Pedro Miguel locks along the Panama Canal. Photo: Gonzalo Azumendi via Getty Images.
- Global supply of grain and fertilizer is highly concentrated among a handful of producer regions, and international trade is increasingly important to global food security.
- Population growth, dietary change, slowing yield growth and increasing resource stresses are tightening the supply–demand balance in many countries, heightening their reliance on imported food.
- International trade relies on a network of overland and maritime transport routes along which lie 14 chokepoints of global strategic importance.
- These chokepoints are exposed to a range of disruptive hazards that threaten to delay critical food shipments, yet the risk of such supply disruption remains largely overlooked in current food security analyses.
- New approaches to risk management in global food trade are needed to build understanding of chokepoint risk and to develop robust risk mitigation strategies.
Global food security rests upon international trade in a handful of crops. Maize, wheat, rice and soybean together provide around two-thirds of the world’s harvested crop calories. While production of these crops is concentrated in a few ‘breadbasket’ regions, demand is ubiquitous and reliance on imports is rising.
Population growth, shifting dietary preferences and growing demand for biofuels are driving up demand for grain – for food, animal feed and fuel. Global crop production will need to double by 2050 to keep pace with this demand. But a combination of biophysical and socioeconomic factors – including heat stress, water scarcity, declining soil fertility, soil erosion, intensive cultivation practices and poor nutrient management – is slowing global growth in crop yields. These supply challenges are heightened by the fact that opportunities for the expansion of cropland are limited: agriculture already uses 12 per cent of the world’s ice-free land; should this share surpass 15 per cent, we risk triggering abrupt, potentially catastrophic environmental change. Marked asymmetries exist between the food demand and supply profiles of high-income countries and those of low-income countries. Populations are expected to grow fastest in low-income countries – in North Africa, the Middle East, and parts of East and Southern Africa – that already struggle to meet food demand through domestic production alone. Yield improvement rates for wheat, maize and rice are too slow to meet projected demand in these markets, or indeed in others where grain provides a high share of total calorie consumption. At a global level, 36 per cent of crop calories grown are diverted in the form of livestock feed to the production of meat and dairy products, which are consumed principally in high- and middle-income countries. An additional 4 per cent of crop calories are used in the production of biofuels, an industry dominated by high- and middle-income countries.
On top of these trends, the exacerbating effects of climate change on crop yields and on yield variability are likely to be particularly great in regions where a food production deficit exists and where widespread poverty means that vulnerability to price volatility is high.
1.1 The importance of trade to food security
Despite these asymmetries, global food availability is increasing; the share of the world’s population with insufficient food supply fell from 52 per cent in 1965 to 3 per cent in 2005. But these gains have been won largely through increased trade rather than through an increase in self-sufficiency; nearly 1 billion people worldwide now rely on international trade to meet their food needs. Significant disparities in food security remain at regional level.
Today, the food system is a complex network of trade dependencies and international supply chains, characterized by increasing interconnectivity. Between 2000 and 2015, the volumes of agricultural commodities traded on international markets increased by 127 per cent to 2.2 billion tonnes. International trade in fertilizers, while accounting for only a small share of bulk commodity trade, is also critical to global food security. The vast majority of countries import fertilizer, and the primary producers of fertilizer around the world are themselves major importers. Long-run trends suggest that the rise in the importance of trade to global food security is set to continue.
1.2 The global food network
One of the key features of this complex system is the concentration of grain supply in a handful of crop-supplying regions (see Figure 3), and the even greater concentration of fertilizer supply (see Box 1). Local communities are connected to, and reliant on, production sites often thousands of miles away.
Figure 3: Concentration of global exports of maize, wheat, rice and soybean by country and region of origin, 2015
Today, just under a quarter of all food for direct human consumption is traded on international markets. The total share of production traded internationally in 2014 was 24 per cent for wheat, 11 per cent for maize and 60 per cent for soybean. Rice remains a relatively thinly traded commodity – just 5 per cent of production is exported, since the majority is consumed in the country where it is produced and trade is often restricted by national export and import tariffs – but traded volumes as a share of global production have been rising since the late 1980s. In the case of fertilizers, around 36 per cent of total production in 2014 was traded.
International trade in food and agricultural inputs in turn relies on a global web of transport systems. A complex network of railways, waterways, ports, sea lanes and storage infrastructure supports the movement of crops and fertilizers from farm or factory to port, region to region, and port to hinterland. This network is particularly dense in and around three major food production and export sites: the US, Brazil and the Black Sea.
International trade in food and agricultural inputs relies on a global web of transport systems
Box 1: Concentration of fertilizer supply
Just six countries – Belarus, Canada, China, India, Russia and the US – account for 70 per cent of global fertilizer production, and over 50 per cent of global exports (see Figure 4). The concentration of supply is even higher for certain types of fertilizer: for example, Belarus, Canada and Russia produce over 90 per cent of the world’s supply of potassium chloride (also known as muriate of potash or MOP).
