Disaster in the Rye
The Cost of Living Crisis has only just started, and is nowhere near its peak. Any political forecast that does not take this into account is worthless.
France, the European Union's largest wheat exporter, is warning that low rainfall and the threat of drought might affect its agricultural output this year, the Financial Times has reported. Year to date rainfall in the country has barely passed 200mm, close to the lowest recorded level and only two thirds of the median, per the French meteorological service. France exports half its 35 million tonnes annual wheat production, and is seen as "a reliable fallback in Europe" given the disruption caused by the conflict in Ukraine, according to Kona Haque, of ED&F Man, a commodities broker.
It appears this backstop might now have disappeared, raising yet more concerns about the world's food security. Given likely disruptions to wheat from Russia and Ukraine, which between them account for a quarter of global supply, and the serious droughts in the United States (15% of global supply) and Canada (13%), the news from France (10%) suggests that five of the world’s six largest exporters of wheat are simultaneously heading for large production declines.
Meanwhile, freakish heatwaves in India, and COVID-related lockdowns and bad weather in China, have raised questions about whether two countries that combined are home to almost three billion souls might also have to turn to imports, which would further drain global supply. Reuters reported on May 10th that "China's wheat crop has been among the worst ever this year."
In mid-March – before the scale of the droughts in the US and Canada, the low rainfall in France, the heatwave in India and the COVID lockdowns in China were apparent – the United Nations Food and Agriculture Organization was already sounding the alarm, cautioning that the world “could easily fall into food crisis”. The World Bank forecasts wheat prices to rise almost 50% in 2022.
While this will be a disaster for developing nations, and could possibly lead to social disorder in such countries (as happened in 2010, when high food prices triggered protests in Tunisia that ultimately spread across North Africa and the Middle East in a series of revolutions, civil wars and uprisings that became known as the Arab Spring), countries like Britain are unlikely to starve. We are rich enough to bid up and secure food on the global market (as long as it is available).
Nevertheless, paying more would mean consumers find higher prices at the supermarket, baker and butcher (grain being the key feedstock for meat production). In February, food inflation reached 4.3% in the UK, the highest in eight years. In March it accelerated to 5.9%, and in April it was 5%. On April 27th, Bloomberg reported that reliance on food banks had risen an alarming 14% to 2.1 million between the start of 2022 and the end of March. On May 8th, The Guardian revealed that the number of households cutting back on food or skipping meals had surged 57%, and that the number of 'food insecure' Britons had exploded from 4.7 million in January to 7.3 million.
Yet this has happened before the effects of the coming global wheat market crisis, which is probably months away from being fully felt. When it arrives, it would seem likely that prices would start rising to even more vertiginous levels. As the British consumer is already being squeezed by record energy prices, an equivalent in food costs would make the pips squeak. Still more millions would drop into poverty, debt and fear. Even the previously comfortable middle classes would have to start living more austere lifestyles or drawing down on savings. The political backlash would be furious.
The Cost of Living Crisis has only just started, and is nowhere near its peak. Any political forecast that does not take this into account is worthless. Any government that has not already started serious preparations to mitigate its effects is doomed.
