Why we all suffer when the larder is empty

Food shortages – and rising prices – now have an effect on every economy. Just look at the results from last year’s Russian ban on grain exports …

A serious food shortage is highly likely this year, according to the World Economic Forum. It is a risk linked to a host of other threats, warned the WEF’s Global Risks 2011, including geopolitical conflict, biodiversity changes, migration, price volatility, disease, water scarcity, climate change and flooding.

Countries affected by famine are usually blighted by one or more of these risks. Extreme weather, poverty and failing infrastructure makes sub-Saharan Africa particularly vulnerable.

Algeria, Somalia, the Ivory Coast and Haiti have all faced political and economic instability as a result of food shortages. In other countries, hunger is a widespread symptom of political problems and poor government.

But the corporate sector has its own set of dangers. “Companies face risks to their reputation for exporting commodities from countries with limited domestic food supplies,” says Maplecroft environmental analyst Anna Moss. Companies also experience disruption from political instability as a result of food insecurity. Food price riots shook 35 developing countries in 2007-08.

And last year’s decision by the Kremlin to ban grain exports challenged commodity traders and any company that relied on a stable wheat supply. Russian prime minister Vladimir Putin brought in the ban to stave off domestic food riots, but the long-term result was a crippling price hike on the world market, as Russia is one of the biggest grain exporters.

Hailing from a country with a history of governments toppled by the price of bread, Putin understood the link between rumbling tummies and social unrest. His politically motivated move had far-reaching consequences and shows the interconnected-ness of the global risk landscape.

“Of course it is possible to sympathise with a government’s need to feed its people, but the ban showed there are many governments that, for a mixture of political and economic necessity, are willing to renege on contractual obligations and adopt protectionist strategies,” says Elizabeth Stephens, head of political risk at Jardine Lloyd Thomson.

With shortages and rising prices now directly or indirectly affecting all economies, food security has become critical and unavoidable. SR