Figure 4: Concentration of global fertilizer exports, by producer
The major centres of demand for traded fertilizer include some of the world’s largest grain producers (see Figure 5). The US relies on imports for around 89 per cent of its domestic potash usage and over 40 per cent of its nitrogen usage. Brazil has ramped up its fertilizer imports to sustain rapid growth in crop production; imports supply over 50 per cent of the country’s fertilizer demand in all three nutrient types. Ukraine is a net exporter of nitrogenous fertilizers but depends on imports for over 80 per cent of its phosphatic and potassic fertilizer needs.
China is an exporter of nitrogenous and phosphatic fertilizers and a significant producer of potassic fertilizer; the majority of the latter is put to domestic use (with additional supply of potassic fertilizer imported from Belarus, Canada and Russia). India is a major importer of phosphate and potash. The EU depends on imports for around 40 per cent of its potash needs, but is a large producer and exporter of nitrogenous and mixed fertilizers.
Figure 5: Import dependency of major food producers by nutrient type, 2014
Source: FAO (2016), ‘Fertilizers’, FAOSTAT, data for 2014 in tonnes of nutrients, http://fenix.fao.org/faostat/beta/en/#data/RF (accessed 12 Apr. 2017).
Note: Import dependency = (imports − exports) / (domestic production + imports − exports), expressed as a percentage. Black Sea not included owing to missing data for Russian fertilizer trade.
1.3 Food trade chokepoints
Supply chains are only as reliable as their weakest links, and the most critical parts of the international food transport network are the junctures – which this report terms ‘chokepoints’ – along shipping and overland trade routes through which transit especially high volumes of commodities. Chokepoints can be natural features or man-made infrastructure, and include maritime straits, seaports, road and rail networks, and inland waterways. This report explores 14 food trade chokepoints of systemic importance: eight maritime, three coastal and three inland (see Figure 6).
Figure 6: Global food trade chokepoints
At these locations, international trade is particularly vulnerable to dislocation. A major interruption at one or more of these chokepoints could result in supply shortages and price rises; smaller backlogs can add to delays, spoilage and transport costs, constraining market responsiveness and increasing prices and volatility. Many small-scale interruptions, and a number of large-scale disruptions, have already caused delays and/or damage to shipments (as discussed in Chapter 3). Such incidents may not grab headlines in isolation, but they cumulatively impair market functioning and hint at what is plausible in a worst-case scenario.
1.3.1 An underexplored risk to food security
Reliance on a small number of export and transit hubs presents a fundamental risk to the global food system. Although market interconnection has enhanced food security in food-deficit countries by reducing their exposure to localized agricultural shortfalls, it has also increased their exposure to systemic shocks in distant regions. In effect, by doing more trade, import-dependent countries have swapped idiosyncratic local risks for systemic global risk.
Reliance on a small number of export and transit hubs presents a fundamental risk to the global food system
Chokepoint functioning also has commercial implications, potentially affecting profit margins along entire supply chains. Increasing chokepoint risk matters to the wide array of corporate and financial actors involved in the production, processing, transport and financing of resources. This presents both risks and opportunities.
- For farmers, chokepoint disruptions could restrict access to markets.
- Major disruptions of chokepoints could cause shipments to be delayed or cancelled, with financial implications for commodity traders with obligations to fulfil.
- For shipping and logistics companies, chokepoint disruptions could cause delays and raise costs. On the other hand, disruptions could also boost revenues if customers are forced to use longer alternative routes.
- For insurers and reinsurers, chokepoint disruptions and their consequences are a potential source of underwriting losses. However, they are also a potential source of additional underwriting business.
- For humanitarian agencies, chokepoint disruptions may prevent emergency food aid and other vital supplies from being distributed to communities in need.
- For consumers globally, supply interruptions could prompt government policies and market responses that lead to price spikes in many commodities, directly or indirectly affecting food prices.
Box 2: Chokepoints, trade and security
A ‘chokepoint’ is a vulnerable point of congestion along a route. In land warfare, this might consist of a narrow pass or valley that renders an army vulnerable to attack; the naval equivalents are the maritime straits that have long been a concern for national security and military strategy.
Today, chokepoints on major trade routes remain of strategic importance due to the high volumes of energy products, food, metals and minerals that pass through them. This is particularly true during periods of upheaval or conflict: a nation that controls a chokepoint controls the supply of goods that pass through it. Russia’s annexation of Crimea in 2014, thus bringing the Kerch Strait within Russian territorial waters, offers a case in point. Seizure of the peninsula has afforded Russia control over traffic into and out of the Sea of Azov, enabling it to impose levies on Ukrainian grain exports from the ports of Berdyansk and Mariupol should it so wish, while increasing its reach over the region’s marine oil and gas reserves.
