TOWARDS AN UNAVOIDABLE FOOD SHOCK

After health crisis, conflict in Ukraine, energy crisis and the major economic downturn in recent???months leading to a potential global recession, experts are now predicting a food crisis unprecedented in modern times, caused by a multitude of structural factors and whose consequences could last for years. Food prices have reached historic levels as FAO global index breaks records dating back to the 1970s. Fuel price is higher than ever, as is fertilizer price, which is essential for half of humanity's calories. In the fields, labor is scarce, as in transportation. Situation in Ukraine paralyzes millions of tons of grain and prevents the exports of two behemoths of agricultural industry. We must therefore prepare for a food crisis that will shake the foundations of many countries.

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In the current context, experts seem to be unanimous on the inevitability of the thing. The question is, how big will it be?

For some, it will be a major disruption lasting until 2023, causing a global economic slowdown and pushing millions into food insecurity, but our planet could still avoid the worst, thanks to collaboration between peoples and humanitarian aid.

For others, it would be a food catastrophe unseen in the XXI? century, leading to social tensions in several countries as well as huge protest movements similar to the Arab Spring revolutions. This crisis could last for years and social, economic and geopolitical consequences will be profound.

But what exactly is going on? Why be so pessimistic about the loss of just a portion of the crops in a limited area?

Reality is it goes far beyond Ukraine or Russia, the whole world is under pressure. Of course, the war in Ukraine is significantly reducing the crops available on the world market.

Before its invasion, Ukraine was the world's fourth largest exporter of both corn and wheat. Nearly 40 countries receive at least 50% of their grain supplies from Ukraine. Together with Russia, they represent 27% of the world's wheat exports and half of sunflower seed and oil exports. These two countries are absolutely essential in the global food chain. Because of war, Ukrainian fields are not all planted. The planted ones are lacking manpower as most men of working age have either taken up arms or left the country, machinery lacks fuel, fertilizers are scarce and as a result, harvest look disappointing.

But that's not the only problem. Even if Ukraine produced a record crop, there would be no way to get it out of the country, since ports are completely blocked and rail infrastructure has been heavily damaged by Russia to prevent heavy arms shipments from the West. Approach through Odessa’s port has been completely mined by the Ukrainian army and it would take weeks, if not months, to clear a corridor.

For Russia, export barriers are purely artificial, stemming from sanctions against the Kremlin. Marine insurers refuse to insure cargoes, credit lines to buy Russian grain are frozen, bank accounts are blocked and access to the ruble is highly restricted. Putin blames the United States and the West for the current crisis and claims that they are responsible for the inability to export Russian grain.

The war in Ukraine is a bit like the tree that hides the forest regarding food crisis. Main culprit for ?food prices rise is the explosion of fertilizers prices, an essential ingredient of modern agriculture. It's very simple: use of fertilizers enriches soil and feeds the crops in order to propel growth and thus improve harvests.

The difference in productivity between a fertilized field and an unfertilized field is 30 to 50% of the crop, according to most studies, which is huge.

Historically, fertilization was done with organic matter such as compost or manure, to improve yields. With the arrival of synthetic fertilizers and their industrialization at the beginning of the 20th century, agricultural productivity exploded throughout the world, allowing for a meteoric and unprecedented increase in the human population. It is estimated that without synthetic fertilizers, the cultivated areas would be able to feed less than half of the world population.

The three main families of fertilizers are nitrogen (N), phosphorus (P) and potassium (K). Nitrogen is the most important of the three and the most widespread. To produce nitrogen fertilizers, it must be mixed with hydrogen contained in natural gas by heating to very high temperatures. Natural gas is absolutely essential in the process, not only to produce the heat and energy needed, but also as a basic ingredient in the recipe. The problem is that the price of natural gas is at an all-time high, causing the major fertilizer companies to reduce or stop production.

Yara, a major Norwegian fertilizer producer, reduced its production by 40% last September. In March, it cut back again, bringing its production to only 45% of its usual level. All producers are following the same way and when supply decreases and demand increases, prices increase and reach historical highs since 2020. The prices of major fertilizers have almost quadrupled, with major consequences for millions of farmers around the world. Fertilizers are one of the biggest expenses for farmers, a determining factor for profitability and final price of crop.

Russia and China are world's largest exporters. Between them, they export more fertilizer than the next five countries combined. It would be naive to think that these two giants do not understand the extraordinary power of this geopolitical weapon. In recent months, following first signs of food crisis and tensions with Westers countries, China and Russia have banned fertilizer exports, contributing directly to the explosion of prices on the world market. China was exporting more than 20% of phosphate-based fertilizers, and its withdrawal last July was a huge shock. Russia, as soon as the war in Ukraine started, banned export of fertilizers, citing risk of an increase in agricultural products prices in Russia. 2 most important exporters of the planet have thus stopped supplying the world market in a few months.

Some speak of food protectionism, others of a deliberate strategy to destabilize food world market. These two countries have tremendous leverage as fertilizer supplies become scarce and the upcoming harvests look to be among the most expensive in history. In Southeast Asia, farmers are unable to get enough fertilizer, so they are either using much less or going without altogether, and the next crops will suffer terribly.

