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The geopolitical situation has become more complex and risky in the 2020s, a trend that is likely to continue in the coming years.

For food businesses in Europe, the war in Ukraine is the most immediate threat, although the situation in the Red Sea area should be monitored and other risks may emerge.

The global food system is potentially at risk from political change. The lack of productive capacity and slack in the food system increases this vulnerability. This may encourage some countries to leverage the power of the globalised food system to achieve their goals, including reducing exports. The effort is most effective when food is scarce and expensive.

Globalisation and centralisation 

The value of international agri-food trade has quadrupled in the 21st Century, as a result of long-standing trends such as economic development, historic trade liberalisation and urbanisation.

This growth has created significant benefits – for example, it spreads production risk and makes states and businesses less vulnerable to shocks. It has also allowed the development of new commercial structures, with complex supply chains stretching across national borders.

However, the scale of the modern food trading system does not make it invulnerable to shock events, whether natural or man-made.

Many nations are potentially exposed to such events. About two-thirds of countries are net importers of food, including the UK. Imports may not always be essential for survival, but disruption to trade will still impact availability and prices.

Many countries export at least some food but, for certain critical items, exports are concentrated, and global trade is dominated by a small number of very large exporters. In 2022, the USA and Brazil accounted for half of global exports of maize, whilst Brazil alone made up half of soya bean exports.

Agricultural performance and political choices made in these countries determine food availability and, therefore, price on a global basis.

About 80% of global trade in goods is by sea. Much of this runs on a small number of routes and may encounter geographic bottlenecks, such as the Bosphorus Strait and the Red Sea. Accidents, bad weather, military and political events may disrupt sea freight, especially where they occur at a bottleneck location.

Recent events in the Red Sea area have shown the ability of both state and non-state groups to threaten sea freight at fairly low cost and for indefinite periods, projecting their influence around the world.

Global sea freight services are also fairly concentrated. For example, four operators account for 60% of container shipping capacity. This means that decisions taken by a small group of companies (e.g. choosing to avoid a particular route) can significantly influence transport costs and timescales for UK food businesses.

A changing world

The world is in transition, with countries such as China, India and Russia having greater influence following a long period of US dominance. This may drive geopolitical instability and make it more difficult to find consensus on key issues such as climate change and human rights.

One current impact is the reversal of the previous trend towards trade liberalisation. Since 2009, protectionist measures have outnumbered liberalising measures every year, with protectionism surging in 2019.

A changing, more unstable world creates an environment where businesses may face reputational risk if they do business in nations that are deemed to be aggressors.

Geopolitical levers

Some nations have acquired productive resources in other countries such as China’s Belt and Road initiative. Such measures give investing nations economic leverage around the world.

Economic leverage from concentrated exporters allows nations to control import and export flows of certain goods. These may be to pursue political aims or to secure food availability for their own population.

The most obvious geopolitical risk is the reduced availability of certain staple foods and inputs, with sudden price changes as a consequence. Even the possibility of disruption may be enough to drive price movement.

Warfare is the ultimate expression of geopolitical power, though it is not the most likely impact on the UK food system. Other activities may include cyber-attacks, espionage, intimidation, and sabotage which can have a significant impact on the global food supply chain.

IGD’s role in building a resilient food system

In the face of a more unstable and changing world, IGD’s analysis of the global macroeconomic and political landscape supports business leaders in making better strategic decisions.
 
IGD’s Economics team delivers free analysis directly to business leaders, on the latest trends and priorities, helping organisations make sense of the external landscape.