Emerging markets at risk from recurring food insecurity shocks

The issue of food security has been brought back into focus due to the increase in global food prices following Russia’s invasion of Ukraine. Moody’s Investors Services has warned that recurring food insecurity shocks could be higher for emerging and frontier markets.

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In the wake of Russia’s invasion of Ukraine, the issue of food security has gained renewed attention due to higher global food prices. A report by Moody’s Investors Services highlights the potential for recurrent food insecurity shocks to worsen the macroeconomic situation in emerging markets. These markets are particularly vulnerable due to a higher share of food in household spending and exposure to environmental and social risks.

Food shocks can exacerbate macroeconomic challenges and social risks, leading to credit risk for many emerging market sovereigns, especially those most exposed to physical climate risk. Moody’s also notes that global food price volatility has been increasing over the past two decades, with the current spike being the third in 15 years. The combination of rising global demand for food, exposure to geopolitical disruption, and physical climate risks will keep global food security fragile and vulnerable to shocks.

According to the report, the 2022-23 food price shock will prompt regional and international efforts to enhance food security and supply-chain resilience. However, weak governance and capacity constraints in the most affected countries, along with the challenge of sustaining long-term global support, will impede these policy measures.

Moody’s has stated that the combination of rising global demand for food, exposure to geopolitical disruption, and physical climate risks will keep global food security vulnerable to shocks, making food insecurity shocks a recurrent source of credit risk.