Chokepoints and Vulnerabilities in Global Food Trade

Policymakers must take action immediately to mitigate the risk of severe disruption at certain ports, maritime straits, and inland transport routes, which could have devastating knock-on effects for global food security.

Chatham House report Updated 18 May 2023 Published 27 June 2017 ISBN: 978 1 78413 230 9

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Pedro Miguel locks along the Panama Canal. Photo: Gonzalo Azumendi via Getty Images.

Rob Bailey

Former Director, Energy, Environment and Resources Programme

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Laura Wellesley

Senior Research Fellow, Environment and Society Centre

5. Managing Chokepoint Risk

Key points

Governments have responded in multiple ways to food market instability, but very few have addressed chokepoint risk.
Many governments of food-importing countries have invested in production and export capacity overseas. However, few have matched this with a diversification of import routes. China is a notable exception.
While the smooth operation of global trade chokepoints is in the interests of all, investment in critical infrastructure is lacking both in crop-producing regions and food-importing regions.
A governance gap exists around chokepoint management, arising from the mismatch between national ownership and international strategic interests.
Cooperative approaches to risk mitigation and preparedness – through both investment and governance – are needed to balance national priorities with systemic resilience.

As yet, only a handful of states have explicitly responded to chokepoint risk. Managing food price volatility has received significant policy attention at national and international level since the 2007–08 and 2010–11 food price crises, but policy approaches have tended to overlook – and, in some cases, exacerbate – exposure and vulnerability to chokepoint disruption.

Policy has tended to overlook exposure and vulnerability to chokepoint disruption

Below, we explore the ways in which governments have responded to food market instability. We then outline the governance gap that persists both around the management of chokepoint risk as it pertains to national infrastructure and international maritime straits, and around preparedness for future systemic disruptions.

5.1 Government responses

Governments responded in many different ways to the most recent periods of food market instability, with some interventions designed to reduce price volatility and mitigate its impacts, and others designed to increase security of supply. Below we briefly summarize some notable responses, many from Gulf countries or China, and consider the extent to which these successfully address chokepoint risks.

5.1.1 Collective action to tackle price volatility

At the recommendation of a taskforce of 10 international organizations, in 2011 the G20 established the Agricultural Market Information System (AMIS) to increase market transparency and monitor leading indicators of market volatility. Based on the Joint Organisations Data Initiative (JODI) to improve transparency in oil markets, AMIS has made progress in improving reporting on agricultural stock levels and market fundamentals. It also provides market monitoring and a mechanism (the Rapid Response Forum) through which governments can collectively discuss and agree coordinated responses to market volatility. In addition to monitoring market fundamentals, AMIS tracks a wide range of volatility indicators, including stock-to-use ratios, energy prices, freight rates, input costs, dollar indices, biofuel policies and trade policies. It does not, however, consider chokepoints.

5.1.2 Boosting domestic availability

Concerns about food security, both in the run-up to and following the 2007–08 crisis, led to a proliferation of government support for agricultural production and other measures to increase domestic food supply. In response to low domestic stock levels and rising global prices in 2006–07, for example, India launched a 2007–08 National Food Security Mission aimed at boosting domestic grain production within five years; this scheme significantly increased the guaranteed minimum price paid by the government to farmers for wheat and rice.273 Similarly, to promote domestic grain production, China raised direct payments to farmers and increased government subsidies for inputs such as fertilizers, seeds and fuel.274

Strategic stock-building has been a second important means of reducing reliance on imports.275 These strategies can be expensive, particularly in countries with little comparative advantage in agriculture or where weak governance means stocks are likely to be mismanaged. Nevertheless, they can potentially reduce vulnerability to unexpected import curtailments, whether due to chokepoint disruption or otherwise.

In deciding where to locate strategic grain silos or bunkers, it may be important for governments to consider chokepoints. Clearly, if the stocks are to be of use in a crisis, access to vulnerable populations is important. And if the stocks are to be maintained, they must be supported by reliable supply chains. This has evidently been a consideration for Gulf countries in recent years; governments in the region have sought to reduce silo supply chains’ reliance on the Strait of Hormuz. Saudi Arabia has expanded its storage capacity on the Red Sea coast,276 while the UAE has developed a new grain silo complex in Fujairah, south of the Strait of Hormuz, creating a supply hub that does not depend on imports transiting the strait.277

5.1.3 Increasing control over supply

The 2007–08 food price spike also led to a rise in overseas investment in farmland.278 Much of this was no doubt a commercial response to rising commodity prices. However, the involvement of government-backed investment vehicles and state-owned enterprises indicated that some governments viewed these investments strategically, in effect as ‘outsourced national production’ that could be diverted to domestic markets when needed.

Many of the ‘host’ countries targeted for investment are poor and food-insecure themselves, so might conceivably close their ports to food exports during a systemic crisis

Such investments often failed to account for chokepoint risks. In essence, governments believed they held an implicit ‘call option’279 on the output of their investments and that this option could be exercised during a systemic crisis, thus enabling them to divert food from international markets to their home market. But this assumed that the food could be transported quickly through any interposing chokepoints. Many of the ‘host’ countries targeted for investment are poor and food-insecure themselves, so might conceivably close their ports to food exports during a systemic crisis. And political risks are not the only problem; poor infrastructure can also render ownership of overseas production less effective. For example, Gulf countries were quick to invest in agriculture in Africa (see Table 7),280 but did not match this with investments to build resilient transport corridors linking these regions to the sea. Poor-quality and low-density road networks remain the primary conduit for agricultural exports in sub-Saharan Africa,281 while bureaucratic inefficiencies and non-tariff trade barriers delay shipments and drive up transport and transaction costs.282 Meanwhile, other GCC investments in Black Sea agriculture have merely increased the exposure of Gulf countries to the Turkish Straits and Suez Canal.

