Russia's status as a key exporter of wheat and fertiliser products means there is now a "real risk of future food shortages" as a result of the Ukraine crisis, according to the managers of Schroders' Global Resource Equities fund, who believe $30trn needs to be invested between now and 2050 to create more sustainable food and water system.
In a recent update on Schroders' website, co-managers Felix Odey, Alexander Monk and Mark Lacey said many investors have been focusing on Russia's role as a key supplier of global oil and gas, but pointed out that Russia and Ukraine account for approximately 30% of the world's wheat exports.
"Clearly, disruption to the export of wheat will have ramifications for consumers in terms of both availability and price," they said. "It is emerging markets that are likely to see a disproportionate impact given they have been the traditional destination of Russian wheat.
"In recent years. the top three markets for Russian wheat exports have been Egypt, Turkey and Bangladesh."
The managers added that, if developed markets choose to subsidise food prices to minimise the impact of inflation, this will widen the wealth gap between richer and poorer nations, with fertiliser company Yara telling the team recently that crop yield could fall by as much as 50% by next harvest.
"The impact of this is extremely alarming, even if the disruption were confined to Ukraine," the team said. "But the problem extends further because Russia is not only a large producer of wheat, but also of the resources that go into fertiliser products such as nitrogen, phosphate and potash.
"The potash market in particular is highly concentrated. 80% of all exported potash comes from just three countries - Canada, Belarus and Russia - with 40% coming from the latter two together."
Odey, Monk and Lacey added that the Russian invasion-specific headwinds to the global food market will only exacerbate existing pressures caused by climate change and a growing global population.
They referred to the latest impact report published by the United Nations Intergovernmental Panel on Climate Change, which stated: "At 2°C or higher, global warming will progressively weaken soil health and ecosystem services such as pollination, increase pressure from pests and diseases, and reduce marine animal biomass, undermining food productivity in many regions on land and in the ocean."
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The Schroders managers concluded: "We think $30trn needs to be invested between now and 2050 in order to achieve this.
"The three structural changes that are needed are: higher agricultural yields and efficiency, which can be enabled by technology; changes to global diets, including lower meat consumption; and a major reduction in waste and emissions."