Fertilizer crisis is a delayed crisis since we have to wait until the next season to really measure the consequences. Food prices will increase dramatically around the world due to the globalization of agriculture.

A vicious circle begins. Food prices rise on the market. In response, China and Russia ban fertilizer exports to protect their supplies. As a result, the price of agricultural products rises, causing other countries to restrict their exports to protect themselves, and so prices rise, increasing the pressure on other countries. When pressure will become unbearable, it will push prices even higher….

This vicious circle is much more dangerous for world food supply than fertilizer crisis or war in Ukraine. This phenomenon has already begun, many countries have recently banned export of fertilizers or grains to protect their supplies: China, Russia, Ukraine, but also Turkey, Argentina, Algeria, Egypt, Iran, Indonesia, Serbia and more recently India. Almost 20% of the calories produced on our planet are already affected. All the countries that panic and limit their exports in order to prioritize their local population, will directly contribute to precipitate the world towards a total collapse of the food chain.

Pressure is already high on food chain. Fuel prices and driver shortages are driving up delivery and handling costs. Food prices are already inflated in many countries due to record inflation and the resulting reduction in purchasing power. After health crisis, many countries simply do not have financial capacity to absorb this new shock. Several countries could go into default as we have seen in Sri Lanka.

Context is also abnormally bad. World wheat crop is having a particularly difficult season in India, France, China, Australia and Argentina due to drought and heat waves. In the U.S.. The U.S. production is limited by a variety of factors, including drought and flooding. According to the U.S. Department of Agriculture, U.S. farms are far behind schedule, planting only 73 percent of the wheat they are expected to plant, compared to the normal 92 percent planting rate at this time. The U.S.A. are the second largest supplier of wheat in the world, so any reduction in U.S. exports has a disproportionate impact on world food supplies.

Price of food will therefore continue to rise over the next few months, at least until 2023, as most of the current disruptions are not yet integrated into the prices of the various agricultural products. This will be a real shock because 80% of wheat is used to produce flour, mostly to make bread, and 60% of bread’s price is determined by flour’s price. Unless governments intervene, bread’s price could increase drastically, while wheat’s and flour’s prices has already doubled since last summer.

Feeding population is the bare minimum for a government. When it fails, it loses all legitimacy in the people’s eyes. Countless revolutions, riots, civil wars and coups have been provoked or precipitated in history by bread’s price increases.

An additional 220 million people are at risk of starvation or food insecurity. This is much more than a humanitarian issue, it is a question of security and social peace, ethnic coexistence and law and order. Food security is clearly an attribute of national security. When people are hungry, the risk of revolt is multiplied, despair sets in, extremist groups gain popularity, and soon peaceful demonstrations turn into riots and violent clashes.

This is what happened during the Arab Spring revolutions or during the 2008 bread revolts that shook some thirty countries including Egypt, Mexico, Ivory Coast, Senegal and Cameroon. In 2022, prices increases are much higher than in 2008, so social crises are to be feared.

Turkey is already undergoing a major inflationary crisis and is totally dependent on imports from Ukraine or Russia to feed itself, they represent 75% of its grain imports, so Erdogan can not refuse anything to Putin at this time.

In Lebanon, the economic crisis is major and the economic situation has already been precarious for several years, the country is dangerously close to a new civil war. The population rejects the corrupt political class and groups like Hezbollah are gaining influence.

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Iran is a very fragile country, regime is experiencing a crisis of legitimacy, its leaders are disconnected and locked in an ultra-religious straitjacket while society is in the midst of a Quiet Revolution with the emergence of a new generation. Despite the strict religious system, only 40% of Iranians living in the country say they are Muslims, and 68% say that religion should not interfere with politics. The economy is being strangled by international sanctions and public finances are in trouble. Violent protests erupted across the country a few days ago as the government stopped subsidies for essential ingredients such as oil, eggs and milk, causing the price of some items to jump by 400%. Two weeks earlier, rioters burned down businesses following widespread anger over the price of bread.

Pakistan is in the midst of an economic crisis, as well as political instability. No prime minister since independence in 1947 has been able to complete his five-year term, and they have either been deposed, assassinated, overthrown or forced to resign. During 2008 food crisis, Pakistan experienced some of the worst riots among the affected countries. What will happen in 2022-2023?

The situation in Africa is even more worrying. In general, the countries of the continent are dependent on imports to feed their population and they do not have the financial means to absorb a price increase. In East and North Africa, several countries are dependent on Russia for grain and fertilizer, such as Sudan, Ethiopia, Kenya, or Somalia, which imports more than 90% of their grain from Russia. Food insecurity could quickly turn into a major security crisis. Farms are located in areas where the influence of rebel groups and warlords is strongest. People will be much more loyal to the hand that feeds them than to officials who tell them to starve in the name of democracy.

The observation is the same in all countries that are economically, socially or food insecure and that import their food, they risk experiencing major disruptions.

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There is a misconception that the impacts will be contained in developing countries and that rich countries will be immune to the consequences of a food crisis. This is totally false. First, even in rich countries, stability is much more fragile than it appears. Remember the toilet paper storms that happened in almost every developed country. The slightest rumor of a shortage leads to a supermarket storm and ultimately to a real shortage.

