By David Lewis
The worst US drought in over fifty years has caused a fall in crop harvests and a rise in food prices, raising food security concerns for developing countries. The US Department of Agriculture has reported that nearly 62 percent of the US is experiencing drought conditions, with 85 percent of the corn crop falling within this area. As the largest exporter of agro-commodities, a shortfall in the US harvest will likely force food retailers around the world to increase prices for consumers.
Corn and soybean crops, both of which are important components of livestock feed, have been particularly hard hit. The Food and Agriculture Organization (FAO) estimates that corn prices have risen 23 percent in July 2012 alone, largely as a result of depressed US crop yields. Moreover, the shortfall has prompted calls for a temporary suspension of the Renewable Fuel Standard, which diverts approximately 40 percent of the US corn crop for use as ethanol biofuel.
Such droughts have occurred throughout the world with increasing frequency and severity in recent years. This trend is likely to continue and drought-affected areas may expand from ongoing climate change. Indeed, poor growing conditions are being observed beyond the US, as Russia, Ukraine, and Kazakhstan have cut their wheat production estimates due to the ongoing effects of a severe drought in the autumn of 2011. The drop in Russian crop harvests is a source of considerable apprehension for importers, as the country had previously imposed a ban on grain exports in August 2010. The prospect of a further ban or the imposition of export tariffs is possible should wheat prices continue to rise.
Low income populations are vulnerable to food price fluctuations because food expenditure represents a high proportion of their incomes. The pressure placed on vulnerable populations by high and volatile food prices has the potential to spark unrest. Riots broke out in over 30 developing countries when prices of staple foods increased in 2007-2008. Governments in developing countries are also susceptible to price increases of food imports as they place a heavier fiscal burden due to subsidies of basic foodstuffs for their impoverished populations. Protests against escalating food prices immediately preceded the toppling of Tunisia’s Ben Ali regime in January 2011 and was an important catalyst for the ensuing Arab Spring uprising.
Supply chain integrity may be compromised in contexts where the availability and stability of, as well as access to, supplies of basic food commodities are limited. This risk is particularly pronounced in the food production and processing sectors. Businesses can mitigate this risk by diversifying their supply base to include food producers from a number of countries.
Maplecroft’s Food Security Risk Index (FSRI) 2013, which provides a quantitative assessment of the availability, stability, and access to food supplies, will be released shortly. The FSRI comprises indicators to measure the nutritional outcomes of each country’s relative food security. In the 2012 FSRI, the Democratic Republic of Congo, Somalia, and Burundi were respectively ranked as the top three most food insecure countries in the world.
By David Lewis, an Analyst at Maplecroft