How decisions coming from a prisoner’s dilemma could break the global food supply

Some of the images I keep from the recent pandemic is people queuing to buy food in supermarkets, a result of a false alarm of upcoming food shortages. Hopefully, supply chains held up quite well and the worst never materialized. Energy and agricultural commodities are now at the center of the new inflationary era we are living in. We can find several similarities between both markets, like the current fragile balance between offer and demand which is bringing unexpected price hikes and volatility. There are also meaningful differences, agricultural commodities like cereals lags oil in terms of market information and transparency. The monitoring of planting intentions, crop development and domestic market information is not as detailed as the one of oil production. Making decisions to improve the market information would make international markets for agricultural commodities more effective in the years to come. When you make a diagnostic in decision making process, data is a first source to understand the situation.

When I look at the episode we are currently living, it reminds me the global food crisis in 2007 to 2008 or 2010 because of export ban on wheat, severe drought, and wildfires. Governments of export countries made those export ban decisions in response to production bottlenecks. They decided to close their markets whenever their internal national supply was put into risk. Today price hikes and volatility are amongst major threats to food security, and we cannot exclude new export bans to come back again.

During the last crisis, governments created the Agricultural Market Information System to promote transparency in production. AMIS was created as a tool to address excessive food price volatility and to strengthen global food security in a period of heightened insecurity in international food markets.

Fifteen years later food prices have been rising sharply again. With limited production and prices going to the roof, the risk is now that export countries decide again to create export controls to keep production at home. Difficult to say how export and import countries will make its decisions. Do they have alternative options? The dilemma is mainly to choose between global cooperation or tough competition where everyone looks for its own interests. In between the two, some internal options that could marginally help inside the countries are:

? Governments can try stimulating output in the short term, as Ireland and the EU are doing.

? One-off support schemes to turn unused land back to growing basic crops. But the impact of it would not be immediate

All this will not be enough to solve the problem because:

? the worldwide increase in supply is not likely to be enough. There is no much high-quality productive land available in the world, the best ones are already taken. The remaining land for crops will be less productive that the ones already running.

? The planting season ends in a few weeks for many crops, so timing could not be worst.

On the cooperation side we could imagine:

? cutting tariffs to ensure that what grain ends up where it’s needed. We could even imagine regional quota, so all regions get a portion of the pie

? aid disbursements to developing countries to increase local purchasing power.

? push through new trade deals between blocks.

In all decisions you have the impact of P.E.C. (Politics, Emotions and Culture). In this one, current and upcoming political elections will not help, as politicians tend to protect local producers in front of imports, neither the current geopolitical conflict in Europe.

This is a classic Prisoners’ dilemma, where decision making is balanced between cooperation and competition. It’s in everyone’s interest to keep exports flowing, but no one wants to run short by being the only country that does. Countries producing cereals are waiting the decisions of those producing rice. Everyone is waiting what others do!

There’s generally enough to eat in the world, but it’s in the wrong places. Moving it to the right ones may be politically hard. High inflation, economy, geopolitics, and debt is the focus on Western countries. Recent discussions in Davos confirm it. But for the rest of the world food availability and famine will be the next big thing. Hope has never been a good strategy to solve complex problems, but let’s “hope” that this time politicians will make the right decisions!