Rising food prices: The fuel for global unrest?

Global food prices have increased by nearly 33 percent year-on-year in August 2021, according to the UN’s Food and Agriculture Organisation (FAO). This has placed enormous pressures on developing countries where the cost of food accounts for a significant share of household spending, and on countries that are heavily reliant on food imports. In many countries, constituents often expect their governments to intervene to control rising prices. This is difficult to achieve in countries with underperforming governments, limited social safety nets and weak currencies, which can exacerbate citizens’ political and socio-economic disgruntlement.

DRIVERS OF RISING PRICES

The drivers behind food price hikes vary, although many of the causes are linked to the Covid-19 pandemic. Pandemic related supply chain disruptions continue in many parts of the world. There are ongoing slowdowns at border crossings due to various Covid-19-related restrictions, while limitations on movement in-country have added to logistical costs. Labour shortages continue in some parts of the world, reducing the availability of workers to grow, harvest, process, and distribute food. Rising oil, transport, and freight costs have also contributed to rising food prices. According to data from the Baltic Dry Index, a measure of shipping costs, ocean freight costs have increased between 2-3 times between June 2020 and June 2021. Imports have become significantly more expensive for countries with weaker currencies, especially those who have struggled to bounce back from the pandemic.

Beyond the pandemic, production has been hampered by unfavourable weather patterns in several major crop exporting countries. For example, Brazil is currently facing one of its worst droughts in history, which has raised concerns over maize and sugar harvests. Some Brazilian farmers have suffered due to frost damage to corn, coffee and sugarcane crops in recent months, which has decreased supply and inflated prices. In the US, the Department of Agriculture estimated in July 2021 that wheat production would fall by 40 percent this year in the Northern Plains and Pacific Northwest due to poor weather conditions.

Meanwhile, government interventions such as the capping of food exports in a bid to increase domestic supply and reduce food price increases have brought about mixed results. Russia, the world’s top wheat exporter, began taxing grain shipments to curb exports between February and July 2021. This has prevented a domestic price spike in Russia but contributed to the increase in grain prices globally. In Argentina, farmers have staged several protests against the government’s decision to cap beef exports to stymie the rising prices of meat domestically, which has impacted their bottom line.

FERTILE GROUNDS FOR UNREST

Consumers in developing countries still battling the effects of the Covid-19 pandemic will most acutely feel the sharp rise in food prices. Consumer price inflation for food rose 6.3 percent in 2020 globally, with the most affected regions being South America, facing 21 percent food price inflation, followed by Africa and South Asia at 12 percent. Developing countries typically find themselves in a much weaker position than their wealthier peers in terms of tackling inflation. In these countries, poorer people tend to spend a greater share of their income on food, which makes rising prices harder to absorb. These governments also have limited social safety nets and often feel hampered by weak currencies, which makes imports more expensive. Such factors typically heighten citizens’ political and socio-economic discontent.

In fact, rising food prices have been a contributing factor in countries that have experienced large-scale unrest in recent months. For example, in Lebanon, food prices quadrupled in December 2020, which contributed to street protests and roadblocks in several major cities. In February 2021, Sudan declared a state of emergency in several states following violent protests against food price increases. Demonstrators protested in more than 10 cities and looted buildings, shops, and warehouses. In July, thousands of Cubans took to the streets of Havana to protest food shortages and inflation, marking one of Cuba’s largest anti-government protests in recent history. In the same month, more than 300 people were killed in riots in South Africa; although the riots initially started in response to the imprisonment of former President Jacob Zuma, the looting of numerous food stores suggest they were also driven by wider socio-economic concerns. More recently, in October, hundreds of people protested in Tirana, the capital of Albania, over rising prices of staple foods.

OUTLOOK

Food price hikes are expected to continue in 2021, or at least remain relatively high, before slowing down in 2022. Some supply chain bottlenecks caused by the pandemic are slowly abating, although most structural drivers of inflation, such as climate change, increasing reliance on biofuels from corn products, and China’s strong appetite for food imports will likely endure. Developed countries will likely be less affected than their developing peers. Retailers in wealthy countries, who are unable to absorb rising costs, will more easily be able to pass the costs to consumers, who have the option to choose more affordable brands or alter their diets. In developing countries, where basic food staples make up a large percentage of people’s diets, a change of brand may not be a possibility. The combination of rising food prices and governments’ inability to alleviate the situation could push some developing countries to the tipping point.