‘The Coming Food Shortage’ – And, It’s Worse Than You Think!

As we all have experienced, Covid has dealt a body blow to the global economy over the past couple years.  It has impacted virtually every company – some in ‘life threatening’ ways.  And it seems in recent weeks, we have just now begun to find rays of hope on the horizon. Unfortunately, there is a storm brewing – and it threatens to cause yet more havoc – with far ranging impacts – not only economic but also political.  There will be implications for all of us as we think about the health of our companies and our investments as well as the impact on our daily lives and families.

There are indications that we are about to experience a global food shortage.  First off, Covid had already put us in a weakened condition – with supplies down, inflation up and supply chain imbalances causing shortages on the shelf.  But what is about to happen may be far worse.  Together, Russian and Ukraine are responsible for roughly 50 percent of the world’s wheat exports.  Prior to the war, this year’s production was already forecast to be significantly lower than that of 2021.  Now, however, with war raging right near the beginning of the planting season – with Ukraine in turmoil and many of the able-bodied men in both Russia and Ukraine engaged in the conflict rather than home planting in the fields, there is likely to be a disastrous shortfall in production.

However, there are additional factors that will make the situation even worse. Prime among these is the ‘Fertilizer Crisis.’  Belarus and Russia are critical suppliers to the world’s fertilizer production. Belarus supplies large amounts of the ingredients used to produce fertilizer including potash, urea and ammonia.  Due to human rights issues, the United States, as well as Western Europe, has banned purchases.  Thus, causing a deep reduction in supply. Meanwhile, the ban on Russia produced fertilizers has accomplished much the same.  Result:  Sharply diminished supply, prices skyrocketing (some have stated by as much as 800+ percent this year.)   All of this having a devastating impact on the ‘economics of farming’ – and having the follow-on effect not only in terms of higher costs – but also causing farmers to re-think whether it makes economic sense to plant at all.  Thus, an impact on food supply!

And even more bad news.  Farm equipment – such as tractors, harvesting equipment, etc.  They all depend upon semiconductors.  We all know of our dependence on Taiwan for the production of semiconductors.  But, did you know that Ukraine produces approximately 50 percent of the world’s neon – a critical ingredient in semiconductors?  Moreover, the two major production facilities are located respectively in Mariupol and Odessa. Both devastatingly impacted by the war.

What we are describing are the core elements of what could prove to be a disastrous scenario.  You could view this as ‘quite unfortunate’ – but just one segment of the world economy. A critical segment.  But just one segment, nonetheless.  Unfortunately, the world doesn’t work that way.  Everything is interconnected – and unforeseen and unintended consequences have a habit of manifesting themselves throughout the entire system.  So, our advice would be – start thinking, start planning – and ‘be at the ready.’  This could all get much worse than you currently think.