The Global Food Crisis and Political Risk in Private Sector Risk Assessments
By TorchStone Intelligence Analyst, Raied Haj Yahya
The global food crisis provides an opportunity for risk assessment professionals to proactively factor potential political instability into risk models.
Food insecurity will likely continue to fuel protests and trigger significant civil unrest.
Countries that depend heavily on food imports, food subsidies, have elevated levels of corruption, and soaring inflation, are at the highest risk of mass upheavals.
Developing a list of indicators tailored to forecast civil unrest in current or future areas of operations can help avert business-disrupting events and increase personnel safety.
Why the Global Food Crisis is Here to Stay
It is unlikely that the Ukraine-Russia grain deal signed in Istanbul last week will significantly ease the global food crisis.
Russia attacked the Ukrainian port city of Odesa a day after signing the deal, despite committing not to strike ports exporting grains to the world, casting doubt on Russia’s commitment to the deal.
A resumption of exports will moderate the global food crisis at best.
The Ukrainian agricultural sector has sustained severe damages and will not be able to resume the same level of output as before the war.
Weather challenges have reduced crop production yields significantly in other food-producing regions.
These and other factors will reduce global food outputs, and these shortages could last for a prolonged period.
In the midst of these food shortages, global security professionals must pay attention to the risk factors that will make some countries more vulnerable than others.
Prior to the invasion, Ukraine supplied over 11% and 17% of global wheat and corn exports, respectively.
In 2019, Ukraine supplied 42% of global sunflower oil exports and 9.7% of barley exports.
The Ukrainian agricultural industry has sustained damages to land, infrastructure, and machinery.
Accordingly, Ukraine is unlikely to be able to resume its agricultural output to previous levels immediately.
Weather challenges have also significantly decreased global food production yields in India, China, and several European and South Asian countries.
In addition to wheat, corn, soybean, chickpeas, and rice yields have decreased.
For example, global chickpea yields are expected to decrease by 20% by the end of the year due to weather challenges in the U.S., Mexico, Australia, and other countries that produce the crop.
Several of these crops are staple foods in many countries across the world, and prices will rise globally as supplies continue to fall.
Risk Factors: Corruption, Import Dependence, Soaring Inflation, and Weak Currencies
Protests against rising prices can happen in any country, but a combination of factors can place certain countries at greater risk.
Political corruption reduces public trust that state leaders will resolve rising costs of living or act in the public interest.
Countries that depend on food imports and that have limited agricultural capacities are at higher risk because they are unable to meet their food needs through domestic production and are subject to global market forces.
Soaring inflation makes it difficult for citizens to fulfill their material needs with their income and limits the ability of governments to subsidize necessities to offset the rise in food prices.
In worse cases, economic factors compel governments to terminate subsidies, or scale them back significantly, which increases prices along with the threat of social unrest.
Risk is highest in countries where regimes maintain power by providing material goods (food and fuel) at below-market costs in exchange for political compliance, such as Egypt.
The Egyptian regime maintains a “social contract” where it supplies subsidized, low-cost material goods (such as bread) in exchange for stability.
Egyptian authorities have intervened in bread prices for over a century and have fixed bread prices since the 1950s.
Demands for improving wages and living conditions were central in the 2011 uprising against President Husni Mubarak.
In 1977, President Anwar Sadat’s plan to increase food prices, including bread, led to the “bread riots,” where mass upheavals and damage to government and business properties compelled the government to back down from its price increase plans.
Official statistics show that the cost of fixing bread prices will increase by several billion dollars by 2023.
Countries like Egypt are at risk for several reasons.
Egypt’s 2022 inflation rate to date has been 13.3%, whereas the central bank targets a 5%-9% rate.
Inflation has significantly reduced the spending power of residents in lower-income countries, and many will have to cut back on necessities absent a solution.
While the Egyptian government seeks to reduce spending, it has increased its food subsidy budgets to ensure citizens can afford staple foods and avert mass protests.
However, high inflation threatens the ability of the Egyptian government to continue generous subsidies indefinitely, and governments in Egypt and other struggling economies may reduce spending in other policy areas, increase dependence on foreign loans, or eventually increase subsidy eligibility bars, which would alienate large segments of the population.
