural phenomenon; but this crisis has been one of food access, with peoples’ inability to afford food at markets driving the increased food insecurity more than availability or supply issues.

This is a major risk: these urban low- and middle-income populations are among the populations most likely to engage in riots and demonstrations related to food price rises. It was these groups that took to the streets in more than 40 countries in 2007–08 and led to the toppling of at least two governments. Covid-19, then, has produced a tinder box of potential instability that could be ignited by this recent food price spike.

In fact, there have been early indications of unrest stemming from the spike in food prices. In February, for example, seven regions in Sudan declared a state of emergency following hunger-related riots. Meanwhile, farmer groups in Argentina have been protesting a meat export ban aimed at curbing rapid domestic inflation. And in Cuba, widespread protests have emerged amid food and medicine shortages.

An Unprecedented Crisis

Lingering supply chain challenges, increased demand from major markets, and weather-related production losses in breadbasket regions could spell disaster for vulnerable populations around the planet. While the last food price crisis was driven by supply shocks alone, this present crisis is one of both supply and demand.

A toxic blend of conflict, climate change, and Covid-19 has caused the number of people facing chronic hunger to increase by as much as 161 million in the last year, and as many as 2.37 billion people—one in every three on the planet— did not have access to adequate food in 2020.

With nearly 41 million people at risk of slipping into famine—and at least 600,000 already experiencing those conditions—the next year could prove to be a dangerous tipping point for global prosperity and stability.

Source: Center for Strategic and International Studies (CSIS) 

Authors: Chase Sova is a non-resident senior associate with the Global Food Security Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. He is also senior director of Public Policy and Thought Leadership at World Food Program USA (WFP USA). Christian Man is the Policy Action Lead for the Just Rural Transition and an adjunct fellow (non-resident) with the CSIS Global Food Security Program.