Governments have also sought greater control of supply further ‘downstream’, by establishing or expanding state-owned commodity trading houses. While these companies are run for profit, commercial considerations would presumably be subordinated to national security during a systemic crisis or major domestic supply shock, when supply would be diverted to the home market rather being made available to the highest bidder. Compared to investing in overseas production, the obvious advantage of this strategy is that it can provide the importing government with more flexibility in sourcing, allowing chokepoint exposure to be managed dynamically and responsively. Where they are also investing in production, these businesses are additionally investing in supply chain infrastructure, so reducing chokepoint risk in the process.

Table 7: Selected GCC investment holdings in African agricultural projects

Project location	Company or investment fund	Main foreign owner or investor	Base of foreign owner or investor	Size (ha)	Crop and/or activity	Project investment (US$ million)	Infrastructure quality (1–7, 7=best)
Project location	Company or investment fund	Main foreign owner or investor	Base of foreign owner or investor	Size (ha)	Crop and/or activity	Project investment (US$ million)	Road	Rail	Port
Mozambique	Companhia do Vale do Rio Lúrio	National Holding	UAE	607,236	Cereals; oilseeds (in addition to cotton, sugar, livestock)	4,400	2.4	2.4	3.5
Egypt	Jenat Agricultural Investment Company	Al Rajhi International for Investment	Saudi Arabia	10,000	Wheat; feed	n/a	3.0	2.6	4.3
Egypt	Al Dahra	Al Dahra	UAE	48,500	Wheat (in addition to potatoes and other unspecified crops)	n/a	3.0	2.6	4.3
Ethiopia	Saudi Star PLC	Al Muwakaba for Industrial Development & Overseas Commerce (MIDROC)	Saudi Arabia	124,000	Cereals; oilseeds (in addition to rice, oil palm, coffee, dairy, meat, livestock)	100	3.7	3.4	3.5
Ghana	Africa Atlantic Holdings	Africa Atlantic Holdings	UAE	10,947	Maize	n/a	3.5	1.8	3.7
Mauritania	Al Rajhi International Investment Company	Al Rajhi International for Investment	Saudi Arabia	31,000	Agribusiness (unspecified)	1,000	2.3	2.0	2.9
Nigeria	PJS Rice	PJS Rice	UAE	7,500	Rice	100	2.6	1.5	2.8
Sudan	Almarai Co.	Almarai Co.	Saudi Arabia	9,239	Maize; wheat	45.3	n/a	n/a	n/a
Sudan	Jenat Agricultural Investment Company	Al Rajhi International for Investment	Saudi Arabia	20,000	Maize; wheat (in addition to alfalfa)	n/a	n/a	n/a	n/a
Sudan	National Agricultural Development Co (NADEC)	National Agricultural Development Co (NADEC)	Saudi Arabia	25,000	Agribusiness (unspecified)	n/a	n/a	n/a	n/a
Sudan	Al Dahra	Al Dahra	UAE	971,245	Maize; wheat (in addition to barley, cotton, hay, sugarcane, sunflowers, alfalfa)	10,000	n/a	n/a	n/a

Note: Projects active as of 30 August 2016 (includes only those projects initiated after 2006; led by foreign investors; of 500 hectares or more); projects in italics are in negotiation. The letters ‘n/a’ indicate a lack of data.

Sources: Based on GRAIN (2016), ‘The global farmland grab in 2016: how big, how bad?’, https://www.grain.org/article/entries/5492-the-global-farmland-grab-in-2016-how-big-how-bad (accessed 25 Apr. 2017); Chatham House (2017), Chatham House Food Security Dashboard, with original data from Schwab, K. (ed.) (2016), The Global Competitiveness Report 2016–2017.

One such trading house is Saudi Arabia’s state-owned Saudi Agricultural and Livestock Investment Company (SALIC), established in 2011. In addition to trading, its interests include supply chain logistics such as railways, shipping, storage and port operations. SALIC is seeking acquisitions to establish supply chains connecting Saudi Arabia with major crop-producing regions in North America, South America and the Black Sea.283 South Korea has taken a similar step, with the establishment in 2011 of a state-owned trading company led by Korea Agro-Fisheries & Food Trade Corporation (KAFTC) and involving transport and logistics partners; the aim of the venture is to source up to 30 per cent of South Korea’s grain imports directly from US farmers by 2020.284

The most prominent state-owned commodities trader, however, is the China National Cereals, Oils and Foodstuffs Corporation (COFCO). The company has grown through a string of major acquisitions to become one of the largest grain traders in the world. It is present in over 140 countries and has revenues in the region of US$62 billion285 (by way of comparison, US giant Cargill’s revenues were US$107 billion in 2016).286 COFCO’s recent deals have included the purchase of the agribusiness operations of Hong Kong-headquartered Noble Group, and the acquisition of Dutch trader Nidera. Like SALIC, COFCO is now focusing on establishing globally integrated supply chains as well as seeking acquisitions that include strategic assets, such as storage and export infrastructure in crop-producing regions in North America, South America and the Black Sea. This strategy of increasing operational control of supply chain assets mirrors that of private-sector commodities companies (see Box 11).

