The global food crisis is getting worse, not better, as the Ukraine war continues. As noted here in October, half of the world’s population relies on nitrogen fertilizer to provide the food it needs. And last year, 70% of European ammonia capacity was shutdown due to the cutbacks in natural gas feedstock and high prices.
Inevitably, therefore, the world is starting to suffer food shortages and price rises as the World Bank warns:
“Fertilizer prices have eased from their early 2022 peaks but they remain at historically elevated levels. The price easing partly reflects weak demand as farmers cut back fertilizer field applications due to affordability and availability issues. The industry is also affected by supply-side issues, including a production crunch in Europe, disruptions due to sanctions on Russia and Belarus, and trade restrictions in China.”
Cereal production has been badly hit since 2020, as the chart based on Food & Agriculture Organisation data confirms:
- Covid restrictions saw its Cereals Index start to increase during 2020
- And then the war took it to new record levels during 2022
- Today, prices have come down by 15% since last year’s peak
- But they are still up 49% versus February 2020 levels
Climate change, of course, adds to the problem as weather conditions change. Much of Europe, for example, suffered a major drought last year, and this is continuing in France and UK.
The issue is that farming is a seasonal business, with long time-lags between planting and harvest. So food production lost last year, when fertilizer was reduced and/or unaffordable, is now starting to have a major impact. As Morgan Stanley (MS) noted in the summer:
“The war has particularly hurt food supply chains, and caused a spike in energy prices, driving fertilizer and shipping costs higher. Add to that recent years of dry weather, and it has been something of a perfect storm for commodity food prices and related products.”
And whilst prices may have come down a little from their peaks, they are still a long way off their lows. And the war, of course, is continuing to escalate, with no early end in sight.
US and European food price indices are already at record levels, as the chart shows. And US fertilizer producer Mosaic recently warned that:
“Global stocks-to-use ratios are at 25 year lows and are remaining under pressure because of risks that are again threatening output in the coming year… Around the world, we still see fertilizer shortages in many key agricultural markets, despite some major markets being well-supplied. However, the overall shortage still threatens total production and this will underpin global crop prices for some time.”
In turn, we are starting to see second-order impacts emerge in the wider economy. Consumers have to eat, as MS note:
“When consumers pay more for food, they spend less on other discretionary items, which has serious implications for the global economic recovery”.
Even more worrying, as the FAO chart confirms, is that global food prices hit a new record last year. And, of course, it is poorer people who suffer most, as they already spent more of their income on food.
In poorer countries, the situation is now very serious. As the World Food Programme warns, 900m people are “fighting to survive in famine-like conditions“. This is a ten-fold increase compared to 5 years ago. And the risks are rising, as they note:
“High fertilizer prices could turn the current food affordability crisis into a food availability crisis, with production of maize, rice, soybean and wheat all falling in 2022.”