22 Briefing The food crisis The Economist May 21st 2022
ready increased most manufacturers’
costs. Nigeria and Qatar, flush with natural
gas, are opening new nitrogen plants;
there also seems to be some room for in
creasing Canada’s potash production. But
prices will stay high.
More costly energy and fertilisers drive
up prices across all sorts of agriculture. The
farmers in Chandauli say high prices for
fertiliser, diesel and labour have pushed
their costs up by 2025% so far this year.
And wheat prices have effects across the
market, too. If the cost of a commodity
goes up, consumers look for alternatives.
That is why foodprice inflation is being
seen in commodities that are not directly
affected by the war, says Seth Meyer, the
usda’s chief economist. Indicators of price
volatility compiled by the International
Food Policy Research Institute in Washing
ton, dc, are flashing bright red for all major
grains—including, for the past couple of
months, rice, for which there are currently
no supply concerns.Flat and unprofitable
This all serves to blunt a seemingly natural
response to high grain prices: for farmers
to grow more grain. When input prices go
up more than the grain prices, farmers’
margins fall. Josef Schmidhuber of the fao
reckons the price of cereals, and food more
generally, as perceived by farmers—that is,
taking into account the costs of inputs—
reached a peak in March 2021. Since then
they have fallen by 27%.
Rather than rushing to plant more grain
because the sale price looks high, farmers
are looking at switching to crops with low
er input costs. In March a usda survey
found many American growers intending
to move from maize to soyabeans this sea
son. Grain prices may yet climb higher,
tempting farmers back in. But they are also
likely to remain highly volatile, deprivinggrowers of the certainty they need to plan a
big expansion one year in advance.
If it is hard to increase supply, what
about decreasing demand? In theory there
are lowhanging fruit where crops are used
to feed cars or cattle rather than people.
Gro Intelligence, a data firm, calculates
that the calories diverted by current bio
fuel production and new commitments
could soon be equivalent to the yearly
needs of 1.9bn people. Biofuel production
has increased markedly in America, Brazil
and Europe as the oil price has risen; ex
pensive crude makes the sector more prof
itable. Repealing biofuel mandates could
lessen the damage.
The amount of food eaten by animals is
even more vast. Last year China imported a
record 28m tonnes of maize—more than
what Ukraine normally exports in a year—
to feed its immense hog herd. About 40%
of the wheat grown in the euis eaten by
cows. About a third of America’s maize is
devoured by cattle. If the amount of such
feed is reduced, though—or if, by using
substitutes such as grass, maize stalks and
silage, its energy content is lowered—the
animals grow less, or more slowly, or both.
That drives up the price of the end product.
In the foodprice crisis of 200708 changes
to animal feed, together with culls and pro
duction cutbacks, caused meat and dairy
prices to rocket.
No countries are immune to the effects
of this crisis. Lamentably, people go hun
gry even in the richest economies. The
countries hit worst, though, are poor ones,
because poor people spend a greater share
of their income on food. In most emerging
markets food consumes something like a
quarter of household budgets, as opposed
to less than a fifth in advanced economies.
In subSaharan Africa the figure is 40%.
And grain makes up a larger part of those
budgets than it does in richer places. Many of these economies were in poor
shape well before the food crisis hit. Across
subSaharan Africa, output remains sub
stantially below the level that they would
have reached had prepandemic trends
continued. The debt burdens of more than
half of the region’s lowincome economies
are either judged to be unsustainable or
may soon become so, according to the imf.
Governments in such straits are poorly
placed to help their citizens weather a
foodprice shock.
Reactions to higher food prices in rich
countries are making things even harder.
Food prices account for about 1.3 percent
age points of America’s 8.3% inflation rate,
and about 1.0 percentage points of the euro
area’s 7.4% rate. They are thus one of the
factors driving more aggressive monetary
policies. The higher richworld interest
rates which ensue drag down currencies
and tighten financial conditions in emerg
ing economies. Falling currencies make
food imports costlier still.
To bolster their currencies such coun
tries need either to increase interest rates,
to intervene with their often scant hard
currency reserves, or to do a bit of both. All
the options come with costs that can exac
erbate food insecurity. Putting up interest
rates, as many have done over the past year,
has in most cases merely slowed the pace
of depreciation and has driven up the cost
of credit—which hurts farmers, especially
when inputs are expensive. Using up cur
rency reserves, on the other hand, means
they cannot be used to buy food. Choosing
not to subsidise food and not to prop up
the currency may preserve reserves, but it
greatly increases the risks of social unrest.
It is possible to have the currency slide
and to lose reserves at the same time. Egypt
chose to allow the Egyptian pound to de
preciate by 14% in March rather than run
down its reserves to prop the currency up.
Even so, it saw its hardcurrency reserves
drop by about 10%, to $37bn, from February
to March, in part because, as the depreciat
ing pound made it harder for people to buy
food, the state was buying more for them.
Turkey, too, has experienced both a drop in
its reserves and in the value of its currency
since the beginning of the year. Its infla
tion rate has surged to nearly 70%. Iran has
experienced demonstrations of public an
ger since reducing grain subsidies. Trouble
seems certain to spread.
The World Bank sees the war’s effects
on trade and welfare as representing a re
duction in global real income of about
0.74%, or $600bn. In lowincome econo
mies the figure rises to 1.0%—which given
their low incomes represents only about
$5bn. That sounds rather small. But the
concentration of those losses in places
wracked by hunger looks settobring with
it spectacularly disproportionate social,
Hurry up political and human damage.n