29 enero, 2023

New Study Reveals Strategies to Combat Future Food Supply Shock and Boost Food Security

THE BAJA POST
NEWSROOM
SOURCE: PR MEDIA

Food security is becoming more tenuous in countries around the world, primarily because the conflict in Ukraine, high fertilizer and energy costs, lingering supply chain disruptions from COVID, and changes in global trade. And the global nature of today’s food supply means that shocks in one part of the world can very easily have an outsized impact on different regions around the globe.

Case in point: In 2020, Russia and Ukraine combined accounted for 9.3% of all global agricultural exports – versus just 5.5% in 2016 – which included 29% of all wheat sales and 12% of the total number of calories contained in food products traded worldwide, according to global strategy consultancy L.E.K. Consulting.

But the invasion of Ukraine by Russia does not just affect the biggest importers of Russian and Ukrainian wheat – China, the Middle East and North Africa. In fact, the shock to the wheat market has had far broader implications, including higher prices that could potentially price out the most impoverished people in the world’s poorest countries. Wheat shortages could also drive consumers to find substitute products – in turn increasing the price of other cereals, grains and food items.

«The ability to assess and monitor how uncertainties – namely, climate change, technological development, global trade and regulatory environment, and input costs – are unfolding will be key to mitigating the risks being brought onto the global food markets. This is true whether you’re in government, the enterprise or the investment community,» said Peter Walter, L.E.K. Partner and co-author of Food Security Strategies: How To Adapt to a Changing World and Strategies for Strengthening Food Security.

To that end, L.E.K. has developed a Food Supply Risk Index, or FSRI, to aid decision-making for governments and companies. The FSRI is composed of three components:

  • Source risk: The supply chain risk from a source country that is driven by any political, economic or environmental uncertainty. The value of the FSRI for a particular food item grows the more that a given country has to import instead of producing it. It also grows if the imported items come from just a few sources, especially if there are many other available sources for that item.
  • Transit risk: The risk of supply disruption to goods in transit. The FSRI level rises if the mode of transportation used to bring goods into the country has inherent risks. Examples include naval shipping routes that pass-through chokepoints that can be disrupted by weather event or human-driven events, railway routes that run through politically unstable regions or unreliable port infrastructure that can experience strikes or delays.
  • Product risk: The risk associated with a specific product. The more care a product requires, the higher its risk – for example, if they are delicate and easily damaged, need to be kept frozen or has a limited shelf life.

No two countries or regions have identical food security risks. According to L.E.K., each country or region needs to tailor its food security risk strategy based on its unique situation. As such, L.E.K. conducted research into the strategies of countries around the world, and identified six levers that have proven to be the most effective:

  • Public investment: Direct or indirect investment in farmland, machinery, infrastructure or logistics.
  • Strategic reserves: Stockpiling of grains for food or feed, seed or cold story.
  • Incentives/subsidies: Farm/crop insurance, crop price controls, tax incentives for foreign investment.
  • Regulations: Source diversification requirements, food waste rules, water conservation regulations.
  • Trade deals and partnerships: Regional trade pacts, bilateral trade agreements.
  • Campaigns: Food waste awareness, water usage campaigns, dietary advice.

«The six levers that we have identified are most impactful when enacted together in a cohesive strategy. Of course, each country has its own specific risks to mitigate – such as water scarcity, land scarcity, import dependence for specific food items, large population centers with high food demand – so each situation will require emphasis on different levers,» said Walter.

One specific example of an impactful, coherent strategy is Singapore’s. It promotes multiple government programs that support agricultural technology, often via sovereign funds, and offers co-investment opportunities and tax breaks. It has mandated a range of import diversification guidelines and keeps two to three months’ worth of stockpiles of key food staples in case any trade issues arise. Singapore has also inked trade agreements with key partners, including those in the private sector, to facilitate foreign companies’ involvement in the country. And it has put in place campaigns to discourage food waste and conserve water to support crop growth.

«Between rising populations, climate change impact and other longer-term supply chain issues, it’s critical that food-focused companies, investors and policymakers understand all the dimensions of food security. And not just how they’ve had an impact to date but also how they may play out in the future,» said Nilesh Dayal, L.E.K. Partner and study co-author.

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