Food shock ESG will also destabilize the world

The risk of a global food shortage presents a serious threat to millions of people in the developing world. Much less critical but important is that long-term environmental barriers can create such a catastrophe for sustainability.

For Bank of America Corporation analysts, the record rise in food prices clearly illustrates the risks at the juncture of environmental and social crises. And the impact is huge, from agricultural and food retailers to wholesalers, hospitality and gaming companies and even telecommunications providers.

Rising food prices are not only raising concerns about poverty, hunger and political instability, they are also highlighting the climate crisis as more than one-third of greenhouse gas emissions involve food production, distribution and consumption. Feeding the world was already difficult enough to move towards sustainable practice. The Kremlin’s aggression has suddenly made matters worse.

For investors, the risks are broad, says K Hope, London-based head of Bank of America’s global fixed-income research. In the short term, food prices rose more than 36% annually in March due to Russia’s war against Ukraine. While this growth may take months to filter to consumers, it could weigh on larger financial markets, he said.

Russia and Ukraine account for about 25% of the world’s wheat exports, 65% of sunflower oil, 20% of barley and 18% of corn. Wheat prices have reached record highs this week, rising further after India decided to limit exports on Monday, further highlighting how tough global supplies are due to Vladimir Putin’s war.

And there are concerns about the fertilizer market, Hope said. Sanctions against Russia and its ally Belarus, and destruction inside Ukraine, will almost certainly reduce fertilizer availability, as those countries account for a large share of global supplies.

Putting all this together, it is not difficult to see that grain market disruptions could eventually lead to global food shortages.

“In the UK, the amount of vegetable oil we can buy in supermarkets is already limited,” Hope said. “This is a worrying prospect for the nation at large.”

Separately, US Treasury Secretary Janet Yellen and Bank of England Governor Andrew Bailey spoke on Monday about the food crisis. Yellen said Russia’s latest aggression in Ukraine has exacerbated the food security crisis, creating a global crisis, while Bailey warned that rising food prices could have “unconventional” consequences for society’s poorest people and the world economy.

“This is a major concern, not just for this country, but for the developing world,” Bailey said.

In the U.S., the Department of Agriculture recently estimated last month that food prices could rise 5% to 6% this year – at least double the previous forecast of 2.5%.

In the long run, its impact on climate change and food security is a huge concern not only for emerging markets but also for developed markets. As the world warms, it will become more difficult to produce adequate food and ensure that it reaches enough places to feed the growing world population, Hope said.

The potential social consequences are huge, as the world needs to feed 10 billion people by 2050, up from 7.7 billion by 2020. And fixing food security means tackling climate change, and that’s a huge initiative.

In a report titled “Food Security: Environmental Meats Social”, Bank of America analysts say that climate change will change what can be cultivated and where, as well as increase extreme weather patterns and affect the spread of pests and diseases.

They add that about one-third of the food produced annually is lost or wasted, and that food is responsible for about 8% to 10% of greenhouse gas emissions. Equally worrying is the fact that about a quarter of that wasted food could feed about 900 million hungry people.

Citing data from Global Food Security UK, analysts concluded that this tragic situation could lead to “shocks in food production, rising food prices, food security crisis and potential civil unrest.”

Bloomberg Green publishes Good Business each week, providing unique insights into ESG and climate-conscious investing.

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