Strategy Note /

Food security in EM in the time of inflation, disruption, and now protectionism

  • Disruption from Russia-Ukraine War. Protectionism so far from China, India and Indonesia. Inflation since May 2020

  • Food security index, household spend on food, net food import exposure: 3 measures of vulnerability or resilience

  • In large EM, India, SA, Brazil more at risk than China, Korea. In small EM, Sub-Sahara and Subcontinent most vulnerable

Food security in EM in the time of inflation, disruption, and now protectionism
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
17 May 2022
Published byTellimer Research

Protectionist measures on food trade, of the sort seen so far from China, India, and Indonesia, may be about to proliferate. If so, it will compound the existing inflationary pressure that has been evident since May 2020, which has been driven by under-investment in global agriculture relative to demand growth, and, more recently, the supply-side shock of the Russia-Ukraine war.

Food stress is already exacerbating the political stress faced by governments across emerging markets and this is likely to intensify. Vulnerable countries are those with:

  1. Weak food supply chains — EMs across the Sub Sahara Africa and Subcontinental Asia regions are most at risk.

  2. Low incomes, where both a high proportion of household spend is allocated to food staples and employment in agriculture is low — apart from Russia and Ukraine, EMs which fit this description include Argentina, Iran, Iraq, Egypt, Philippines, Romania and Sri Lanka.

Measures of food stress

Two measures of vulnerability (or resilience) of the mass population to food price inflation and disruption to physical supply include the following:

  1. Food security index (compiled by Economist Impact, incorporating factors related to food affordability, availability, quality, and the longer-term environmental resilience of domestic agriculture resources).

  2. Household spend on food (using data from ERS, USDA, Euromonitor), cross-referenced with the percentage of employment in agriculture (using data from ILO, WB) — while higher food bills are painful for all households, perhaps there is an offset for those earning wages in the agricultural sector (assuming that governments do not regulate down profits from higher prices and workers' share in those profits in the first place).

Food security index

In Large EM, India, South Africa, Indonesia, and Brazil are more at risk than Mexico and Saudi, with China and Korea most resilient.

In Small EM, the Sub-Sahara Africa and Subcontinental Asia regions are the most vulnerable.

Among the vulnerable countries mentioned here, Indonesia and Brazil are net exporters of food. High food prices are, therefore, beneficial for the trade balance, and, to a degree, the currency. However, that does not mean relief for the poorer segment of the mass population.

Food Security in emerging markets

Food bills versus agriculture wages

Large EM countries with a relatively high proportion of household spend on food staples include India, Indonesia and Russia. But Russia alone has a low percentage of the employed workforce in agriculture.

In small EM, countries with high household spend on food (over 25%) but low proportion of workers in agriculture (below 25%) include the following:

  • Asia: Philippines, Sri Lanka

  • Africa: Egypt

  • Middle East: Iran, Iraq, Jordan

  • Europe: Kazakhstan, Ukraine, Russia

  • LatAm: Argentina.

Food price stress in emerging market mass populations

Protest risk in food insecure countries

The underlying drivers of protests tend to be long-standing, eg inequality, corruption, political exclusion and elite political rivalry.

But economic stress, eg measured by the misery index, no doubt increases the susceptibility of the mass population to a call to protest – however motivated – particularly when the stress is on the most staple of items for the poorer segment of society.

The longer food inflation hurts food-insecure countries, the more protest and disruption we are likely to see of the sort that contributed to the following:

  • India — derailment of agricultural reform.

  • Kazakhstan — removal of the Nazarbayev clique from government.

  • Nigeria — delayed removal of the fuel subsidy.

  • Pakistan — new government's postponement of the removal of fuel and food subsidies needed to re-track the IMF loan.

  • Sri Lanka — resignation of PM Mahinda Rajapaksa and ongoing pressure on President Gotabaya Rajapaksa.

  • Indonesia — palm oil export ban.

Protests resurfacing globally as Covid lockdowns end

Related reading

Food prices simmer, down 1% month on month in April but still up 74% from trough, May 2022

India's wheat export ban the latest example of food protectionism, May 2022

Indonesia Palm Oil export ban compounds food inflation but the ban cannot last, April 2022

Misery in the emerging markets, May 2022