Climate change and trade barriers are driving up prices: danger of a “food war” is real

• The CEO of Olam Agri warned that trade barriers and climate risks will lead to more intense food wars.
• Food inflation has already risen due to a growing imbalance between supply and demand.
• Protectionism is increasing as countries try to protect their domestic markets.

“Food wars” threaten global stability as trade barriers and the climate crisis strain supplies, warned the head of trading company Olam Agri.

In comments first reported by the Financial Times, CEO Sunny Verghese pointed out that increasing trade restrictions were already exacerbating food inflation and leading to an exaggerated imbalance between supply and demand.

“We have fought many wars over oil. We will fight even bigger wars over food and water,” he said last week at the Redburn Atlantic and Rothschild consumer conference.

Although agricultural commodity traders took the blame for rising food prices following Russia’s invasion of Ukraine in 2022, the CEO denied that the outbreak of non-tariff barriers was likely the main culprit, with 1,266 trade barriers introduced this year.

As the exchange of goods tightened, demand increased in the richer economies, which focused on creating surplus stocks.

Not only have the higher prices exacerbated the cost of living crisis in certain regions, but the increasing food shortages since Covid-19 have also created uncertainty in poorer regions, the newspaper said.

At the same time, the warmer climate has exacerbated the challenges for agricultural production and led to aggressive price increases in numerous commodities such as cocoa, coffee and sugar.

According to Verghese, this is leading governments around the world to resort to protectionism to shield their domestic markets. Examples include Indonesia’s ban on palm oil exports and India’s restrictions on rice exports.

“That was exactly the wrong thing to do,” he said. “You’re going to see more and more of this kind of thing.”

In view of the climate risks, the trader urged the industry to take serious action. For governments, a carbon tax would be an appropriate measure, he argued.