Box 11: Private-sector responses to supply chain risk

The four major international agricultural trading houses – Archer Daniels Midland (ADM), Bunge, Cargill and Louis Dreyfus, which collectively account for an estimated 75–90 per cent of global trade in grain287 – began vertically integrating before the 2007–08 global food price crisis as a means to capture value and increase security along the supply chain.288 Their assets include grain terminals at ports, storage infrastructure and dry bulk shipping fleets.

Major agricultural trading houses have targeted bottlenecks in crop-growing regions

The firms’ infrastructure investments have targeted bottlenecks in major crop-growing regions. Cargill has recently expanded its investments in Russia to include grain storage facilities and elevators, and a share in an export terminal at Novorossiysk port, a major trans-shipment hub prone to back-ups.289 Bunge and ADM have increased their investments in Ukraine over the past two years.290 ADM and Cargill have invested in the expansion of Constanta, a deep-water port in Romania – grain exports from the port in August 2014 were up by 30 per cent on the previous year.291

Major agribusinesses are also increasing their footprint in Brazil: in 2015, Cargill and Louis Dreyfus Commodities won the first of many auctions for private operation of state-owned ports, committing to the management of Santos port in the south of the country for a period of 25 years;292 ADM is expanding its own terminal at Santos port;293 Cargill has constructed a soybean export terminal at the port of Santarém in the north as an alternative export route; Bunge and ADM also have plans to open soybean export terminals in the north.294

In an arguably even wider-reaching development, China is actively seeking to reduce its exposure to critical chokepoints by reshaping global supply chains themselves. The government’s ‘Belt and Road’ initiative spans multiple continents and many large-scale infrastructure developments. It encompasses planned investments in railways, roads, waterways and ports – including in and around ports and inland railways in the Black Sea region. To date, these projects include a new grain trans-shipment terminal in Mykolaiv on the Black Sea, constructed by COFCO-owned Noble Agri, and the acquisition of the Kumport container terminal in Istanbul.295 The latter is intended to facilitate transmodal transportation (incorporating more than one mode of transport) from Xi’An in China along the Silk Road Economic Belt to Moscow, bypassing the congested railways to the north of the Black Sea. Chinese support for a freight railway and ferry service linking Ukraine via the Black Sea, the Caspian Sea and Kazakhstan to China will likely further ease pressure on the region’s strained transport network.296

China is actively seeking to reduce its exposure to critical chokepoints by reshaping global supply chains themselves

Beyond ‘Belt and Road’ projects, Chinese-backed infrastructure developments targeted specifically at circumventing existing trade chokepoints also abound. While there is a willingness in China to use established economic structures, such as market-driven processes, to secure and ship supply, there is also a parallel drive to bypass those structures and create new relationships that are bilateral and perceived to be easier to control. As mentioned in Chapter 2, a US$60 billion project to link Brazil’s Atlantic coast with Peru’s Pacific coast by rail will, when completed, offer a secondary export route for soybean destined for China that both avoids the clogged ports of southern Brazil and bypasses the Panama Canal.297 Plans were also previously in place for a canal, funded by a business magnate from Hong Kong, that would run through Nicaragua and rival the Panama Canal as a link between the Atlantic and Pacific oceans. The Chinese government has distanced itself from the project since construction stalled at the end of 2015. Nonetheless, the diversification of trade routes between South America and China remains in line with China’s wider interests in the region.298

China’s investments in ports in countries around the world have been among its most controversial – perhaps unsurprisingly given their strategic importance and the potential for ‘dual use’ as naval bases. Analysis by the Financial Times identified several ports where commercial investments have preceded military activity by the Chinese, whether in India, Greece or Djibouti (see Figure 25). On the other hand, others have argued that even if these evolve into military outposts, they are more likely to be used as logistical support for non-traditional military operations such as counter-piracy or evacuations than to project hard power.

Figure 25: Chinese ownership of overseas ports

— Source: Adapted from Kynge, J., Campbell, C., Kazmin, A. and Bokhari, F. (2017), ‘How China rules the waves’, Financial Times, 12 January 2017, https://ig.ft.com/sites/china-ports (accessed 27 Mar. 2017); original Kynge et al. map based on data from King’s College, London; FT research; CIA.

China is also a major investor in Brazil’s ambitious programme to upgrade and expand domestic transport infrastructure. In partnership with the Brazilian government, China has put up three-quarters of the capital for a new US$20 billion bilateral infrastructure fund to invest in transport and logistics operations; the fund has a particular focus on railways to link Brazil’s soybean- and maize-growing belts to the coast.299

5.2 The governance gap

Ensuring the maintenance and unimpeded operation of systemic chokepoints can be considered a global good, given its importance to international food security (and to trade generally). However, chokepoints fall under the jurisdiction of governments: inland and coastal chokepoints and interoceanic canals (i.e. Panama and Suez) lie within the territory of nation states; maritime straits are controlled by the littoral states (though, where defined as international straits, these are also governed by international law under UNCLOS).

5.2.1 National infrastructure

The operation and maintenance of interoceanic canals and critical infrastructure in major crop-growing regions are, in effect, hostage to local context: to political decisions, policies, macroeconomic conditions, weather, climate and security dynamics in the individual countries concerned (see Section 3.1). The chronic underinvestment in infrastructure in producer countries, as outlined in Chapter 2, is a case in point; another is the unilateral imposition of export restrictions at Black Sea chokepoints in the recent past.

