Analysts say rising food prices could turn into a business risk

Risk analysts said rising global food prices and shortages of grain and fertilizer caused by the war in Ukraine could lead to more economic turmoil. In some countries, they added, this could lead to disruptions and test the resilience of Western companies in overseas operations in the coming months.

“Food insecurity is one of our priorities [company’s] Sergean Todorovic, Head of Terrorism and Hostile Environment Solutions at

Allianz

Global Corporate & Specialty, part of Germany-based financial services company Allianz SE. “This is definitely a global problem.”

People can accept many kinds of rarity, but Problems getting foodNick Robson, the global leader in the practice of credit specialties at Marsh, an insurance broker company, said that — in addition to causing hardship — it has the potential to spur rule-breaking and turmoil.

Marsh and McLennan

cos. Usually, it takes a combination of factors plus a lack of food to provoke civil unrest. However, risk analysts say they are closely monitoring global food prices.

Food costs are now higher than they were in 2007 and 2008, when record prices at the time led to protests and riots in 48 countries, according to a United Nations report.

Although food prices are slightly down from the highs reached in the immediate aftermath of the Russian invasion of Ukraine, they were still 44% higher in July compared to 2020, according to the Food Price Index compiled by the Food and Agriculture Organization of the United Nations. .

“All over the world we are seeing much greater potential exposure to civil unrest as people see their purchasing power drop rapidly,” said Jimena Blanco, Americas Research Team Leader at risk intelligence firm Verisk Maplecroft.

Fertilizer prices have reached record levels, with far-reaching consequences for farmers, agricultural yields and food prices. WSJ’s Patrick Thomas explains the reasons behind the surge and what it might mean for your portfolio. Photo: Ryan Trevis

Rising fertilizer prices in particular have had far-reaching effects. In Peru and Greece earlier this year, farmers took their trucks and tractors to urban centers to express their exacerbation. Sri Lankan protesters stormed the presidential palace and Forced a change in management, a move analysts attributed in part to the ban on chemical fertilizers that reduced crop yields. The uprising in Sri Lanka was a clear example of Volatile forces disappointing harvest It can be unleashed in a short time.

At least 50 countries depend on Russia and Ukraine for 30% or more of their grain supplies, including many developing countries in North Africa and Asia, according to a report by Marsh. Turkey, for example, imported 78% of its wheat from Russia and Ukraine in 2020, Marsh said, while Brazil is the main market for Russian fertilizer.

Not all countries face the same risk of rising prices. Democracies rich in the resources to absorb price increases, for example, are likely to do better. Countries at risk tend to have some things in common: they are authoritarian regimes, they depend on imported food and have subsidies they can no longer afford, Marsh told Mr. Robson.

He said that widespread quantitative tightening, along with the impact of Covid-19 on public coffers, could harm some countries’ ability to cash out food subsidies that have averted disruptions in the past.

“With authoritarian regimes, you will see a high potential for a pattern of increased civil disobedience, which may become dramatic in some countries,” Mr. Robson said. “I think the conditions in the short term will be very difficult.”

Mr. Robson added that in the longer term – 12 to 18 months – steps could be taken to increase global food production and improve the situation.

If unrest breaks out, companies operating in the affected areas can take some steps to mitigate the damage. Ms Blanco of Verisk Maplecroft said companies are increasingly using technology to examine their supply chains to determine how disruptions are affecting their operations.

Mr Todorovic of Allianz said companies should also assess exactly where their facilities are located in countries with hot spots, finding out, for example, whether those operations are close to protest targets such as public squares or city halls.

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“A lot of companies are not specific targets for social unrest,” he said. “They just happened to be around.”

Some observers hoped that a mediation deal to allow a temporary resumption of grain shipments in Ukraine would alleviate some of the food shortage problem.

Laura Burns, political risk product leader for the Americas at the insurance broker, said the agreement allows grain to flow for only 120 days and requires logistics companies and freight forwarders to expedite and take the risk of moving the product.

HRV.

“I talk to my commodity customers, unfortunately many of them are pessimistic,” she said.

write to Richard Vanderford at [email protected]

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