Rising food prices could become a business risk, analysts say

Rising world meals costs and grain and fertilizer shortages stemming from the conflict in Ukraine may spark additional financial turmoil, threat analysts mentioned. In some international locations, this might spark unrest and take a look at the resilience of Western corporations with operations overseas within the coming months, they added.

“Meals insecurity is certainly one of our [company’s] main points and one of many issues you really want to bear in mind: there isn’t any escape,” mentioned Srdjan Todorovic, head of counterterrorism and hostile atmosphere options at

Allianz

World Company & Specialty, a part of the German-based monetary companies firm Allianz SE. “That is completely a world drawback.”

Folks can settle for many sorts of shortage, however bother getting meals— along with inflicting difficulties — they’ve the power to gasoline rule-breaking and turmoil, mentioned Nick Robson, international chief of the London-based specialty credit score observe at Marsh, a subsidiary of the insurance coverage dealer.

Marsh and McLennan

As a result of it normally takes various components aside from meals shortages to set off civil unrest. Nonetheless, threat analysts say they’re protecting an in depth eye on international meals costs.

Meals prices are greater now than they had been in 2007 and 2008, when then-record costs sparked protests and riots in 48 international locations, in line with a United Nations report.

Though meals costs have dipped barely from the highs reached instantly after Russia’s invasion of Ukraine, they had been nonetheless 44% greater in July than in 2020, in line with a meals value index compiled by the Group of the United Nations Meals and Agriculture Group. .

“We’re seeing all over the world a a lot greater potential publicity to civil unrest as folks see their buying energy drop quickly,” mentioned Jimena Blanco, director of the Americas analysis crew in danger intelligence agency Verisk. Maplecroft.

Fertilizer costs have reached report highs, with far-reaching penalties for farmers, agricultural yields and meals costs. WSJ’s Patrick Thomas explains the explanations behind the rise and what it may imply in your pockets. Photograph: Ryan Trefes

Excessive fertilizer costs, specifically, have had far-reaching results. In Peru and Greece earlier this 12 months, farmers introduced their vans and tractors into city facilities to precise their aggravation. Sri Lankan protesters stormed the presidential palace and compelled a change in administration, a transfer that analysts have partly attributed to a ban on chemical fertilizers that decreased crop yields. The rebellion in Sri Lanka was a conspicuous illustration of the risky forces a disappointing harvest can untie very quickly.

No less than 50 international locations depend upon Russia and Ukraine for 30% or extra of their grain provides, together with many growing international locations in North Africa and Asia, in line with a Marsh report. Turkey, for instance, imported 78% of its wheat from Russia and Ukraine in 2020, whereas Brazil is the primary marketplace for Russian fertilizers, Marsh mentioned.

Not all international locations face the identical dangers from rising costs. Rich democracies with the assets to soak up value will increase, for instance, are prone to fare higher. The international locations in danger are likely to have some commonalities: They’re autocracies, depend on imported meals and have subsidies they’ll now not afford, Marsh’s Robson mentioned.

Widespread quantitative tightening of the belt, coupled with the impression of Covid-19 on public coffers, may have an effect on the power of some international locations to dole out the meals subsidies that prevented unrest up to now, he mentioned.

“With authoritarian regimes, you will note a excessive likelihood of a sample of elevated civil disobedience, which might change into dramatic in some international locations,” Robson mentioned. “I feel the short-term circumstances are going to be extraordinarily tough.”

Mr. Robson added that in the long term, 12 to 18 months, steps might be taken to extend international meals manufacturing and enhance the scenario.

Ought to unrest develop, companies working in affected areas can take some steps to mitigate the harm. Firms are more and more utilizing expertise to look at their provide chains and decide how unrest may have an effect on their operations, mentioned Verisk Maplecroft’s Ms. Blanco.

Allianz’s Mr. Todorovic mentioned corporations also needs to assess the place precisely they’ve situated their amenities in crucial international locations, discovering out, for instance, whether or not these operations are near protest targets akin to public squares or city halls.

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“Many corporations are usually not particular targets of social unrest,” he mentioned. “They’re simply within the neighborhood.”

Some observers have hoped {that a} negotiated deal to permit a short lived resumption of grain shipments to Ukraine may ease a few of the meals scarcity drawback.

The deal permits grain to movement for simply 120 days and requires logistics corporations and shippers to step up and take the danger of shifting product, mentioned Laura Burns, political threat product lead for the Americas on the hall. insurance coverage.

“Speaking to my shoppers within the commodity house, lots of them are woefully bearish,” he mentioned.

write to Richard Vanderford at richard.vanderford@wsj.com

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