There is a global infrastructure financing gap estimated at US$250 billion a year through to 2040

In essence, there is a mismatch between risk exposure on the part of import-dependent countries – particularly LIFDCs – which are unable to address the risk at source; and risk ownership on the part of infrastructure-controlling governments, which may be unwilling to address the risk. In some instances, cooperation can address these failures. Chinese investment in Brazilian infrastructure at inland and coastal chokepoints is an obvious example. In other cases, such as the lack of rules against ad hoc export restrictions, new governance arrangements are required.

Infrastructure deficits are by no means confined to major crop producers and exporters, moreover. There is a global infrastructure financing gap – a shortfall between the funding available and the funding needed – estimated at US$250 billion a year through to 2040.300 Even where infrastructure investment is occurring, national policies too often fail to properly account for climate risks. A 2016 survey of OECD countries found that, with very few exceptions, climate risks to infrastructure receive minimal attention from governments in industrialized economies;301 and that frameworks for corporate reporting of climate risks – in so far as they affect infrastructure and operations – also remain largely voluntary.302 Despite its importance, climate-compatible infrastructure has also received remarkably little attention at the international level. Although a number of multilateral development banks now explicitly consider climate risks in their lending, there is little consistency; best practice ‘remains patchy’, according to a recent paper from the Global Commission on the Economy and Climate’s ‘New Climate Economy’ project.303 Recent efforts by the G20, through its Global Infrastructure Hub, to close the infrastructure gap ignore climate change.

5.2.2 Maritime straits

The criticality of maritime straits to food, energy and global trade in general means they have very high strategic value. Unlike national infrastructure, maritime chokepoints are a global good; this is reflected in the international governance arrangements for them. Specifically, UNCLOS establishes right of passage for ‘international navigation’ in straits, and militates against the unilateral closure of straits by littoral states.304 UNCLOS has not been universally ratified, however. Among littoral states, notable exceptions are Iran (Strait of Hormuz), Eritrea (Strait of Bab al-Mandab) and Turkey (Turkish Straits, although these straits are covered by an agreement pre-dating UNCLOS). Among user states, the most notable exception is the US. Beyond wider ratification of UNCLOS, proposals for strengthening the governance of straits include seeking political declarations from user and littoral states to confirm rights of passage, and even drafting a new convention dealing specifically with maritime chokepoints, although this would be politically difficult to achieve.305

However, as Chapter 3 demonstrated, maritime chokepoints may be strategic targets for non-state actors as well as states, in particular terrorist groups and insurgents. Interstate cooperation on intelligence-sharing and policing will be necessary to address this threat, possibly building on models successfully used to combat piracy.

5.2.3 Preparedness

Strategies that seek to mitigate risks at source by ensuring the maintenance and unimpeded operation of systemic chokepoints constitute risk reduction measures. However, risk reduction needs to be complemented by measures to prepare for inevitable chokepoint disruptions. States can pursue such strategies individually, of course: the earlier examples of strategic stock-building and state-led investments in land, logistics and trading operations are testament to this. However, these moves hint at readiness for uncoordinated unilateralism rather than a collective response. This means that a major market failure or dislocation of trade could lead to states scrambling to secure supply, competing against each other and deepening the crisis as they do so.

Collective arrangements can reduce costs and help tip the balance away from competition towards cooperation. For example, governments in Asia recently established the ASEAN Plus Three Emergency Rice Reserve, under which participating governments commit to making available an earmarked portion of their national stocks to meet the needs of other member countries in an emergency.306 Modelling suggests that diversification of supply risk in this way reduces the overall size of the reserve needed, thereby lowering costs for all.307

Perhaps more valuable than cost savings are the enhanced trust, mutual accountability and information-sharing that come with jointly managing a common reserve and agreeing rules for emergency sharing. A similar model, under the governance of the International Energy Agency (IEA), has been in place in oil markets since the oil crises of the 1970s, though concerns persist about ‘free-riding’ and whether sharing would actually happen in a true worst-case emergency (see Box 12).

Box 12: Lessons from the energy sector: oil and security of supply

Professor Paul Stevens, Chatham House

Historically, concerns over security of oil supply have been twofold. Firstly, refiners have been concerned with guaranteeing their supply of crude oil: the cost structure of refining is such that refineries need to operate at full capacity if they are to be profitable; inability to secure crude supplies seriously threatens their ability to do so. Secondly, consumers have been concerned with securing oil products to support economic activity: the stock of energy-using appliances burning oil is fixed, at least in the short term, meaning that there is limited potential to switch to alternative fuels in the case of a shortfall.

Before the 1970s, both concerns could be managed. Refiners moved towards vertical integration of their supply chains: the large international oil companies (IOCs) owned and managed their own crude oil sources and refineries. Consumers opted to boost storage capacity. The system worked well. While there were three major disruptions – the 1951 Iranian nationalizations, the 1956 Suez crisis, and the 1967 Six-Day War between the Arabs and Israelis – none gave rise to any obvious physical shortage of either crude oil or oil products; IOCs managed the problem through their own logistics systems.

