Sanctions, import bans, infrastructure destruction, a refugee crisis and supply chain disruptions due to the conflict in Ukraine are driving up global food prices and posing the risk of shortages. Importantly, higher prices and possible falling inventories could mean more food insecurity in the US and around the world. But there are actions companies and governments can take to help ease the pain.
The war in Ukraine is seriously affecting the production and export of cereals to vulnerable countries. Not only is it making agriculture in Ukraine more difficult, but the sanctions are disrupting the logistics of producing things like fertilizer. In addition, the sanctions prohibit certain debt transactions for the Russian Agricultural Bank, which helps support the country’s agricultural sector.
Russia and Ukraine combine to produce 6% of all grains grown globally, according to our calculations from United Nations data, but export a whopping 16% of grains such as wheat, corn, oats and barley, according to the Center for International Trade. These grains are used in everything from breakfast cereals to bread, pasta, and corn syrup, which sweetens beverages. In addition, they provide food for animals, which means that the inflation of proteins, such as chicken or pork, will also continue to increase. Ukraine also produces half of the world’s supply of sunflower oil. As such, food producers will need to reformulate to replace sunflower oils, used in certain foods, with other oils.
Companies can protect themselves by finding alternative sources of grain: diversifying supply chains or substituting alternatives in domestic or other unaffected markets where possible. This diversification and substitution would help mitigate some of the costs that will ultimately be passed on to consumers.
Meanwhile, higher food prices in relatively rich economies like the US could weigh on consumer spending and thus overall GDP growth. Food and beverage prices in the US rose a staggering 8% from the previous year, according to the Bureau of Economic Analysis. Expected additional increases in food prices due to the war in Ukraine are part of the reason The Conference Board forecasts that total personal consumption expenditure inflation, which measures the prices of consumer goods and services, it will remain above 6% year-over-year for much of the year. 2022.
These supermarket price spirals will drive up food costs for all Americans and increase food insecurity for households that spend a significant portion of their income on food. In 2020, food accounted for 10% of total spending for the richest households, but accounted for up to 15% of spending for the poorest households, according to the Bureau of Labor Statistics. The Census Bureau’s Household Pulse Survey reveals that as of mid-March, more than 21 million people in the US did not have enough food in the last week, either sometimes or often. The war will probably worsen these figures.
To help Americans in need, the Federal Emergency Management Agency could be implemented and social safety net programs such as the Supplemental Nutrition Assistance Program could be expanded. Additionally, the federal government can ensure that school feeding programs, which provide nutrition to millions of children, remain fully funded.
Touch the reservations
The good news is that other economies can immediately step in to feed the world. What determines this is whether these economies have reserves that can be tapped for exports and domestic infrastructure and labor to facilitate increased trade.
India, the US, the European Union, Brazil and Canada are especially well positioned to increase grain exports, according to the USDA. By the end of the 2021-2022 growing season, the US is forecast to have an excess of 18 million metric tons of wheat, 37 million tons of corn, and 2.6 million tons of barley, oats, sorghum and rye combined, according to the USDA.
Policymakers can identify excess grain stocks and partner with NGOs to distribute food to vulnerable nations. Governments can also draw on domestic reserves to help cushion the effects of a grain supply shock on consumers.
Invest more in food production
Governments can also devote more of their budgets to increasing food production, including spending on equipment, R&D, and infrastructure.
In the US, for example, federal government subsidies to domestic farmers, which include loans, quotas, and food purchases, among other measures, can be changed to support increased grain production. In addition, the government can stop paying farmers to leave their land fallow (it does so to keep prices in check and improve environmental health).
Companies can also help support increased grain production through financing and direct investment in equipment and labor.
Businesses, from supermarkets to private cafeterias, can reduce food waste with better ordering and refrigeration tactics. In fact, the USDA estimates that 30% to 40% of the US food supply is wasted.
Limit the use of corn in fuel
The US government could also limit the use of corn, 40% of which goes into ethanol, which is blended into gasoline.
These solutions may be easier said than done. However, it is important that businesses and governments work together to help make food affordable. Given the US’s grain-producing capacity, you can take the lead in putting food on the table, both at home and abroad.