What happens when increasing populations and incomes lead to higher demand for resource-intensive food while climate change and resource scarcity disrupt food supply? A new report released today by Global Footprint Network and the UNEP Finance Initiative finds that this growing imbalance of food demand and supply will lead to higher food prices and food price volatility, ultimately resulting in material impacts on national economies.
If global food prices double, then China could lose $161 billion in GDP and India could lose $49 billion, according to the new report, titled ERISC Phase II: How food prices link environmental constraints to sovereign credit risk.
The report models the impact of a global food price shock on 110 countries to assess which countries face the greatest economic risk from the growing imbalance between food supply and demand. It summarizes the results in a ranking of countries according to impact on GDP.
The report will be launched later today (May 18) at an event at the London offices of S&P Global Ratings, a partner in the project.
In terms of the highest percentage loss to GDP, the five countries that will be worst hit if food commodity prices double are all in Africa – Benin, Nigeria, Cote d’Ivoire, Senegal and Ghana. But China will see the most total amount of money wiped from its GDP of any country – $161 billion, equivalent to the total GDP of New Zealand. India will see the second highest loss to GDP – $49 billion, equivalent to the total GDP of Croatia. Globally, such negative effects of a food price shock massively outweigh positive effects in absolute terms. The highest positive effect on GDP in absolute terms, seen in the United States, is only $3 billion –50 times smaller than the impact on China.
The report finds that countries with higher credit ratings tend to be less exposed to economic risks resulting from a food price spike. In addition, countries whose populations have the highest consumption of natural resources and services, and are therefore most responsible for the environmental constraints that make future food prices higher and more volatile, tend to face the lowest risk exposure.
"As this latest research shows, disruptions to our food system represent a substantial environmental risk that both investors and governments may be largely overlooking but would be well-served to prepare for." said Susan Burns, co-founder of Global Footprint Network and director of its Finance for Change Initiative. "It’s important to highlight that the countries responsible for the pressure in the global food system are not the ones hurt by it. In order to reduce the pressure, high income countries can focus on the sustainability of their own food production and consumption."
The ERISC Phase II report was published in collaboration with Cambridge Econometrics and Caisse des Dépôts, First State Investments, HSBC, Kempen Capital Management, KfW, and S&P Global Ratings.
For more details, visit our new Finance for Change website to read a press release or download the full ERISC Phase II report.