In the 1970s, two developments changed the situation. The first was the nationalization by producer-country governments of the crude-producing affiliates of the IOCs, which undid much of the IOCs’ vertical integration. The second was the Arab oil embargo and the first oil price shock in 1973–74, which raised the spectre of potentially significant, long-term, politically induced supply disruptions. At the same time, an increasingly fragile political situation in the Middle East heightened concerns about the likely supply impacts of a disruption to the Strait of Hormuz, Strait of Bab al-Mandab and/or Suez Canal.308

In this context, there was a growing consensus that ensuring security of supply would be best served by a coordinated response founded on increased storage. The first step was an initiative launched by Henry Kissinger, then US secretary of state, in November 1974 to create the International Energy Agency (IEA). Central to the IEA was its Emergency Sharing Mechanism, which required member states to maintain 90 days’ worth of oil (crude and products) in storage. A series of rules was then laid down to govern the terms under which stocks would be released.

In 1978, the US established its Strategic Petroleum Reserve (SPR), building up large crude storage capacity (in excess of the IEA minimum requirement) in salt caverns in Louisiana. The creation of the SPR sparked much discussion about possible ‘free-riding’ by other countries;309 since oil was traded in a global market, any release of stocks from the SPR would dampen price spikes internationally, providing a benefit to other consuming countries at no cost.

While the effectiveness of the IEA and other mechanisms in oil markets is much debated, industry insiders agree that any emergency sharing scheme would fall to pieces in the event of a disruption as serious as closure of the Strait of Hormuz

These mechanisms have been tested on only a few occasions. The first was the shortfall of crude oil during the Iranian revolution and the Iran–Iraq war (though at the time the SPR was not yet operational). The IEA decided not to invoke the Emergency Sharing Mechanism; the result was an every-man-for-himself situation of intense competition between American and Japanese companies, prompting a second oil price shock. The second test was the loss of Iraqi and Kuwaiti crude supply following Iraq’s 1990 invasion of Kuwait. The price effects of this were initially dampened by the action of Saudi Arabia, which pushed its significant spare capacity into the market. But at the start of the campaign to liberate Kuwait, in 1991, the IEA also released its stocks; this had the unintended effect of aggravating price volatility. The third test came in 2005 when Hurricane Katrina struck oil logistics hubs along the Gulf of Mexico. The IEA announced a stock release, but, since there was no actual shortage of supply, there were few takers of the crude on offer.

While the effectiveness of the IEA and other mechanisms in oil markets is much debated in the literature, industry insiders tend to agree that any emergency sharing scheme would fall to pieces in the event of a disruption as serious as closure of the Strait of Hormuz. In their view, when push comes to shove, national interests trump efforts to manage global market stability – a conclusion that seems more sure in an era of US foreign policy that emphasizes the idea of ‘America First’.

5.3 Conclusions

The experience of 2007 to 2011 has shaped national responses to food supply risk, such that the priority remains to manage price volatility on the understanding that international markets will adjust to any temporary shortfall in food availability. Few governments have taken steps to mitigate the risk of physical supply dislocations, though China is a marked exception in this respect. Investment in the infrastructure that supports international food trade is inadequate or lacking almost across the board, and few provisions exist for protecting global strategic interests as affected by the operation of nationally owned and operated chokepoints.

As reliance on international food trade increases and hazards to the operation of trade chokepoints intensify, there is a need for cooperative approaches to infrastructure investment, chokepoint risk mitigation and preparedness for worst-case disruption scenarios. Cost- and risk-sharing arrangements will be key to enabling much-needed risk management strategies, many of which will be capital-intensive and long-running. These strategies will also need to be adaptive to keep pace with evolving hazards and vulnerabilities, and to reflect shifts in the patterns of global food trade.

Chokepoint Risk ‘Hotspots’

Each of the trade chokepoints discussed in this report poses a degree of risk to global food security, and requires management by governments, infrastructure operators, investors and insurers, as well as a range of other private and non-governmental stakeholders. Nevertheless, there are a number of hotspots of heightened risk, the management of which should be a priority for relevant national actors and the international community. These critical areas of risk are located in the three major supplier regions – the US, Brazil and the Black Sea – and in two of the most chokepoint-dependent and food-insecure regions – the Middle East and North Africa (MENA), and East Africa.

US inland waterways, rail network and Gulf Coast ports

The scale both of the physical inland transport networks and of the investment gap in the US is such that its critical grain export arteries are a major point of liability in the global system. Despite considerable understanding of the infrastructural, institutional and climate risks that threaten the reliability and integrity of the US’s locks, dams and railways, and notwithstanding ambitious investment plans, the slow pace and poor coordination of maintenance and modernization of these facilities indicate the increasing probability of disruption. Both the Gulf Coast ports and the waterway and rail networks linking Midwest producers to these ports are highly exposed to climate hazards: a number of weather-induced high-impact disruptions have already been seen, and climate stresses are expected to worsen over the coming decades.

While the US’s share of global grain exports is likely to fall as Black Sea and South American producers increase their global footprint, many parts of the US waterway and rail networks are already near or at full capacity. This means that even marginal increases in US export volumes are likely to have an exponential impact on the severity of congestion and frequency of blockages, with corresponding implications for the international market impact of an acute disruption.

Brazil’s inland road network and southern ports

Brazil’s spectacular rise as a global supplier of soybean and, increasingly, maize has not been matched by investment in its coastal export infrastructure. Ports in the south are operating at near full capacity, while shipment to new export terminals coming online in the north of the country is hindered by the poor condition of the country’s roads.310 Its ports rank 114th out of 137 (137 being the poorest ranking) in terms of infrastructure quality.311 The prospect of rising sea levels poses a significant threat to the country’s low-lying coastal plains, which are already afflicted by surface flooding and landslides.

