“Who controls the food supply controls the people.” – Henry Kissinger
Key Points
- After decades of abundant food supply, abrupt changes in the agricultural commodity equilibrium may have long-lasting effects for consumers.
- Rising energy prices and geopolitical posturing appear likely to strain food delivery networks across the globe.
- Supply/demand dynamics in the agricultural sector provide opportunities for nimble investors to capitalize on the increasing dislocations in the supply chain.
The global agriculture and food network is an intricate, interconnected system. Any disruption to one part can have ripple effects throughout the entire network, often with unintended consequences. We believe that there is complacency about the supply of commodities in general, and agriculture in particular. Much of the world is accustomed to having a food supply that is readily available and cheap. However, there are numerous examples where food has the potential to spark economic and humanitarian crises. We see agriculture increasingly as both a driver and victim of geopolitical volatility.
The Haves and Have Nots
When investing in commodities, we refer to the concept of the ‘haves’ versus the ‘have nots.’ Consider the fact that approximately four-fifths of the world’s population lives in countries that are net importers of food. Using wheat as an example: in 2021, Russia and Ukraine were the world’s largest and fifth-largest exporters of wheat, respectively. According to the UN Food and Agriculture Organization, nearly 50 countries depend on Russia and Ukraine for more than 30% of their wheat imports (26 countries are over 50% reliant on the Black Sea region). Including all other agricultural products, Russia and Ukraine provide almost an eighth of the global calories traded. Approximately 86% of all global wheat exports come from only seven countries, with three countries holding nearly 68% of the total world’s wheat reserve.[1] To put these figures into context, one of the biggest commodity cartels, the Organization of the Petroleum Exporting Countries (OPEC), controls only one-third of global crude oil supply. Disruption in one region of ‘haves’, in this case Russia and Ukraine, could have massive ramifications for the global community that relies on stable trade flows.
Interconnection with Traditional Energy
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Important information
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