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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
It’s hard to get through the day at the moment without someone leaping out at you with the latest warning about one international food crisis or other and the fragility of globalisation. On top of the widespread perception in the US that grocery prices are too high and this is Joe Biden’s fault — causing his aspirant successor Kamala Harris to launch a firmly vague campaign against price gouging — there are well-publicised problems in the supply chains for tea, coffee, chocolate and olive oil.
Now, no one can deny that climate change poses a serious medium-term threat to agricultural production and yields, and that governments are doing a miserably bad job at combating it. But overall, global markets for basic food commodities have performed astonishingly well in recent years, overcoming the shock of the Ukraine invasion.
There’s a lot of attention on high-income consumers and first-world issues like food manufacturers sneakily downsizing chocolate bars in response to higher cocoa prices. Variable rainfall and high temperatures can be terrible news for cocoa growers in sub-Saharan Africa selling into the European market, of course. But this is not a general crisis for the globalisation of food.
Price rises in these products for consumers in rich countries at the end of the supply chain are minor inconveniences. Coffee, tea, cocoa and chocolate between them make up comfortably less than 1 per cent of the consumer price basket in the UK, for example. Sharp price rises in those products last year didn’t stop overall British consumer price inflation going down — as indeed it has in the US, where consumer food price inflation is now below the overall rate.
The prices of staple foods which matter more to low-income countries have been gratifyingly under control. A jump in wheat prices in February 2022 because of the threat to Black Sea grain and fertiliser exports had been reversed five months later. Global cereal prices as measured by the Food and Agriculture Organization index are below where they were at the end of 2020.
Steve Wiggins, principal research fellow at ODI, the UK-headquartered think-tank, says: “Every time prices streak upwards we’re told by people who don’t know anything about commodities that global food markets are broken and things will never be the same again.” In fact, he says, by the time of the invasion, prices were already near the top of a traditional commodity cycle that started in the middle of 2020. After the shortlived impact of Ukraine had dissipated, global supply increased and the down phase proceeded. It’s an age-old cliché but it’s true: output responds to demand, and the best cure for high prices is high prices.
Critically, not only did production recover but the world trading system continued to function. Russia’s hope in 2022 of creating famine abroad to force its foes to back down and lift sanctions miserably failed. As the World Bank points out, apart from Ukrainian grain being exported via EU countries, west African nations previously dependent on Black Sea wheat were able to source from elsewhere, including southern hemisphere growers like Argentina.
Fears that governments would drive prices higher by blocking exports, as some did in the 2007-2008 global food crisis, also did not last long, with one or two exceptions such as India restricting sales of some types of rice. The International Food Policy Research Institute think-tank says that such restrictions currently cover only 8 per cent of traded calories, half the rate in April 2022.
In common with manufacturers, food trade has also adapted to interruptions in international shipping. As with container ships, bulk commodity carriers which used to go through the Suez Canal are routinely routed round the southern tip of Africa, and trading companies have also learned to cope with disruptions to the Panama Canal, both without prohibitively driving up costs.
Wiggins points out that far from having shocks transmitted by dysfunctional global markets, countries with current food supply problems are generally those that are geographically isolated or have domestic issues. Food security problems are centred on landlocked nations in sub-Saharan Africa dependent on local production that is susceptible to droughts, and countries where output and imports are affected by conflict (Yemen, Sudan, Somalia).
In Egypt, the world’s biggest wheat importer, the government in June risked public unrest by quadrupling subsidised bread prices. But that mainly reflects domestic macroeconomic problems — a cash-strapped administration and local currency prices being pushed up by the Egyptian pound tanking against the dollar — not a shortage of available traded wheat.
The current state of world food production and consumption isn’t an indictment of “neoliberalism”, though it’s true we have a long way to go to correct markets to internalise the external costs of carbon emissions. Farming is often distorted by protectionism and subsidies at a local level, but global open trade has delivered levels of food security unmatched in human history. Markets have enabled the world to ride a whole series of shocks. They will be an essential part of efforts to survive new ones in the future.