Transport costs remain high, and a number of serious and sustained road traffic tailbacks have been seen both at seaports and inland in recent years. Political turmoil risks stymying the ambitious infrastructure development projects under way, and deterring would-be private investors in additional capacity and modernized facilities. As Brazil is the largest global exporter of soybean, stoppages in supply from the country would likely have a material impact on world soybean prices. The country’s importance as a supplier to China further heightens the risk of system-wide reverberations should a disaster strike the seaports in southern Brazil, as a sudden spike in demand for US soybean could push the US’s inland infrastructure to breaking point.

Black Sea railways and ports

The inland and coastal chokepoints of the Black Sea region are the most volatile of any of the 14 chokepoints discussed in this report. Conflict in Crimea is ongoing, with collateral impacts on the movement of grain and other cargo; diplomatic tensions are high over the wars in Syria and Yemen; and trade relations with the EU remain unstable. The governments of Russia, Ukraine and Kazakhstan have proved willing to impose both official and de facto export restrictions when domestic supply shortages or price spikes loom.

The events of the Arab Spring offer a striking illustration of the potential cascading effects of a chokepoint disruption in the Black Sea region

Investment in rail infrastructure is sorely lacking. While the region’s ports are benefiting from increased private investment, storage and trans-shipment infrastructure remains poor and bureaucratic inefficiencies are endemic. The events of the Arab Spring offer a striking illustration of the potential cascading effects of a chokepoint disruption in the Black Sea region; as Russia and Ukraine strengthen their positions as major global sources of wheat, the spread and intensity of these effects are likely to increase.

MENA region and the Strait of Bab al-Mandab

Food-deficit countries in the MENA region are particularly exposed to chokepoint disruption owing to their geographic position and high degree of import dependence. Maritime chokepoints in the region are of high criticality: sustained interruption to trade through the Strait of Gibraltar, Turkish Straits, Suez Canal, Strait of Bab al-Mandab or Strait of Hormuz could prompt import delays of several weeks. Disruptive hazards to these maritime chokepoints, and to the Black Sea railways and ports on which MENA countries also rely heavily, are myriad and in many cases worsening. The capacity of MENA countries to withstand a major disruption is severely constrained by widespread instability and armed conflict and by poor overland infrastructure.

The Strait of Bab al-Mandab is a highly critical access route for import-dependent countries in both the Horn of Africa and (together with the Strait of Hormuz) the Gulf. A number of attacks on vessels passing through the strait have been reported since late 2016, as the conflict in Yemen and tensions between Saudi Arabia and Iran have spilled over into surrounding waters.312 With humanitarian aid vessels reportedly being obstructed by both Houthis and the anti-Houthi coalition, critical food supplies are failing to reach Yemen and supply to famine-stricken populations in East Africa is under threat (a similar situation occurred in 2011 when Somali piracy hindered the delivery of food aid to Somalia).313 314 The high costs of war risk insurance for vessels transiting the Strait of Bab al-Mandab and the Gulf of Aden, and the increased transport costs for those that reroute around the Cape of Good Hope, may also contribute to higher food prices for any importing countries still able to access international shipments.315

East Africa

The low-income food-deficit countries (LIFDCs) of the Horn of Africa and the wider East Africa region are among the most vulnerable to chokepoint disruption. Levels of malnutrition, household spending on food, and government spending on food imports in these countries are high, and much of the region is in the throes of a famine or acute food emergency. Armed conflict and poor infrastructure make cross-border food distribution high-risk, while increased terrorist activity in the region and the pervasive threat of piracy in Somali waters threaten the security of emergency food shipments. The region is highly dependent both on maritime chokepoints and on at-risk inland and coastal chokepoints in the Black Sea.

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275 Maetz, M., Aguirre, M., Kim, S., Matinroshan, Y., Pangrazio, G. and Pernechele, V. (2011), Food and agricultural policy trends after the 2008 food security crisis: Renewed attention to agricultural development, FAO, EASYPol Module 125, http://www.fao.org/docs/up/easypol/932/policy-trends_125en.pdf (accessed 27 Apr. 2017). See, for example, Saudi Arabia’s programme to support domestic wheat production. USDA (2016), ‘Saudi Arabia Grain and Feed Annual’, https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Grain%20and%20Feed%20Annual_Riyadh_Saudi%20Arabia_3-14-2016.pdf (accessed 23 Feb. 2017). For the UAE’s investment in stocks, see Arnold, T. (2013), ‘Ten wheat and rice silos that can feed the UAE for six months’, The National, 4 August 2013, http://www.thenational.ae/business/industry-insights/economics/ten-wheat-and-rice-silos-that-can-feed-the-uae-for-six-months (accessed 17 Mar. 2017).

276 Beer, E. (2014), ‘Saudi Arabia commissions $132m grain facility in Al-Ahsa’, Food Navigator, 30 May 2014, http://www.foodnavigator.com/Regions/Middle-East/Saudi-Arabia-commissions-132m-grain-facility-in-Al-Ahsa (accessed 31 Aug. 2016).

277 Reuters (2015), ‘Al Dahra aims to open UAE’s Fujairah grain silos by January’, Thomson Reuters Zawya, 13 November 2015, https://www.zawya.com/story/Al_Dahra_aims_to_open_UAEs_Fujairah_grain_silos_by_January-TR20151113nL8N1383SRX2 (accessed 31 Aug. 2016); Peel, M. (2013), ‘Fujairah’s importance grows amid Iran threat to Strait of Hormuz’, Financial Times, 18 June 2013, http://www.ft.com/cms/s/0/09c50ae0-d4e7-11e2-9302-00144feab7de.html#axzz4Iu3tHo6I (accessed 31 Aug. 2016).

