Hormuz blockade risks Covid-like food price spike - economist
Ships carrying agricultural inputs must start moving through the Strait of Hormuz "as soon as possible" or the fall out could trigger a Covid-like spike in food inflation.
That is the stark warning that has been issued by the Food and Agriculture Organisation of the United Nations (FAO).
The FAO has warned that in particular fertiliser and energy markets are "inelastic" so prices can rise much more than changes in traded volume suggest.
It believes markets are likely to react very quickly if vessels do not start to move through the strait soon.
Exports of between 20% to 45% of key agrifood inputs rely on sea passage through the Strait of Hormuz according to the FAO.
Maximo Torero, FAO chief economist, believes the current crisis in the Middle East could trigger a "cascade of effects" similar to the aftermath of the Covid-19 pandemic crisis.
One of these effects could be be a "dangerous spike" in food price inflation later this year.
“The clock is ticking.
"The last thing we want is lower crop yields and higher commodity prices and food inflation for the next year,” Torero added.
Food prices
The FAO chief economist said "crop calendars" put poorer countries most at risk of scarce and pricey fertiliser and energy inputs.
“The last thing we want is lower crop yields and higher commodity prices and food inflation for the next year,” Torero added.
He said this in turn would likely force countries to put policies in place to lower domestic food prices, triggering higher interest rates and as a result potential slower economic growth around the world.
According to the FAO the world is facing an "input crisis".
The FAO is urging all countries to closely examine biofuel mandates and above all to "avoid export restrictions on energy and fertilisers".
It has now developed a "crop calendar-based" prioritisation of countries based on when and how much fertiliser they need.
“The risks are very clear.
"If we don’t accelerate, the risks will exacerbate,” Torero said.
But he also believes the Strait of Hormuz blockade “is something governments can resolve and have to resolve".