During times of peace, nations with influence or control over naturally occurring or man-made chokepoints can harness them for strategic leverage or economic benefit; Panama and Egypt both profit from levies on traffic transiting the Panama and Suez canals. Mutually beneficial trade deals may be brokered between neighbouring countries on the basis of access to chokepoints and the international markets to which they link, as India, Iran and Afghanistan plan to do under the Chabahar Agreement.
Perhaps most importantly of all, chokepoints matter to governments (see Box 2). Food is a strategic resource, and a government unable to ensure sufficient, affordable food for its population is a government at risk, as recent bouts of instability in international markets illustrate. For example, the 2007–08 global food price crisis was accompanied by protests in 61 countries and riots in 23. In late 2010 and early 2011, prices climbed higher still, following a poor wheat harvest in the Black Sea region and subsequent export bans. This contributed to protests in North Africa – one of the world’s major wheat-importing regions – that became the Arab Spring.
Despite the importance of chokepoints to market functioning, and the importance of market functioning to political stability, chokepoints are rarely, if at all, considered in assessments of strategic food security. This stands in marked contrast to energy markets, which are also crucial to global stability but where analysts pay particular attention to the security of chokepoints. Obvious examples in the energy sector include pipelines, refineries and critical sea lanes such as the straits of Hormuz and Malacca, through which 30 per cent and 27 per cent respectively of all seaborne-traded oil passes each year. A temporary closure of the Strait of Hormuz that resulted in oil exports falling by 10 million barrels a day for three months, for example, could create a supply shortfall in Asian markets equivalent to 26 per cent of consumption, with profound implications for the region and international prices more generally.
Chokepoints are rarely, if at all, considered in assessments of strategic food security
There is a need for similar scenario-based risk assessment in global food markets, as the temporary closure of a critical trade chokepoint could have a destabilizing effect on food security and on global security more widely. This implies three tasks. Firstly, the chokepoints of systemic importance to global food trade need to be identified. Secondly, an exploration of the potential for disruption to these chokepoints is required, together with an assessment of the likely impact of such disruption at global and national level. Thirdly, on the basis of this assessment, robust risk management strategies need to be formulated, both to reduce the likelihood of a disruption and to prepare for its eventuality.
1.4 Aims and structure of this report
In order to undertake this assessment, Chatham House has developed two new analytical tools: the Chatham House Maritime Analysis Tool (CH-MAT, see Chapter 2) and the Chatham House Food Security Dashboard (CH-FSD, see Chapter 4). Together, these tools allow for a first-of-its-kind analysis of grain and fertilizer volumes transiting critical chokepoints in the global food system. They also allow for a hazard assessment to pinpoint locations of systemic vulnerability.
In this report, we build a picture of the systemic importance of chokepoints to global trade in grain and fertilizer. We augment this with a qualitative assessment of the threats of disruption, in order to assess chokepoint risk at national level and the implications for food security.
We find that chokepoint risk matters to food security in various ways, ranging from worst-case scenarios in which a global harvest shock coincides with major interruptions at one or more critical chokepoints, to the insidious ‘background’ consequences of weather, congestion, disrepair and weak governance. Importantly, we argue that the degree of chokepoint risk in the global food system is likely to increase due to the growing dependency of food security on international trade, and to the increasingly disruptive influence of climate change.
Accordingly, we recommend strategies to strengthen risk assessment, risk mitigation and risk preparedness. We assess opportunities for governments – and for a range of private actors involved in agricultural production, trade and transport logistics – to manage the threat of chokepoint disruption to food security.
1.4.1 Report structure
Chapter 2 introduces 14 food trade chokepoints of global strategic importance – eight maritime, three coastal and three inland. It also considers trends and potential changes affecting food trade, as well as developments in transport and technology – such as the possible opening up of new trade routes – that could be of future relevance to chokepoint risk.
Chapter 3 explores the range of hazards to which food trade chokepoints are exposed. It assesses the relative risk profiles of the 14 chokepoints and considers the way in which hazards interact to create compound and cascading risks through global food markets.
Chapter 4 outlines Chatham House’s approach to assessing chokepoint risk and food insecurity at national level. It considers chokepoint risk for individual countries, exploring how exposure and vulnerability differ across national settings, and identifies the countries most exposed to chokepoint risk.
Chapter 5 assesses the efficacy of existing policy responses and commercial responses to food supply risk, and the extent to which the risk of chokepoint disruption is currently addressed at national and international level. It identifies major gaps in investment and governance.
Chapter 6 draws conclusions on the importance of food trade chokepoints, the relevance of robust risk management policies and international cooperation, and the implications of inaction for food security in the near and long term. It then offers a series of recommendations for management of chokepoint risk at national and international level.