High levels of political corruption mean that citizens do not trust their government will act in the greater public interest and are likely to take to the streets to demand better living conditions as conditions continue to worsen.
Food prices alone do not result in uprisings, but they indicate to residents that their governments are failing to address their needs and manage the economy effectively.
Similar dynamics of rising food prices and soaring inflation have resulted in mass upheavals in Sri Lanka, where many continue to protest even after a new president was elected due to shortages and increasing prices of food, medicine, fuel, and other necessities.
In 2012, Iranians took to the streets to protest against soaring chicken prices (a staple food that many were no longer able to afford) and the government’s failure to manage the economy.
In 2022, rising food prices have triggered public anger in several countries, including Argentina, Greece, Indonesia, Peru, and Tunisia.
As the global food crisis continues, prices will continue to rise globally, and protests will develop in many countries.
Not all countries that depend on Ukrainian grain are equally vulnerable.
The impact of the food crisis is compounded by food subsidies that governments may have to cut, soaring inflation which reduces spending power, and high corruption, which limits public trust in government competence to solve social problems.
This table compares some of the countries most dependent on Ukrainian wheat.
“Ukraine Dependence” refers to a country’s dependence on Ukrainian wheat exports. “Food and Agriculture Subsidies” refers to the presence of food subsidy programs that offer food at below-market value. “Soaring Inflation” refers to higher-than-normal inflation levels in the specific country. “High Corruption” refers to a score below 50 on a scale of 0-100 where 0 is the most corrupt, as reported by Transparency International. This is not an exhaustive table and only reviews some of the countries most dependent on Ukrainian grain exports.
Qatar and Egypt present a point of stark comparison.
Whereas Egypt may have to cut spending or depend on foreign loans to maintain its food subsidies, the energy-rich country of Qatar will be able to avoid social unrest by increasing social spending using its oil and gas revenues.
Implications for Private Sector Risk Assessments
The ongoing crisis provides an opportunity for security teams to forecast future political risk based on relevant indicators rather than depending on current levels of political stability to assess risk in a given country.
Political instability can have severe implications for private sector operations: from prolonged downtimes due to social unrest, to injury to personnel and damages to property, to changing and abrupt regulations due to regime change, and even asset seizure.
Developing a list of risk indicators tailored to stakeholder needs and market expansion plans and defining clear corporate risk tolerance thresholds that evolve with global political developments can increase safety and operational resilience in high-risk areas.
One way to develop risk indicators for the current food crisis is to identify countries where a company currently operates, or plans to operate, where political instability may ensue.
Identifying countries that are highly dependent on Ukrainian and other grains that are on increasingly shorter supplies can serve as a first step.
Assessing the ability of the highest-risk countries to withstand the crisis by developing domestic agricultural capacities or increasing social spending can narrow down the list and point to locations of the highest risk.
Understanding public perceptions of government corruption and competence can help us assess the relative likelihood of civil unrest across countries.
Data-driven forecasting of political risk can inform the mitigation strategies security teams recommend and implement to maintain their risk below executive tolerance thresholds and to potentially define an exit threshold for personnel safety.
As the food crisis continues, it is important to identify which popular staples are on the decline to forecast risk levels.
For example, as global chickpea supplies could drop by 20% by the end of this year, consumers in lower-income countries who consider this crop a staple may be priced out of the market.
The rise in other food prices leaves people with limited options.
This may trigger mass protests, particularly in countries where governments do not have the fiscal capacity to subsidize this crop or increase social spending to assist residents and where people perceive their governments to be corrupt and have little faith in their ability or willingness to resolve the price hikes of a major staple.
Forecasting geopolitical threats should be considered equally important in travel risk assessments.
Developing a list of indicators tailored to the location and purpose of the trip can help security teams prepare contingency lodging and exfiltration plans.
This also allows them to develop resilience plans to secure company assets, facilities, and supply chains.
The goal of geopolitical forecasting is not to paralyze operations or prevent expansion into risky areas.
Rather, it is a shift in understanding risk from depending solely on current levels of political stability to developing indicators and conducting data-driven risk assessments informed by global developments beyond the immediate scope of the proposed area of operation or travel.