- The food crisis could worsen in 2023, with a supply squeeze overtaking logistical constraints as the key challenge.
- The Ukraine war has disrupted sowing and other farm activities, which has affected yields.
- Elsewhere, farmers are using less fertilizers due to high prices, which could depress harvests.
The pandemic, the war in Ukraine, and the ensuing supply-chain chaos have collectively driven up the prices of everything from wheat and sunflower oil to lemons and avocados.
While the supply-chain has been in a state of disruption since the COVID-19 pandemic started in 2020, the dislocations have been compounded by the war between Russia and Ukraine, both of which are major wheat exporters. This has contributed to food inflation that’s hitting the most vulnerable especially hard, according to Mercy Corps, a humanitarian organization that distributes aid to the needy globally.
“Skyrocketing food prices in 2022 have meant that the cash assistance we provide vulnerable families doesn’t go as far,” Tjada D’Oyen McKenna, the CEO of Mercy Corps, told Insider. “The main constraint to accessing food is decreased purchasing power coupled with increased food prices.”
Last month, Ukraine and Russia reached an agreement brokered by the United Nations and Turkey that allows Ukraine to restart grain exports out of the Black Sea. The move has offered some relief to global markets: The UN Food and Agriculture Organization Food Price Index which tracks a basket of commonly trade commodities fell for the fourth consecutive month in July after hitting a record high earlier in 2022.
But, the price declines are unlikely to trickle down to the consumers immediately.
“While many food prices have been decreasing in recent weeks, with some returning to prewar levels, markets will continue to be volatile and even if global prices come down, local markets may not see price adjustments for upwards of a year,” said McKenna.
And by then, we could see a new chapter in the food crisis that could push up prices again. Here’s how the food crisis could change for the worse in 2023.
This year, it’s a logistics problem. Next year, it could be a supply issue.
This year’s food crisis is mostly due to a logistics disruption tied to issues in shipping Ukrainian and Russian grains out of the countries. But next year, the food supply itself could be in peril particularly in Ukraine.
Russia’s invasion of Ukraine, launched on February 24, threw a wrench into the annual farm cycle and disrupted the spring sowing season in April and May. Another sowing cycle takes place from September to November.
In July, Ukraine President Volodymyr Zelenskyy took to Twitter to warn that the country’s farm harvest could be halved this year due to the war. “Ukrainian harvest this year is under the threat to be twice less,” Zelenskyy tweeted.
In an August 17 report, consultancy firm McKinsey forecast a sharp drop in harvest volumes: It estimates Ukraine’s production of grains, such as wheat, will drop by 35% to 45% in the next harvesting season.
“The ongoing conflict is interfering with farmers’ ability to prepare fields, plant seeds, and protect and fertilize crops, which will likely result in even lower volumes next harvest season,” McKinsey wrote in the report about global food security amid the Ukraine war and impact from climate change.
Per McKinsey forecasts, Ukraine’s harvest will be 30 to 44 million tons below normal levels this year. This is due to fewer plantings on an acreage basis, reduced farmer cashflow as much of their last harvest can’t be shipped, and the possibility of grain left untended or unharvested, the consultancy firm said.
“In the next planting season, due to the war’s disruption of Ukrainian planting and harvesting and combined with less-than-optimal inputs into Russian, Brazilian, and other growing countries’ crops, supply will likely tighten,” wrote McKinsey. The consultancy interviewed local growers and reviewed local data for its report.
Soaring fertilizer prices and climate change add to supply shock
Russia accounted for almost one-fifth of 2021 fertilizer exports, but the war in Ukraine has caused severe disruption to the supply of crop nutrient. Prices of urea, a common nitrogen fertilizer, have more than doubled from a year ago, according to Bloomberg’s Green Markets service. As a result, farmers around the world are using less fertilizer.
“Fertilizer shortages and higher prices for fertilizers are also expected to reduce yields in countries that depend heavily on fertilizer imports, such as Brazil. This will likely further decrease the volume of grain on the world market,” McKinsey wrote in its report.
Mercy Corps has observed the same trend. “Farmers we work with in Guatemala have been unable to invest in the next production cycle either because they cannot afford to buy fertilizers and other inputs derived from oil, such as plastics for padding and pipes for irrigation systems, or because they cannot find agricultural inputs in the market,” said McKenna.
Given that the shocks to farming and supply come at a time of extreme climate conditions, including severe droughts in Europe and floods in Australia, McKinsey expects the next food crisis to be worse than those in 2007 to 2008, and from 2010 to 2011.
“The conflict in Ukraine is shaking important pillars of the global food system in an already precarious context,” the consultancy said.