Food and fertilizer shortages, which are still stinging nearly six months after Russia invaded Ukraine, could drive countries already facing economic trouble into civil unrest, experts said. That turmoil could test the resiliency of Western companies with overseas operations in the coming months.
“Food insecurity is one of our main topics and one of the things you really have to look out for—there’s no getting away from it,” said
Srdjan Todorovic,
the head of terrorism and hostile environment solutions at
Global Corporate & Specialty. “This is absolutely a global problem.”
Many kinds of scarcity can provoke tumult, but food shortages—in addition to causing hardship—have a unique capacity to drive upheaval that could upend business operations. Prices are higher now than in 2007 and 2008, when then-record prices led to protests and riots in 48 countries, according to a United Nations report, and higher than in 2011, when they contributed to the wave of Arab Spring protests in the Middle East and North Africa.
Though food prices have dipped slightly from highs reached in the immediate aftermath of Russia’s invasion of Ukraine, prices were still about 44% higher in July than in 2020, according to a food-price index compiled by the Food and Agriculture Organization of the United Nations.
“We’re seeing across the world a much higher potential exposure to civil unrest as people see their purchasing power falling quickly,” said
Jimena Blanco,
the head of the Americas research team for risk-intelligence company Verisk Maplecroft.
Potassium chloride, a fertilizer that is a major export of heavily sanctioned Belarus, also remains costly compared with historic norms. In July, the commodity went for about $563 per metric ton, more than two-and-a-half times more than it cost in 2021, according to figures from the World Bank.
High fertilizer prices in particular have led to far-flung impacts. In Peru and Greece earlier this year, farmers took their trucks and tractors to urban capitals to voice their aggravation. Sri Lankan protesters stormed the presidential palace and forced a change in administration, a move analysts have attributed in part to a ban on chemical fertilizers that shrank crop yields.
Though ousted Sri Lankan President
Gotabaya Rajapaksa’s
fertilizer woes were largely self-inflicted rather than due to global markets, the uprising was a dramatic illustration of the volatile forces a disappointing harvest can unleash in short order.
Many other countries could find themselves facing social unrest. At least 50 countries depend on Russia and Ukraine for 30% or more of their grain supplies, including many developing countries in North Africa and Asia, according to a report from Marsh, an insurance broker.
Turkey, for example, imported 78% of its wheat from Russia and Ukraine in 2020, while Brazil is the main market for Russian fertilizers, Marsh said.
Not all countries face the same risks from rising prices. Rich democracies with the resources to absorb price increases, for example, are likely to fare better. Countries at risk tend to have some commonalities: They are autocracies, they rely on imported food and they have had subsidies they can no longer afford, said
Nick Robson,
a London-based global leader of the credit specialties practice at Marsh.
The widespread quantitative belt-tightening, along with the impact of Covid-19 on public treasuries, could hurt some countries’ ability to dole out the food subsidies that had staved off unrest in the past, he said.
“With authoritarian regimes, you’re going to see a high likelihood of a pattern of increased civil disobedience, which would become dramatic in some countries,” Mr. Robson said. “I do think the circumstances in the short term will be extremely difficult.”
Mr. Robson added that in the longer term—12 to 18 months—steps could be taken to increase global food production and improve the situation.
Should unrest unfold, companies operating in affected areas can take some steps to mitigate the damage. Businesses are increasingly using technology to examine their supply chains to determine how unrest might impact their operations, said Verisk Maplecroft’s Ms. Blanco.
Allianz’s Mr. Todorovic said companies should also understand where exactly they have situated their facilities in hot-spot countries, understanding, for example, whether those operations are near targets of protest such as public squares or town halls.
“A lot of companies are not specific targets of social unrest,” he said. “They just happen to be in the vicinity.”
Companies also can take steps to understand whether their brand is a lightning rod for political anger by conducting a brand analysis.
Some observers have held out hope that a brokered deal to allow for a temporary resumption in Ukraine grain shipments might alleviate some of the food-shortage problem, though that remains far from clear.
The agreement only allows grain to flow for 120 days and requires logistics companies and freight forwarders to step up and take the risk of moving the product, said
Laura Burns,
the political risk product leader for the Americas at insurance broker
WTW.
“Talking with my clients in the commodity space, a lot of them are unfortunately pessimistic,” she said.
Write to Richard Vanderford at [email protected]
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