Can Food Crises Trigger Collapse?

A combine drives over stalks of soft red winter wheat during the harvest on a farm in Dixon, Ill., on July 16, 2013. (Jim Young/Reuters)

Commentary

“The Pakistan Economy Watch (PEW) on Tuesday asked the government to take serious steps to ensure food security in the country as an international food crisis can engulf the world soon .... Dr. Murtaza Mughal said that the vulnerable and the poor would be hardest hit, who spend as much as 60 to 75 percent of their income on food. He said that situation at home is far from encouraging; flawed policies have left almost all the federal and provincial departments related to agriculture as dysfunctional. ... The matter should not be taken lightly, as, during the last crisis, 30 countries witnessed food riots while many governments were sent packing.” — Pakistan Today, July 25, 2012

This seemingly dated passage from Pakistan Economy Watch from a decade ago is as timely as tomorrow’s headlines. The ill-considered Russian invasion of Ukraine may not succeed in toppling the government in Kyiv. Still, Russian President Vladimir Putin may manage to overturn half a dozen governments in lower-income countries that depend on imported wheat to nourish many poor and vulnerable citizens.

Ironically, the rather inglorious U.S. retreat from Afghanistan may contribute to the starvation of many Afghans. Reports indicate that more than 20 million Afghans are seriously malnourished, including three million children. Vladimir Putin seems to have read the U.S. withdrawal in much the same light as the Saudi princes.

According to ING Bank and the U.S. Department of Agriculture, Ukraine—known as “Europe’s breadbasket”—was expected to account for 12 percent of global wheat exports and nearly a fifth of global corn production this year. As a result of the Russian invasion, little or no Ukrainian grain will be available for export. And potential Russian wheat sales may be barred by sanctions.

About 9 million people worldwide would die of hunger in a normal year. This year is not normal. Thanks to Putin’s invasion of Ukraine, probably encouraged by the U.S. defeat in Afghanistan, less grain will find its way to markets. And therefore, millions more may die of hunger, many of them in Afghanistan. Such is the complex fallout from the twilight of American hegemony.

It seems probable that the decline in wheat available or sale (along with the rise in the price of what is available) is liable to have a more deadly impact on global nutrition than the decline in output attributable to marginally colder weather a decade ago.

If you recall the news from a decade ago, you remember that protests and rebellions swept unstable areas of the world when the price of wheat soared. Governments were “sent packing” in Tunisia, Libya, Egypt, rebellions launched then continued to play out in Syria and Yemen.

There is a swath of unstable nation-states (future failed states) from North Africa through the Middle East, Afghanistan, and Pakistan. Imports of grain worldwide increased more than fivefold between 1960 and 2013. This placed more than one-third of the world’s nation-states in the vulnerable position of depending on imports for one-quarter or more of the staple grains they consume. In sixty-two countries, the area of farmland is inadequate to supply domestic consumption. In about one-third of those countries, twenty-two to be exact, agricultural products consumed require more freshwater than is available.

The suspension of wheat growing in Ukraine, much like a turn to colder weather that reduced or eliminated grain surpluses in the exporting countries, would have devastating consequences for North Africa and the Middle East, most dependent on grain imports. To hint how severe the impact of declining temperatures could be on carrying capacity, dust off the 1974 CIA working paper “A Study on Climatological Research as It Pertains to Intelligence Problems.”

If you look at this report, as I have, you will see that the climate science of forty years ago was less blinkered and more evidence-driven than today’s global warming hysteria. The excellent 1974 CIA summary states that it was likely that the Earth would revert to a neo-boreal climate like that of the Little Ice Age, which predominated through most of the 400 years after 1600, with the happy exception of some decades in the middle of the twentieth century (and we now know the last quarter of the twentieth century).

The CIA report reminds us that the neo-boreal climate was “characterized by broad strips of excess and deficit rainfall in the middle latitudes and extensive monsoon failure.” The fact that there was the extensive failure of the monsoon in the Indian subcontinent in the cooler conditions of the nineteenth century underscores the potential dangers of deteriorating weather triggering nuclear conflict between India and Pakistan. While both countries have recently been exporting grain, the balance of their surpluses could rapidly erode in cooler conditions. The CIA report reminds us that even in the early ’70s, when the weather turned colder, Pakistan adopted plans to import U.S. grain in March 1973 because of crop failure due to drought. And the problem is hardly limited to Pakistan. Here are the countries most at risk.

Annual Wheat Imports in 1000 MT. (U.S. Department of Agriculture)

Percent of consumer expenditure spent on food consumed at home, 2015. (Economic Research Service, USDA)

When the wheat import dependence is correlated with the list of countries where the highest percentages of household income are devoted to food, the risk of instability in the most exposed economies is too apparent to ignore.

This suggests that the currencies and sovereign bonds of countries like Azerbaijan, the Philippines, Kazakhstan, Nigeria, Algeria, Nigeria, Egypt, Iran, Yemen, Turkey, Morocco, Uzbekistan, and Kenya will face rough sledding in the months to come as wheat prices soar. Even conditions in China, already stressed by the unwinding of history’s greatest credit bubble, could weaken marginally. However, I would not recommend shorting Chinese sovereign bonds because of the looming wheat shortage.

Still, the antique CIA report makes many points worth noting. The CIA report underscores how tenuous the carrying capacity of world agriculture actually is: “As an example, Europe presently, with an annual mean temperature of 12 degrees C (about 53 degrees F), supports three persons per arable hectare. If the temperature declines 1 degree C, only a little over two persons per hectare could be supported, and more than 20 percent of the population could not be fed from domestic sources. China now supports over seven persons per arable hectare; a shift of 1 degree C would mean it could only support four persons per arable hectare—a drop of over 43 percent.”

Putin’s unnecessary war in Ukraine has placed the crisis-prone world in a potentially dire position. Four former Soviet Republics are at the top of the list of countries affected adversely.

Of course, it is reasonable to infer that the vulnerability highlighted in the mid-1970s has intensified with the passage of five decades, as Europe’s population has increased by about 70 million persons in the intervening years. And China’s population has soared by approximately 487 million persons. At the same time, fertile land has been lost to development in both Europe and China. In contrast, freshwater resources in China have declined due to increased pollution and the depletion of fossil aquifers.

In short, there is an unprecedented hostage to fortune in the hands of the climate gods—and Putin’s generals—in a world that has been rendered increasingly crisis-prone.