Surge in food prices hits developing countries

With the war in Ukraine there have been serious concerns about global food supply especially when you look at the graph below. Main points to consider:

  • Russia and Ukraine are both major grain and sunflower oil exporters
  • Spring planting near impossible for farmers in battle zones
  • Sanctions on Russia agricultural goods
Source: Thoughts from the Front Line – Another Strange Recession By John Mauldin | March 12, 2022

How will it impact developing countries.
The staple diet of many developing countries relies on imports of wheat and sunflower oil – for instance Egypt imports 85% of its wheat and 73% of its sunflower oil from the Ukraine and Russia. Countries in these circumstances have no choice but to not put sanctions on food imports. The Food and Agricultural Organisation of the UN Food Price Index – meat, dairy, cereals, oils, and sugar – rose 24.1% in February compared to a year ago. This price shock will impact developing countries as food takes up a greater percentage of a person’s income in the developing world. In the developed world food costs 17% of consumer spending in contrast to those in poorer countries where it takes up 40% of income.

IMF Blog

Many developing countries subsidise food prices to maintain law and order and avoid its population from starving but with higher food prices how are they going to afford subsidies? There is also the problem of repaying debt as feeding the population will the priority rather than servicing foreign debt. Furthermore there is an opportunity cost – money won’t be spent on eduction, healthcare, infrastructure etc which it was originally intended for.

In getting out a recession consumers and producers make adjustments sufficient to reinstate growth. I can’t see that happening soon. The entire world order is experiencing a shock adjustment — economically, geopolitically, and otherwise. John Mauldin

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