The tragic daily news of death and destruction in Ukraine has recently been accompanied by reminders of how global food supplies are becoming more scarce and more costly. From expectations of lower production and exports in the war-torn region to export bans imposed on commodities such as oil and wheat in other countries, recent events have served to highlight an increasingly important issue on the global stage: food security.
But while the current conflict is exacerbating markets, it’s hardly the only factor having an impact on food security issues. Indeed, given rising populations, the impact of climate change on food production and other longer-term supply chain issues, food security risks are rising and remain a concern for many nations.
In this L.E.K. Consulting Executive Insights, we examine how the global nature of our food supply means that a shock in one part of the world can have an outsized impact on a region multiple time zones away. As such, it is increasingly important that countries have a robust food security strategy in place and that they are able to execute on that strategy in order to be prepared for the inevitable future shocks to come.
Why food security matters
A portion of the food consumed in a country will always be imported, which is why any sort of shock to the producing country — be it India, Thailand and Brazil for sugar; China for seafood; or various countries in Europe for fruits and vegetables — will be acutely felt in end markets.
In 2020, Russia and Ukraine together accounted for 9.3% of all global agricultural exports — versus just 5.5% in 2016 — which included 29% of all wheat sales and 12% of the total calories traded worldwide.
The invasion of Ukraine by Russia adds to a long list of events that have impacted wheat production and trade over the past three decades. Specifically, 35 notable events have affected more than 10% of expected country production since 1990, including six in Russia and nine in Central and Eastern Europe.
Factors impacting food security now and in the future
Beyond individual food items such as wheat, all aspects of global food production are expected to be significantly altered over the next few decades, including producing regions, production methods and trade routes. This altered landscape will emerge as a result of many factors, including:
- Climate change — shifting temperatures, precipitation, etc.
- Agricultural technology developments — biotech, controlled-environment agriculture, etc.
- Global trade shocks — trade tariffs, disease lockdowns, geopolitical issues, etc.
- Input cost inflation — natural gas price impact on fertilizers/crop chemicals, etc.
Climate change will arguably have the most widely felt impact on longer-term food security. According to Fitch Solutions, as temperatures continue to rise at an unprecedented pace, not only will growing regions be forced to shift away from the equator, but intense climatic events will also increase production gains in certain regions while increasing the risk of production losses in others. Indeed, regional production shocks, such as flooding in the vegetable-producing regions of Shandong in China, have already contributed to price volatility and an increase in global food insecurity, with the most severe ripple effects taking place in underdeveloped parts of the world (see Figure 1).
