Household stockpiling two years ago was irrational, countries doing it now is not

Exactly this time two years ago, we thought we were entering a food crisis. People were stockpiling food items in the expectation of supply shortages and empty shelves, despite repeated reassurances from the industry and politicians. The reality was that the food and retail sectors pulled out all the stops to keep the supply lines open and to keep us fed. Today, two years on, though, a new and worrying food crisis is on the cards for different reasons.

This time, it’s not just supply issues that are the problem; it’s the price of things as well. 2020 was a year when lockdown turned off demand for many things and this led to the price of oil, gas, electricity, petrol and diesel all falling. The price of consumer goods was flat for 2020, with the overall inflation rate as low as 0.9%. Fast forward two years and inflation is already at a 30-year high of 6.2% with the expectation that it will hit 9% – a level not seen since the early 1980s. Crude oil went to under £16 per barrel in April 2020 and recently hit £98 per barrel. Households will know well that the price of home heating oil doubled in the space of two weeks. Russia’s invasion of Ukraine has been the catalyst for an explosion in global commodity prices.

But whilst the energy crisis is very much here and being felt by everyone including consumers and businesses, the food crisis though has received less attention. World food prices have risen more than 54% in less than two years. Global food prices hit a record high in February of this year; before Russia invaded Ukraine. What has happened since has in effect pitted two agricultural superpowers against each other, turning the so-called bread-basket of Europe into a war zone.

So whilst supply chain disruption from the pandemic is receding, supply chain disruption from the war is really only beginning and it will have severe repercussions across food, energy, metals and chemicals. Russia is a key producer of palladium which is used in catalytic converters, nickel which is used in batteries, and neon (90% of the world’s supply) which is critical for micro chips for cars.

The reality is that Russia and Ukraine are two of the most important producers and exporters of agricultural commodities in the world. Overall, the two countries export one in eight of all calories traded worldwide. What Saudi Arabia is to oil, Ukraine and Russia are to cereal crops. And don’t forget that cereal crops aren’t just a direct source of food, they are also a major indirect source of food in that they are fed to the livestock that we then consume. 

Current hostilities mean that even last year’s crops are unable to be exported whilst even planting this year’s crops – which would normally be started in couple of weeks – will be a major challenge. Ukraine’s agriculture minister anticipates that only half of the country’s land usually used for planting will actually be available for planting. And many farmers have downed tools and picked up arms. Russia and Ukraine are also major exporters of fertiliser, as well as some of the key chemicals used in fertiliser, along with Belarus. Shortages of supply of fertiliser will impact on the rest of the world’s ability to grow an adequate supply of food.

All of this means that there will be a supply shock soon to come and that will lead to a price shock. Parts of the Middle East and Africa are heavily reliant on wheat from Ukraine and Russia. Food shortages and price spikes a decade ago led to disorder that fuelled the Arab Springs, and those price spikes may have nothing on what is to come this year.

Whilst energy prices are rightly getting us exercised now, food prices are going to be the primary concern in the next six to 12 months. This will further fuel economic nationalism due to the scramble for food security, meaning the further unwinding of globalisation, or de-globalisation. Indeed, such is the concern about the supply of food that countries are now hoarding and stockpiling by banning exports. And whilst household stockpiling two years ago was irrational, countries doing it now is not. They have very good reasons for putting food security high on their list of priorities.

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