The International Monetary Fund (IMF) has released a report entitled. Tackling the Global Food Crisis: Impact, Policy Response, and the Role of the IMF. In the report, it was stated that the problem of food insecurity, which has been growing for 5 years, has intensified due to the Russia-Ukraine war, and that the poor countries are the most affected by this problem. Import bills of 48 countries most affected by this problem due to food and fertilizer prices in 2022 and 2023 are expected to increase by 9 billion dollars. According to the report, the additional burden on the budget of protecting people in distress in these countries is between $5 and $7 billion.

The world faces a food crisis as major price shocks exacerbate food insecurity. A multitude of factors have contributed to growing food insecurity since 2018, including conflict, climate shocks, and the impact of the COVID-19 pandemic. These combined in impact to drive up food prices and negatively affect food production and distribution. The situation has taken a sharp turn for the worse in 2022, as Russia’s war in Ukraine exacerbated pressures on international prices for food staples and fertilizers. Many food-importing countries are now facing severe challenges; those that had been relying on Ukraine for an elevated share of their food imports are among the most affected. As pressures on food markets intensified, a number of food exporting countries have resorted to protectionist measures that have had a further negative effect on international prices and market volatility. While international prices have recently eased, they remain significantly above their 2020–21 averages. Moreover, high prices for fertilizers and energy as well as substantial downside risks weigh on the outlook. As a result of all these developments, the world is now facing a food crisis of a proportion that is at least equal to the 2007–08 crisis that left many countries with severe undersupply of food and caused large suffering and a high number of deaths.

The food crisis is a global phenomenon but affects low-income countries (LICs) the most. The analysis in the note identifies 48 countries that are most affected by the crisis, either because they are facing significant balance-of-payments (BOP) pressures due to higher food and fertilizer prices or are designated by the World Food Programme (WFP) as experiencing acute food insecurity amid parts of their populations. These countries reflect diverse circumstances: the list encompasses middle-income countries (MICs) and LICs and spans several continents. The Sahel region and other parts of Sub-Saharan Africa are most affected: together, these regions account for a large share of the 20–30 countries with the most elevated vulnerability to the food crisis and include many countries that are Fragile and Conflict-Affected States (FCS): for them, the exposure to the food shock combines with other challenges such as weak macroeconomic conditions, poor institutional governance and capacity, and socio-political instability. All of these factors make it especially difficult to respond to the crisis with well-targeted measures, adequate resources, and speed.

In addition to creating human suffering, the food crisis has large economic costs. While recognizing methodological and data issues as an important constraint, this note estimates the economic effects of the food crisis from three different angles that all suggest a major impact on many countries and world regions: the impact of higher prices for food staples and fertilizers on countries’ BOP; the cost to countries’ budgets of fiscal measures aimed at mitigating the impact of higher food prices on their populations; and the cost of providing sufficient nutritious food to those people that are currently in acute food insecurity.

* The BOP approach suggests an additional cost to the import bills of the 48 countries most affected by the food shock of almost US$9 billion in 2022 and 2023, stemming from the sudden change in global food and fertilizer prices.

* The second approach approximates the cost from a fiscal perspective and estimates a need of US$5–7 billion in additional budget outlays for the 48 countries to protect vulnerable households from the higher food prices.

* Finally, the third approach suggests a cost of about US$50 billion to eradicate acute food insecurity in 2022. Taking a longer-term lens that adds the challenge of chronic food insecurity to that of acute incidences of malnutrition can be expected to increase this cost significantly.

Strong and timely action across four policy areas is needed to mitigate the food crisis. It is urgent and important to adequately and rapidly support households vulnerable to food insecurity through international humanitarian assistance, backed by the full funding of the WFP, and effective fiscal policy measures at the domestic level; maintain open trade, including at the intraregional level, to allow food to flow from surplus areas to countries in need, which urgently requires the phasing out of export bans by major food producers; increase food production and improve distribution, including through ensuring adequate access to fertilizers and other inputs; and invest in climate-resilient agriculture for longer-run sustainability.

The international community has been stepping up its engagement, but further action is needed. Engagement of development partners including International Financial Institutions is expanding on policy advice, capacity building assistance and financing. Policy advice and capacity building assistance are urgent across all four policy areas identified above. Financing should aim to support the most vulnerable segments of the affected countries’ populations and mostly take the form of grants, humanitarian assistance and long-term concessional financing. Debt relief, including through the G20 Common Framework, could contribute to helping the poorest countries affected by the food crisis by freeing-up additional financial resources for food-related spending. Coordination among development partners, facilitated by a number of new coordination mechanisms, is critical for a targeted and timely response to the challenge.

The Fund is contributing strongly to this agenda, consistent with its mandate and expertise. Policy advice, capacity building, and addressing BOP needs related to the food shock are core elements of the Fund’s mandate to support its member countries. All have been deployed to address the current crisis. Through its policy advice and capacity building assistance, the IMF seeks to pro-actively identify food-related BOP pressures and supports policies to better assist vulnerable households, the phasing out of protectionist trade measures, and more efficient public investment to foster climate-resilient agriculture. These actions will help governments to avoid resorting to export restrictions, which can destabilize international markets and exacerbate global price pressures. A new food shock window under the Rapid Financing Instrument (RFI) and the Rapid Credit Facility (RCF) is currently under consideration to further strengthen the Fund’s lending response to the evolving food crisis.

