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Rising food prices could pose a business risk, analysts say

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Rising global food prices and crop and fertilizer shortages resulting from the war in Ukraine could cause further economic turmoil, risk analysts said. In some countries, this could cause unrest and test the resilience of Western companies with overseas operations in the coming months, they added.

“Food insecurity is our [company’s] Srjan Todorovic, Head of Terrorism and Hostile Environment Solutions at Allianz Global Corporate & Specialty, part of Germany-based Financial Services, said: Company Allianz SE. “This is absolutely a global problem.”

People can accept different kinds of scarcity, but besides causing hardships, the problem of getting food can cause rule-breaking and confusion, said a London-based subsidiary of Marsh. Nick Robson, Global Leader of Marsh’s Credit Professional Practices, said. It usually takes many factors in addition to food shortages to cause civil unrest. Still, risk analysts say they are watching global food prices closely.

Food prices are now higher than in 2007 and 2008, when record prices sparked protests and riots in 48 countries, according to a United Nations report.

Food prices have fallen slightly from their highs immediately after Russia’s invasion of Ukraine, but were still about 44% higher in July than in 2020, according to the Food Price Index compiled by the United Nations Food and Agriculture Organization. .

“With purchasing power declining rapidly, we know that we are much more exposed to social unrest around the world,” said Jimena Blanco, head of the Americas research team at risk intelligence firm Verisk Maplecroft. said.

Fertilizer prices have reached record highs, with far-reaching implications for farmers, agricultural yields and food prices. WSJ’s Patrick Thomas explains the reasons behind the surge and how it affects your wallet.Photo: Ryan Treves

High fertilizer prices, in particular, have had far-reaching effects. Earlier this year, farmers in Peru and Greece expressed their outrage by driving trucks and tractors into cities. Sri Lankan protesters stormed the presidential palace to force a regime change. Analysts attribute the move in part to chemical fertilizer bans that have reduced crop yields. The riots in Sri Lanka were a striking example of the destabilizing force that disappointing harvests can unleash in the short term.

According to Marsh’s report, at least 50 countries, including many developing countries in North Africa and Asia, depend on Russia and Ukraine for more than 30% of their grain supply. For example, Turkey imported her 78% of its wheat from Russia and Ukraine in 2020, while Brazil is Russia’s main market for fertilizers, Marsh said.

Not all countries face the same risk from rising prices. For example, prosperous democracies with the resources to absorb price increases are more likely to fare well. Marsh’s Robson said countries at risk tend to have a few things in common. It is a dictatorship, dependent on imported food, with subsidies it can no longer afford.

Widespread quantitative belt tightening, along with Covid-19’s impact on state coffers, could undermine some countries’ ability to distribute food subsidies that have stifled unrest in the past, he said. .

“In a dictatorship, civil disobedience is likely to increase, and it will be dramatic in some countries,” Robson said. “I think it’s going to be very tough in the short term.”

Robson added that in the longer term of 12 to 18 months, steps can be taken to increase global food production and improve the situation.

If unrest spreads, businesses operating in affected areas can take several steps to mitigate the damage. According to Verisk Maplecroft’s Blanco, companies are increasingly using technology to probe their supply chains to determine the impact of insecurity on their operations.

Allianz’s Todorovic said companies need to assess exactly where they have placed facilities in hotspot countries, for example whether they are near protest targets such as public squares or city halls. I said we need to figure out what.

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“Many businesses are not specific targets for social unrest,” he said. “It just happens to be nearby.”

Some observers remain hopeful that an intermediary deal that allows a temporary resumption of grain shipments in Ukraine may alleviate some of the food shortage problems.

The pact only allows grain to flow for 120 days, requiring logistics companies and carriers to step up to risk moving products, said Americas Political Risk Product Leader at insurance broker WTW. said Laura Burns, who serves as.

“When I talk to my customers in the commodities space, many of them are unfortunately pessimistic,” she said.

write destination Richard Vanderford@richard.vanderford@wsj.com

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