Squeals of horror over price caps – but how are we going to fix our broken food system? | Food & drink industry

News that the Treasury was asking UK supermarkets to cap price rises on essential foods was greeted this week with predictable cries of horror. Supermarkets were reportedly “furious”, as luminaries from the former director of the Institute of Fiscal Studies to the former chairman of M&S lamented the evils of price controls.

But these meows distract attention from two unpleasant facts. First, the surge in food prices over the summer and beyond will likely be significant – and on top of a nearly 40% rise in food prices since 2020 – due to the devastating combination of the war in Iran and a record El Niño that is expected to upend global food production. Second, the UK food system is painfully exposed to such shocks. The long-held assumption that a global food system can be counted on to meet the nation’s needs, at a reasonable price, no longer applies.

With around a third of the fertilizer trade passing through the Strait of Hormuz and around half of the world’s food supply dependent on artificial fertilizers, the shock to global food systems will be felt over the next year – regardless of how quickly the Strait reopens or not.

The Strait of Hormuz is not the only choke point in the global food system. In a prescient 2017 study, foreign policy think tank Chatham House said the global food system had become painfully exposed at 14 “critical crossroads,” from the Strait of Hormuz to the Strait of Malacca, between the Malay Peninsula and Sumatra, to the Black Sea ports that connect Ukrainian and Russian farmers to the world. The Panama Canal is another; A years-long drought across Central America has restricted transits through the freshwater-fed canal, which carries 16% of the world’s grain trade, driving up global prices.

The theory behind the UK’s approach is that it shouldn’t matter. Disruptions to harvests and transportation in one part of the world will be offset by access to products in another. As long as global markets remain open, everything will be fine. In recent decades, this has largely been true on a global scale, as malnutrition has declined. The range and quality of food available in the UK has improved significantly.

But world hunger has been increasing since 2014, with Covid-19 significantly accelerating the trend. And the belief that open markets can always offset disruption runs counter to the entire system’s growing dependence on a few “breadbaskets”, with 60% of global food production occurring in just five countries. It also ignores the possibility of simultaneous shocks – precisely what the climate crisis, by making weather systems more unstable, is starting to make more likely.

Now is the danger. The return of El Niño in the South Pacific could worsen the closure of the Strait of Hormuz. Recurring every three to five years, El Niño is a large northward movement of warm ocean water that changes weather patterns across the world. These effects vary, but will generally include much warmer and drier weather in East Asia and southern Africa, but much wetter and colder weather in South and Central America, extending south into the United States. More severe droughts on one side of the world and more severe storms elsewhere naturally affect food production. Historically, stronger El Niño events are associated with an increase of around 9% in global food prices, with significant variation: a major El Niño event in 2015-2016 pushed 50 million people into food insecurity in southern and central Africa.

Forecasters in Europe and North America are increasingly sounding the alarm about a large and record El Niño event this year and next. Meteorologists have spoken of a “Godzilla” event, upending weather patterns – and crops – from the Pacific coast to East Asia. If this happens, the full effects, like the fertilizer shock, will be felt in the longer term – starting in autumn and next year’s harvest.

The UK food system is not immune. Britain imports around 60% of its fertilizer and 50% of its fossil gas. As a result, global rising fertilizer prices and energy costs are already causing an “agricultural cost crisis,” while the climate crisis is beginning to take hold. Britain has suffered three of the five worst harvests on record in the past decade. Losses for farmers are starting to pile up. Last year, the value of wheat, barley, oats and rapeseed crops fell more than a fifth below their long-term average, costing farmers £828 million in lost income. Over the decade as a whole, the loss of income due to these lower harvests now stands at £2.3 billion.

Extreme weather is now affecting the vast majority of UK farms, with 86% of farmers reporting being affected by extreme rainfall and 78% by drought in the last five years. Climate change is the cause of the crisis in British agriculture.

Faced with these risks, a market-led system is unlikely to work as intended. Supplies run out, driving up prices or causing shortages. Profits arise when large companies in positions of market power in the supply system generate record profits. Economists Isabella Weber and Evan Wasner have described how the combination of external shocks and market power can produce widespread inflation, signifying a sharp turning point in the cost of living crisis. As prices of basic necessities rise, households cut spending in other sectors of the economy, dampening demand, stifling growth and pushing economies into stagnation.

Our entire food system needs an overhaul. Privately, the government recognizes this. The reluctantly released summary of a still-secret Defra paper on the national security risks of “ecosystem collapse” reported that “without a significant increase in the resilience of the UK food system and supply chain, it is unlikely that the UK will be able to maintain food security if ecosystem collapse leads to geopolitical competition for food… Countries best placed to adapt are those that invest in the protection and restoration of ecosystems and systems resilient and efficient food. »

Global price shocks will not be enough to force change, as an Oxford University study of previous shocks has shown. Government action is necessary. Reductions in customs duties on nuts and approaches to supermarkets are unlikely to yield results. Like other countries, the UK needs to replenish its strategic food reserves, abandoned in the mid-1990s. This requires tighter government control and regulation of essential foods, including well-designed price regulations, such as those being introduced around the world. And it must focus on longer-term investments in its own agriculture, supporting farmers in a more unstable environment with proposals such as establishing a basic income for farmers and incentives to establish more resilient and sustainable food production. The grave danger is that we remain gravely exposed to events over which we have no control in an increasingly unforgiving world.