September 4, 2024
Whether you are an average consumer or a trader, you will agree to have experienced price fluctuations in the food supply chain. One major contributing factor is geopolitical. Despite the borders, the world is deeply interconnected through trade, from food, technology, and hardware to oil, gas, raw materials, and final products, all are continuously being traded from one part of the world to another.
However international policies and geopolitics play a significant role in trade, impacting not only the nations directly involved but also their neighbours and other countries linked.
Let’s take a look at how geopolitics impacts the global supply chain.
Trade policies: Every nation has its own set of rules, policies, and agreements that form the complex shape of global trade, which can help to balance out supply and encourage commerce by lowering tariffs and trade barriers. However, any trade conflict, economic sanctions, or increased traffic for imported goods, especially food, causes a ripple in the global supply chain.
Wars and Conflicts: War and strife between nations impact the whole world, not just the countries directly involved. They disrupt trade routes and supplies, causing a huge disparity in demand and supply. One recent example is the Russia-Ukraine war, which has greatly impacted the supply chain. It has disrupted trade routes and supply chains for essential commodities like wheat, oilseeds, fertilizers, etc.
Impact on resource control and scarcity: The global food supply chain depends on major resources like oil and gas for import and export worldwide. But when control is scarce over these said resources it impacts the whole trade process. For example, the shortage or control over oil, and gas, leads to higher transportation costs making food trading expensive.
Climate Change and Environmental Policies: International climate and environment policies are another factor that directly impact the food supply chain and inflation. These policies and agreements create a framework for farming practices, agriculture systems, use of fertilizers, etc, affecting food production and prices.
Geopolitical impact on the global supply chain and food inflation
- Geopolitical conflicts and trade wars disrupt key trade routes, delaying shipments of essential food products and raw materials, leading to shortages and price increases.
- Political instability in major oil-producing regions drives energy prices up, increasing transportation and production costs, which in turn raise global food prices.
- Sanctions on key agricultural exporters and export restrictions by nations to protect domestic supplies limit the availability of essential food products, pushing global prices higher.
- Geopolitical events often lead to significant currency fluctuations, making food imports more expensive for countries with weaker currencies, and contributing to inflation.
- Conflicts in regions producing key fertilizers disrupt supply chains, leading to lower crop yields and higher food prices due to reduced agricultural output.
- In response to geopolitical uncertainties, countries may adopt protectionist policies, such as restricting food exports, further tightening global supply, and escalating food inflation.
Conclusion:
Geopolitical tensions affect global supply chains, impacting markets and people worldwide. Trade sanctions, conflicts, and instability disrupt the production and transport of essential goods, causing supply shortages, higher costs, and economic problems as well as inflation, especially in the food sector, and displeasure among the consumers. All of these can leave a lasting effect on economic, political and social dynamics. Thus, addressing these challenges is essential to stabilizing food prices and ensuring global food security.