278 Deininger, K. and Byerlee, D. (2011), Rising Global Interest in Farmland, Washington, DC: World Bank, https://siteresources.worldbank.org/DEC/Resources/Rising-Global-Interest-in-Farmland.pdf (accessed 5 Apr. 2016).

279 A right, but not an obligation, to buy a specified quantity of a good at a specified price within a specified time frame.

280 Bailey, R. and Willoughby, R. (2013), Edible Oil: Food Security in the Gulf, Briefing Paper, London: Royal Institute of International Affairs, https://www.chathamhouse.org/sites/files/chathamhouse/public/Research/Energy,%20Environment%20and%20Development/bp1113edibleoil.pdf (accessed 11 Jul. 2016).

281 Gwilliam, K., Bofinger, H., Bullock, R., Carruthers, R., Kumar, A., Mundy, M., Nogales, A. and Sethi, K. (2011), Africa’s Transport Infrastructure: Mainstreaming Maintenance and Management, Washington, DC: World Bank, http://documents.worldbank.org/curated/en/728801468191665263/Africas-transport-infrastructure-mainstreaming-maintenance-and-management (accessed 12 Apr. 2017).

282 Engel, J., Jouanjean, M.-A. and Awal, A. (2013), The history, impact and political economy of barriers to food trade in sub-Saharan Africa: an analytical review, ODI Report, https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8803.pdf (accessed 12 Apr. 2017).

283 SALIC (undated), ‘Investment Destinations’, http://www.salic.com/English/Agriculturalinputs/Pages/Investmentdestinations.aspx (accessed 18 Jun. 2017).

284 Oliver, C. and Blas, J. (2011), ‘Seoul plans US grain trading house’, Financial Times, 10 January 2011, https://www.ft.com/content/b69c63dc-1ceb-11e0-8c86-00144feab49a (accessed 27 Apr. 2017).

285 ChinaAg (2017), ‘COFCO Group to Implement Mixed-Ownership Reforms Including IPOS and ESOPS’, 3 March 2017, http://www.chinaag.org/2017/03/03/cofco-group-to-implement-mixed-ownership-reforms-including-ipos-and-esops/ (accessed 18 Jun. 2017).

286 Singh, S. D. (2017), ‘Cargill at odds with Trump as it warns on immigration, trade’, Sydney Morning Herald, 5 February 2017, http://www.smh.com.au/business/world-business/cargill-at-odds-with-trump-as-it-warns-on-immigration-trade-20170205-gu5v93.html (accessed 23 May 2017).

287 Lawrence, F. (2011), ‘The global food crisis: ABCD of food – how the multinationals dominate trade’, Guardian, 2 June 2011, https://www.theguardian.com/global-development/poverty-matters/2011/jun/02/abcd-food-giants-dominate-trade (accessed 24 Mar. 2017).

288 Clapp, J. (2015), ‘ABCD and beyond: From grain merchants to agricultural value chain managers’, Section IV, Corporate Role in Food and Agriculture, Special Issue: Mapping the Global Food Landscape, Canadian Food Studies, 2(2): 126–132, http://canadianfoodstudies.uwaterloo.ca/index.php/cfs/article/download/84/105 (accessed 17 Mar. 2017).

289 Glauben et al. (2014), Eastern breadbasket obstructs its market and growth opportunities.

290 Mousseau, F. (2015), ‘West’s agri-giants snap up Ukraine’, Asia Times Online, 28 January 2015, http://www.atimes.com/atimes/Central_Asia/CEN-02-280115.html (accessed 8 Mar. 2017); Bunge, J. (2014), ‘Grain Companies Say They See No Significant Ukraine Impact: Investors’ Concerns Push Wheat Futures Higher, Lower Companies’ Shares’, Wall Street Journal, 3 March 2014, https://www.wsj.com/articles/SB10001424052702304585004579417523345324430 (accessed 8 Mar. 2017).

291 Ruitenberg, R. (2014), ‘Cargill’s Black Sea Stop is Booming 2,600-Year-Old Port’, Bloomberg, 17 October 2014, https://www.bloomberg.com/news/articles/2014-10-17/cargill-s-black-sea-stop-is-booming-2-600-year-old-port (accessed 28 Apr. 2017).

292 Jordão, P. (2015), ‘Louis Dreyfus, Cargill, Fibria win Brazil port areas’, Reuters, 9 December 2015, http://www.reuters.com/article/brazil-ports-idUSL1N13Y0Q120151209?feedName=companyNews&feedType=RSS&type=companyNews (accessed 8 Mar. 2017).

293 ADM (2016), ‘ADM Expanding, Modernizing Brazilian Port’, press release, 5 April 2016, http://www.adm.com/en-US/news/_layouts/PressReleaseDetail.aspx?ID=715 (accessed 8 Mar. 2017).

294 Bonato, G. and Stauffer, C. (2013), ‘In Brazil, a new road to the Amazon offers grain export relief’, Reuters, 16 October 2013, Reuters, http://uk.reuters.com/article/brazil-route-idUKL2N0HJ1W020131016 (accessed 8 Mar. 2017).

