The next threat to global food supplies

Resumption of exports from Ukraine eased shortages, but now droughts and heatwaves are the problem.

Food prices are coming off their highs. Earlier in the year Russia’s invasion of Ukraine sent prices soaring as a blockade of Ukraine’s southern ports choked off grain exports. In mid-July a UN-brokered agreement saw the resumption of grain shipments from Ukraine, easing global prices. But as one crisis abates, another emerges. 

Hot, dry summers in Europe and America are crimping the supply of some grains. 

In July the UN’s Food Price Index, which measures international prices across a basket of commodities, found that the cost of food dropped by around 9%. 

New figures for August show a more modest fall, of around 2%.

The good news is that food prices in August returned to levels last seen before Russia began its blockade of Ukrainian ports. 

In the past month Ukraine has shipped more than 1.6m tonnes of foodstuffs, mainly maize, wheat and oilseeds, via the Black Sea. Grain exports (including shipments by canal, road, rail and sea) reached almost 3m tonnes in August, around two-thirds of the pre-war average. Total agricultural exports are expected to rise to more than 6m tonnes in October.  This should ease pressure on prices.

But heatwaves and droughts in Europe and parts of America are still taking a toll. 

Last month the European Commission estimated that maize yields for 2022 would be down by 16% on the average of the past five years, and 8.6% lower than predicted in July. 

France expects its smallest maize harvest so far this century. 

America’s Department of Agriculture forecasts a 5% annual drop in maize production. Such curbs in supply will weigh on prices.

Source: The Economist


Global Realignment of International Trade to Gravity

The gravity theory of trade suggests that the network of international trade is governed

by balancing the gravitational pull of each country (their relative economic _“masses“_)

with the cost of trading between each country pair (their “distances”). 

For the greater part of history, countries have conducted some trade with distant countries but prioritised trade with their neighbours. 

All other things being equal (I know this is hard to swallow, but necessary for theories to function), prioritising trade with neighbours is likely to prove more beneficial by virtue of:

* lower transport costs; 

* greater capacity to ensure against risks; 

* greater potential trade volumes; (though not always – depend on one’s neighbours)

* spill‑over effects; and

* the resilience of trading relationships when supported by a shared “political will”.

Much of the global South outside Africa has now made good progress in re‑prioritising trade with their neighbours, raising the intra‑continental share of trade to 50% or more. 

For example, as a share of its total merchandise exports, India’s exports to Asia climbed 

from just above 20% in 1949 to 45% in 2019. 

The process of rebuilding intra‑continental trade links by means of new infrastructure takes time (this is also why intra-Africa trade growth will be slow), as does restoring the relative weight of their economies and thereby their attraction as export markets for each other.

Another good insight from a forthcoming paper by Roy as a contribution to the Africa’s Development Dynamics 2022 Report.