“We are on the precipice” (of a global food crisis)

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I don’t believe many people grasp the enormity of the global food crisis we’ll be facing in the months ahead. But the world could be on the verge of a massive humanitarian crisis. Let’s dive in…

(Article republished from DailyReckoning.com)

The supply chain collapse preceded the war in Ukraine, but the war has only intensified the problems. You can see it with your own eyes when you walk into a supermarket and find long stretches of empty shelves in stores that used to be chock-full of food and other merchandise.

Even goods that are available such as gasoline are being sold at much higher prices. Prices for gasoline (and diesel, which is critical for goods transportation) have more than doubled in the past nine months. All of this is clear. The question is will it get worse from here?

Unfortunately, the answer is yes.

Bob Unanue is the CEO of Goya Foods, which is one of the largest food distributors in the world. Few people are better positioned to assess the global food situation than Unanue, who deals with raw food deliveries on the one hand and retail customers on the other.

Unanue is now warning, “We are on the precipice of a global food crisis.” Other experts are quoted making a similar point. That’s not hyperbole or fearmongering, but a serious analysis. Here’s why…

29% of All Wheat Exports in Jeopardy

In the Northern Hemisphere, the planting season for 2022 is well underway. Crops were planted (or not) in March and April. Based on that, you can already form estimates of output next September and October during the harvest season (subject to some variability based on weather and other factors).

Plantings have been far below normal in 2022, either due to a lack of fertilizer or to much higher costs for fertilizer where farmers simply chose to plant less. This predictable shortage is in addition to the much greater shortages due to the fact that Russian output is sanctioned and Ukrainian output is nonexistent because it’s at war.

Russia and Ukraine together account for 29% of global wheat and 19% of global corn exports.

Russia and Ukraine together produce 29% of all the wheat exports in the world. That doesn’t mean they grow 29% of the wheat in the world. It means they grow 29% of the wheat exports.

The U.S., Australia, Canada and others grow a lot of wheat but consume most of it themselves. They export relatively little. Importantly, they don’t simply eat it. They feed it to their farm animals. People don’t often make the connection between grain and animal products, but it’s critical.

Many countries get 70–100% of their grains from either Russia or Ukraine or both. Lebanon gets 100%. Egypt is over 70%. Kenya, Sudan, Somalia, many central African countries and Jordan and other Middle Eastern countries receive much of their grain from Russia or Ukraine.

No Planting, No Crops

But it’s worse than that because not only are many Ukrainian exports shut down now, but the planting season is nearly over. And you’re not going to get any grain in October if you didn’t plant it in April or May. And they didn’t for obvious reasons.

What that means is you project ahead to October, November, December of this year, those countries I mentioned are not going to be able to get their grain supplies. There simply aren’t going to be any, or they’ll be greatly reduced. The combined population of countries that get between 70% and 100% of their imports from Russia or Ukraine is 700 million people.

That’s 10% of the global population. So you’re looking at mass starvation. You’re looking at a humanitarian crisis of unprecedented proportions, probably the worst since the Black Death of the 14th century. That’s coming down the road, even if most people can’t see it coming or fully fathom the depths of the coming crisis.

In short, we know enough now to predict much higher prices, empty shelves and, in some cases, mass starvation in the fourth quarter of this year and beyond.

Beyond the humanitarian aspect of the coming food shortages, there are also potentially serious social and geopolitical ramifications.

Another Arab Spring?

You remember the “Arab Spring” starting in 2010. It started in Tunisia and spread from there. Well, it was triggered by a food crisis. There was a shortage of wheat, which triggered the protests.

There were underlying problems in these societies, but a food crisis was the catalyst for the protests.

Now, many poorer countries in the Middle East and Africa are facing a much greater crisis as the impact of shortages manifests itself later this year and into next year. Will we see even more social unrest than in 2011?

It’s very possible, and it could be even more destabilizing than the Arab Spring. We could also see waves of mass migration from Africa and the Middle East as desperate and hungry people flee their homelands.

Europe endured a wave of mass immigration in 2015. Many migrants were attempting to flee the war in Syria, but there were great amounts of people who weren’t affected by the war. They were just seeking better lives in the welfare states of Europe.

Mass starvation could trigger an even greater migration, which would present Europe with enormous challenges.

The United States could also witness another wave of migration at the southern border, which is currently being inundated by migrants. A global food crisis could send the numbers spiraling to uncontrollable limits.

What if the War Drags On?

And what if the war in Ukraine drags on well into next year? Next year’s growing season would also be disrupted and the shortages could extend into late 2023 and beyond.

Well, maybe some would argue that other nations could pick up the slack and grow additional grain. That’s nice in theory, but it’s not that simple.

Russia is the largest exporter of fertilizer, and sanctions are cutting off supplies. Many farmers cannot get fertilizer at all, and those who can are paying between twice and three times last year’s price.

That means that crops actually produced will have much higher prices because of the higher price of inputs such as fertilizer, and the higher transportation costs due to higher prices for diesel and gasoline.

Like I said earlier, we’re looking at a humanitarian crisis of unprecedented proportions, probably the worst since the black death of the 14th century.

And we’re not prepared to handle it.

Regards,

Jim Rickards