Food insecurity has been on the rise for about half a decade. The spike in international food prices triggered by Russia’s war in Ukraine, which falls on weak post-COVID-19 macroeconomic conditions in many countries, will intensify the food crisis on a global level. Low-income countries whose populations were already experiencing acute malnutrition before the war are particularly affected by the fast-spreading challenge. The depth and breadth of the food shock calls for decisive and well-coordinated action on a global scale.

Food insecurity is a major humanitarian and economic challenge. Food insecurity—the lack of regular access to sufficient nutritious food—can be caused by unavailability of food and/or lack of resources to obtain food, typically reflecting multiple factors that are often reinforcing each other. Ensuring food security for a country’s population—and especially its most vulnerable segments—is not only an ethical and humanitarian priority but also economically important and urgent. An adequately-nourished population is critical to sustained growth in the short term and long term. There are many channels at play. Importantly, poor nutrition weighs on health and human capital accumulation and thus productivity and growth. In addition, food insecurity has often been associated with social unrest, conflict, and large-scale migration, which reduce labor supply, complicate policy implementation, and more broadly affect consumer and investor confidence. Ultimately, food insecurity can be expected to prevent realizing real GDP growth rates sufficient to reduce poverty. In FCS, where two-thirds of the people facing acute food insecurity live, malnourishment can act as a fragility multiplier exacerbating effects of other trends such as climate change, pandemics, or forced displacement.

WAR HAS EXACERBATED FOOD INSECURITY

The war in Ukraine has exacerbated food insecurity, which already increased to record levels before. Food insecurity started to rise in 2018, fueled by conflicts, climate shocks, and the economic fallout from the COVID-19 pandemic. On top of this, the war in Ukraine has developed immediate global repercussions as Ukraine and Russia are major exporters of agricultural products and inputs, such as fertilizers and energy. Ukraine was also the largest supplier of cereals for the World Food Programme before the war. Ukraine and Russia together supply 30 percent of globally traded wheat, 20 percent of maize, and 75 percent of sunflower oil.  As a result of the war, agriculture production in Ukraine is expected to decline by 25–40 percent in 2022. Furthermore, several food exporting countries resorted to export restrictions on food and fertilizers to support domestic food availability. The reduced current and anticipated supply of food and fertilizers triggered a sharp rise in global food prices and created food shortages in countries that could not shift supply quickly, putting additional pressure on prices that had already reached all-time highs before the war started (Figure 1). Countries that are highly dependent on food and fertilizer imports from Ukraine and Russia—mostly LICs, especially in Sub-Saharan Africa (SSA)—have been suffering the most (Figures 2 and 3).

IMPACT OF THE FOOD SHOCK AGGRAVATING FOOD INSECURITY IS GLOBAL

The impact of the food shock aggravating food insecurity is global, but LICs are hit hardest. Available data paint a worrisome picture: world-wide, estimates point to about 860 million malnourished people in August 2022 (Figure 4). Of these, 345 million people are suffering from acute food insecurity (Figures 5 and 6). Many of these people live in SSA, often in FCS that on average imported about 80 percent of their wheat consumption during 2017–2019 compared with some 50 percent in the case of other net-wheat-importing countries. The stronger impact of rising food prices on LICs reflects that relatively poor households tend to spend a larger share of their incomes on food. Moreover, the pass-through of global to domestic food prices is typically higher than in more advanced countries. LICs have also been particularly exposed to extreme weather events and conflicts on top of the COVID-19 pandemic (for example, in the north of Mozambique, Somalia, Chad, Sudan, and Yemen), which contributed to growing food insecurity through their negative impact on domestic food production. Moreover, in many countries, high oil prices have been a key driver of domestic food inflation through their impact on transport and food distribution costs. Finally, the recent real effective appreciation of the U.S. dollar has been affecting local currency purchasing power in many countries that rely strongly on food imports, and especially the purchasing power of poorer households that spend proportionally more on food. The combined effects of increased food and energy price and supply constraints not only lower living standards but are also likely to increase poverty and lower long-term growth, potentially fueling social unrest and large-scale migration.

While international food prices have eased recently, food insecurity is likely to worsen. Driven by improved supply conditions, some progress with the resumption of Ukrainian grain exports through the Black Sea, news of a bumper Russian wheat harvest, and macroeconomic factors weighing on inflation—including rising interest rates and global recession fears—global food prices dropped in June and July from record levels in April/May 2022. However, prices remain significantly above the 2020–21 average and are still historically high, while food insecurity continues to rise, particularly in LICs. Moreover, the outlook remains highly uncertain: existing supply bottlenecks, declining stocks of food staples, the challenges involved in marketing Ukraine’s current and future harvests, the still high prices of inputs like fertilizers and energy that affect agricultural output around the world, and the negative outlook for rice all weigh on food markets or can be expected to do so in the future. In addition, longer-term factors underlying food insecurity (for example, climate change and conflicts) are unlikely to disappear any time soon. Projections by specialized international agencies suggest that nearly 670 million people—or 8 percent of the world’s population—will still be facing hunger by 2030. And the World Bank estimates that over the medium term (until 2028) the number of people suffering from acute or chronic food insecurity in IDA and IBRD member countries will remain high at around 1 billion.