Fix these structural flaws to prevent the next global food price crisis, report advises

Dive Brief:

• The third global food price crisis in 15 years, triggered by the Ukraine invasion, could have been avoided if structural flaws in the system had been addressed after the previous two, according to a report by IPES-Food.
• These fundamental weaknesses include a lack of crop and dietary diversity, with an overreliance on staples like corn, wheat and rice; opaque and speculation-prone grain markets that don’t reflect real-world supply; and cycles of food insecurity driven by conflict, climate change and poverty. 
• The report calls on world leaders to improve market transparency and expand people’s diets to include a greater variety of foods and more resilient crops.

Dive Insight:

Record-high prices for wheat, corn, soybeans and rice. Export bans by key food producing countries. What were hallmarks of the 2007-2008 global food crisis have returned in yet another inflationary event, this time triggered by Russia’s invasion of Ukraine. And they will arise again unless the world addresses fundamental flaws in the global food system, argues the International Panel of Experts on Sustainable Food Systems, a Belgium-based group of thought leaders from 16 countries. 

In its report, IPES-Food notes the world’s reliance on a limited number of staples has not eased since the issue was exposed in earlier crises. By 1995, wheat, rice and corn made up more than 50% of global plant-derived food energy, according to the group, despite being only three out of 7,000 plants that humans eat. 

As people in regions that cannot grow crops like wheat or corn become accustomed to diets that feature these staples, their countries have become dependent on importing much of their food. IPES-Foods points to USDA data showing that only seven countries plus the European Union supply 90% of global wheat exports, and just four countries provide 87% of corn exports.

This concentration of supply has been exposed by the Ukraine conflict. Ukraine and Russia combined provide more than 25% of global wheat exports, 15% of corn and more than 60% of sunflower oil exports, according to the IPES-Food report. Prices for these key food commodities hit a decade high shortly after the invasion.

Export bans soon followed the invasion. According to IPES-Food, 20 countries have placed restrictions on outgoing shipments of grains and vegetable oils as of early May. When combined with other export restrictions like licensing requirements, they account for 17% of globally traded food calories, the report said. Most recently, Indonesia, the largest producer of palm oil, began an export ban on this key ingredient in late April, as it battled high domestic cooking oil prices. 

Despite these constraints, IPES-Food argues the degree of price volatility currently roiling through food commodity markets can only partly be attributed to supply-demand fundamentals. Instead, the group said financial investors are cashing in on rising food prices. 

“There is not a global food supply shortage at the present moment,” the report states. “These price shocks are clearly being exacerbated by a number of dysfunctions in global grain markets, including commodity speculation.”

Investments in commodity futures and commodity-linked funds have risen since the start of the conflict, the report noted. It cited a March 31 hearing of the U.S. Commodity Futures Trading Commission (CFTC), which said volatility was 20% beyond what is normal since the Russian invasion of Ukraine.

Preventing the next food price crisis won’t be easy, but recognizing the key flaws in the system provides a roadmap, IPES-Food said. Among its recommendations: Countries need to develop self-sufficiency in growing their own food staples, switch to more resilient traditional crops — for example, growing millet instead of rice — and introduce a greater variety to people’s diets. The idea is one familiar to food manufacturers: diversify supply, to soften or even prevent the next price shock.