295 Tan, W. Z. (2015), ‘Cosco and China Merchants complete Turkish terminal acquisition’, Lloyd’s Loading List, 19 November 2015, http://www.lloydsloadinglist.com/freight-directory/news/Cosco-and-China-Merchants-complete-Turkish-terminal-acquisition/64818.htm#.V8agQKLU3cs (accessed 31 Aug. 2016).

296 Mykal, O. (2016), ‘Why China Is Interested in Ukraine’, The Diplomat, 10 March 2016, http://thediplomat.com/2016/03/why-china-is-interested-in-ukraine (accessed 31 Aug. 2016).

297 Ernst & Young, China (2015), Riding the Silk Road: China sees outbound investment boom – Outlook for China’s outward foreign direct investment, March 2015, http://www.ey.com/Publication/vwLUAssets/ey-china-outbound-investment-report-en/$FILE/ey-china-outbound-investment-report-en.pdf (accessed 23 May 2017).

298 Dollar, D. (2017), China’s Investment in Latin America, Geoeconomics and Global Issues Paper 4, January 2017, Washington, DC: Brookings Institution, https://www.brookings.edu/wp-content/uploads/2017/01/fp_201701_china_investment_lat_am.pdf (accessed 8 Mar. 2017).

299 Soto, A. (2017), ‘Brazil expects $20 bln fund with China to begin financing projects by March’, Reuters, 9 January 2017, http://www.reuters.com/article/brazil-china-infrastructure-idUSL1N1EZ0PJ (accessed 27 Apr. 2017).

300 Woetzel, J., Garemo, N., Mischke, J., Hjerpe, M. and Palter, R. (2016), Bridging Global Infrastructure Gaps, McKinsey Global Institute, June 2016, http://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/bridging-global-infrastructure-gaps (accessed 24 Feb. 2017).

301 OECD (2016), The role of government in making infrastructure investment climate resilient.

302 Ibid.

303 Rydge, J., Jacobs, M. and Granoff, I. (2015), ‘Ensuring new infrastructure is climate-smart’, New Climate Economy, http://newclimateeconomy.report/2015/wp-content/uploads/sites/3/2015/10/Ensuring-infrastructure-is-climate-smart.pdf, (accessed 27 Apr. 2017).

304 Emmerson and Stevens (2012), Maritime Choke Points and the Global Energy System.

305 Ibid.

306 ASEAN Plus Three Emergency Rice Reserve, www.apterr.org (accessed 9 Mar. 2017).

307 Nujahid, I. and Kornher, L. (2016), ‘ASEAN Food Reserve and Trade: Review and Prospect’, in Kalkuhl, M., von Braun, J. and Torero, M. (eds) (2016), Food Price Volatility and its Implications for Food Security and Policy, http://link.springer.com/chapter/10.1007/978-3-319-28201-5_17/fulltext.html (accessed 27 Apr. 2017).

308 Emmerson and Stevens (2012), Maritime Choke Points and the Global Energy System.

309 More recently, other countries – notably China – have been building up their strategic reserves, helped by the oil price collapse that struck in June 2014. Bloomberg (2016), ‘Oil Bulls Beware Because China’s Almost Done Amassing Crude’, Bloomberg News, 1 July 2016, https://www.bloomberg.com/news/articles/2016-06-30/oil-bulls-beware-because-china-s-almost-done-amassing-crude (accessed 28 Apr. 2017).

310 Freitas, T. (2017), ‘Mired in Mud, Brazil’s Unpaved Roads Delay Farming Promise’, Bloomberg Markets, 4 January 2017, https://www.bloomberg.com/news/articles/2017-01-04/mired-in-mud-brazil-s-unpaved-roads-delay-agricultural-promise (accessed 23 May 2017); Soybean & Corn Advisor (2017), ‘“Northern Arc” of Ports will Export 23.8% of Brazil’s Grain Exports’, 14 February 2017, http://www.soybeansandcorn.com/news/Feb14_17-Northern-Arc-of-Ports-will-Export-23_8-of-Brazils-Grain-Exports (accessed 23 May 2017).

311 Schwab (ed.) (2016), The Global Competitiveness Report 2016–2017.

312 Vaughan, J. and Henderson, S. (2017), ‘Bab al-Mandab Shipping Chokepoint Under Threat’, The Washington Institute, 1 March 2017, http://www.washingtoninstitute.org/policy-analysis/view/bab-al-mandab-shipping-chokepoint-under-threat (accessed 27 Apr. 2017).

313 Mbekeani, K. K. and Ncube, M. (2011), Economic Impact of Maritime Piracy, Africa Economic Brief, 2(10), African Development Bank, https://www.afdb.org/en/documents/document/africa-economic-brief-economic-impact-of-maritime-piracy-24575 (accessed 27 Mar. 2017).

314 Saul, J. and Paul, K. (2017), ‘Escalation in ship attacks pushes Yemen towards starvation’, Reuters UK, 6 March 2017, http://uk.reuters.com/article/uk-yemen-security-maritime-analysis-idUKKBN16D161 (accessed 27 Apr. 2017).

315 Bowden, A., Hurlburt, K., Aloyo, E., Marts, C. and Lee, A. (2010), The Economic Cost of Maritime Piracy, One Earth Future Working Paper, December 2010, http://oceansbeyondpiracy.org/sites/default/files/attachments/The%20Economic%20Cost%20of%20Piracy%20Full%20Report.pdf (accessed 27 Apr. 2017); Mbekeani and Ncube (2011), Economic Impact of Maritime Piracy.

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