Already, the vice-president of the European Commission is warning that severe food shortages in Africa and the Middle East could cause a major wave of migration to Europe. This is also true in North America, in Haiti as an example where 70% of the food is imported, mainly from Russia. But Haiti is an island and Russia is boycotted by the shipping industry. It is therefore impossible to find insurance, a pilot or even a boat to bring the grain there. In the last two years, bread’s price of has increased fivefold in Haiti. Other increases are to come, what will the 11 million Haitians will do on their island when they can no longer feed themselves while they are located a few hundred kilometers from the richest country in the world. A starving people have nothing left to lose.

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As in any crisis, some countries could take advantage of the situation. China, which has built up a huge strategic reserve of different resources over the years, such as coal, metal, but also pork, rice or wheat could be a winner. This reserve is now sufficient to supply the demand of 1.4 billion people for one year. While China accounts for 18% of the world's population, it has nearly 70% of the world's corn reserves, more than half of the wheat reserves and about 60% of the rice reserves. China has been filling up its reserves so quickly in recent months that it has acknowledged that it has contributed to higher prices on the world market.

While many countries are now looking to China to help countries in need, it seems utopian to think that China has built up such a strategic reserve of food for anything other than feeding its population. Famines have always had disastrous consequences in China for the ruling power, and the Communist Party considers the management of food stocks and the maintenance of a bloated reserve to be vital to its survival. China will give food, but the diplomatic price it will demand in return may be exorbitant.

Russia is the best positioned country to take advantage of this situation. Russian crops have not been affected by war in Ukraine, they simply cannot be exported at this time. Russia currently has a large stock of grain and fertilizer just waiting to be sold.

Putin is already proposing to unblock deliveries if sanctions are canceled. At the same time, he is negotiating directly with countries in need in order to get around the sanctions while improving Russia's image.

In Turkey, more than half of the cereals come from Russia, so it is easy to understand his goodwill for a corridor allowing the transport of cereals in the Black Sea but also his position on the extension of NATO. Erdogan cannot refuse something to Russia at the moment.

In Africa, Russia is trying to negotiate directly with African Union and each government individually to sell them grain. As these countries have no other choice to feed their population, this will be a winning strategy and the Kremlin's influence on this continent will be reinforced. Who could blame these governments for prioritizing their population’s health and social peace over a democratic virtue linked to a conflict that is taking place thousands of kilometers away from them?

If there are solutions to this problem, none of them will be able to avoid the shock of the next few months. Indeed, even if more fertilizer were produced or the area under cultivation were drastically increased, the calories generated would not be on the market for a year and the current prices of fertilizer and fuel would still be integrated into their final price.

Since this is not the last time a war or a shortage or a panic on the world markets will occur, the only real solution is to revolutionize world agriculture.

Everyone does not need to eat organic or become vegetarian. Agricultural production does not have to be regional or national, it would be impossible to do without imports anyway for obvious climatic reasons in many regions. A study from 2020 shows that local agriculture could, in the best case, only feed one third of the world's population. Despite the rhetoric of some environmentalists, these decisions, if taken, would be counterproductive and would reduce food security.

The world needs large producing countries, fertilizers and a globalized agriculture. But we need resilience and more intelligence in the food chain. We will need more reserves, more local production and better land management to use fertilizers more efficiently as they may become scarce and expensive. Another issue is the expansion of GMO crops, especially in developing countries. Their resistance to disease, heat and drought is absolutely vital for food security. We may not agree philosophically but as we all eat GMOs without knowing it....

Between the increase in the standard of living, the enormous demographic push in Africa and the multiplication of droughts, the world demand for food will explode. Unless we halve the world's population, increase the area under cultivation or start eating insects, GMOs will be essential, just as fertilizers have become.

One concession I would make to environmentalists is that we will have to reduce our consumption of red meat. Millions of hectares are planted, fertilized and watered to produce crops that are used to feed livestock in spite of humans. This is a totally inefficient system if we look at calories produced when planting for humans and when planting to feed cattle that will then be used to feed humans.

But I would ask, in exchange for this concession on red meat, that we address the idiocy of biofuels. In the United States, corn is the most planted grain, but 40% of its harvest is used to produce ethanol to reduce the price of gasoline. Joe Biden has just authorized the increase of the ethanol rate to 15% in U.S. gasoline. At a time when the world is facing a major food crisis, the 2nd largest wheat exporter in the world is going to replace part of its wheat crop with inedible corn to be transformed into ethanol to slightly lower the price of gasoline and reap some political benefits.

This is what will have to be changed by the coming food crisis. Our behaviors have already been changed by major crises in the past: the oil shocks of the 1970s, the financial crisis of the 1930s or more recently the Covid pandemic.

Energy is the most important input for our societies, both as fuel and as food. We are at a historical moment where the price of these two essential forms of energy is exploding simultaneously. Is this really a matter of timing and context or should we learn a profound lesson?

One thing is certain, the 2020s will leave an indelible mark on the world around us.