War in \\Ukraine:
Perspective on Global Food Crisis
BCG Global Advantage and Social Impact Practice Areas
Prepared: 13 July 2022

Prepared: 13 July 2022

Introduction to this document

Moreover, the continuity of the war has
resulted in profound economic impact, notonly within Ukraine but globally — assupply chains face disruption, commodity
prices rise, and unprecedented levels of
sanctions take holdWe continue to examine the most pressing
issues and questions on the minds of ourclients and teams
This edition shares the latest update on the
global economic impact of the war, as wellas its exacerbating effect on the global foodcrisis. The document outlines the challenges
for the global food system, specific public andprivate sector impacts, and implications forleaders to strengthen food system resilience

Copyright © 2022 by Boston Consulting Group. All rights reserved.

The war continues to be first andforemost a humanitarian crisis, and the
top priority for all continues to be the safety
and security of people2Prepared: 13 July 2022

AGENDA

Perspective on Global Food Crisis
Global Food Crisis trends
Public & private sector impact
Implications for leaders
Copyright © 2022 by Boston Consulting Group. All rights reserved.

War in Ukraine:
Global Update
and Global Food
Crisis3

Prepared: 13 July 2022

Summary | Unprecedented food system crisis unfolding in three waves
GlobalFood
CrisistrendsThe War in Ukraine is precipitating a food system crisis over three waves, impacts could last as long as 3-5 years
W1: Humanitarian crisis | Food insecurity, price spikes; 1.6B people could not get enough to eat, increasing by
440M people in 2022
W2: Mid-term negative loop | Lower fertilizer availability leads to reduced yields; risks compounded by protectionist
measures, now impacting 5.5% of global calories; concentrated production & trade flows limit flexibility of response
W3: Long-term impact | Reduced systemic resilience and widening investment gap to meet global nutrition needs

Copyright © 2022 by Boston Consulting Group. All rights reserved.

The War has become a tipping point for a fragile, concentrated food system, already suffering from recent shocks:(A) climate disruption through extreme weather events, (B) COVID-19 spending leading to reduced budgetary
flexibility to increase or reallocate public sector funds
The disruption is uneven across countries, with MENA most affected, and value chain sectors
Public& private Public sector | Five country archetypes based on self-sufficiency and hunger levels help policymakers identify
sectorresponse & resilience-building actions; humanitarian aid & fertilizer subsidies are key solutions for most impacted
impactPrivate sector | Ripple effects can impact the whole value chain and consumer markets through shortages, higher
costs & prices (inputs, food, and transport) and potential barriers to global trade
Implications

Public, private and social sector need to act now to prevent negative long-term impacts: from short-term relief andtechnical assistance to longer-term incentives, trade agreements, supply diversification and productivity investments
4Prepared: 13 July 2022

AGENDA

Perspective on Global Food Crisis
Global Food Crisis trends
Public & private sector impact
Implications for leaders
Copyright © 2022 by Boston Consulting Group. All rights reserved.

War in Ukraine:
Global Update
and Global Food
Crisis5

Prepared: 13 July 2022

The War in Ukraine is precipitating a food system crisis in three waves
WAVE 1

WAVE 2Mid-term negative loop
Trade & yields disruption

Humanitarian crisis
food scarcity & high prices
Unprecedented food humanitariancatastrophe: 1.6B could not get enoughto eat, increasing by 440M in 2022
20M tons of grain trapped in Ukraine(1/4 of 2021 annual production), 75M
tons may be trapped by Fall 2022
Supply volatility leading to global foodinsecurity & major price spikes

Fertilizer supply shortage reduces
availability, increases prices

Devastating impacts on yields overnext 2-4 years, likely to lead to foodprice volatility (above current inflation)
Concentrated production & tradeflows challenge flexibility of global foodsystem to respondWAVE 3Long-term impact
Reduced systemic resilience
Emergency spending likely to displace
long-term investments in the
agricultural sector and Sustainable
Development Goals (SDGs)
This could result in further decreases
in food system resilience

Underlying challenges
A Climate disruption
B Covid-induced fiscal stress
Source: BCG case experience & analysis

6Prepared: 13 July 2022

HumanitariancrisisGrain supply disruptions and higher prices are creating a global
hunger crisis, with famine risk levels at all-time highs

High reliance on
Ukrainian grain

Resulting high prices hurt
poor consumers the mostFood shortage and famine
risk creating change

which is trapped in siloes
along the Black Sea

particularly in low-income countries
reliant on imports

leading to an unprecedented
humanitarian catastrophe

20M

tons of grain trappedin siloes in Ukraine

50%

of wheat needed by theWorld Food Program istrapped in Ukraine90%

of wheat imports inEast Africa come from
Russia and Ukraine

1.6B

people who could not
get enough to eat

23%

higher FAO1 food priceindex than one year ago

49M

people at risk of famine,an all-time high

1. Food & Agriculture Organization of the United Nations. Source: FAO; WFP; BCG case experience & analysis

7

Copyright © 2022 by Boston Consulting Group. All rights reserved.

1Prepared: 13 July 2022

1

MENA, China & South/SE Asia most dependent to direct War risk

HumanitariancrisisEgypt, Turkey, China among countries most reliant on Russia & Ukraine
Global UKR+RUS share Main importers by total imports, 2019 $B

1

Key developments% indicate proportion of total country imports

30%

75%

19%

of $39B global
wheat exports
Egypt

56%
of $10B global
sunflower oil
exports

16%
Of $36B global
corn exports

TurkeyIndonesia Philippines

26%

India

China

85%
China

Netherlands

Rest of world

77%

69%

61%

TurkeySpain

Netherlands

38%

58%

33%
57%

Spain

RussiaEgypt

90% of Ukraine
sunflower oil exports
shipped by sea

MENA most exposed to
immediate food shortages,
potentially leading to social
unrestNigeria

93%
95%

Ukraine 2022-2023
wheat exports set tofall 47%

Food central to geopoliticaltensions, e.g., Russia
blocking Ukrainian key grain
exports ports

TurkeyChina to import cornfrom Brazil due to
Russia blockadeWest Africa and Sahelalready seeing increases inhunger risks due to importreliance and low
agricultural productivity

Ukraine1. All values in USD
Source: USDA; Eurasia Group; Financial Post; OEC; UN Comtrade; Reuters; BCG case experience & analysis

8

Copyright © 2022 by Boston Consulting Group. All rights reserved.

25%

73%

Geopolitical and local
social tension risks

Prepared: 13 July 2022

Fertilizer and fuel supply challenged by war shock; crop yields at risk
due to decreased input affordability and accessibility

Mid-term
negative loop

Sanctions impact key Russian &Belarusian fertilizer exports

Fertilizer & fuel prices skyrocketing;could risk yields for up to four years
Brent crude oil price($ per barrel)

Fertilizer price1($ per MT)$200$1,000$800

Fertilizer
Brent crude oil

$600

$100
$400

Fertilizer trade balance (exports minus imports),
top & bottom 5 countries, 2019 $B2

RussiaCanadaChina
Belarus
MoroccoAustralia
FranceUSA
India-7
Brazil
-10

$200

17%
$0

2017

2018

2019

2020

2021

$0
2022

Fertilizer export restrictions
exacerbate global shortages

share

8
4
4
3
3
-2
-2
-3

Russia also led global
exports of natural gas
in 2019, a key feedstock
for the fertilizer industry

1. Fertilizer prices displayed are an average of DAP and Urea fertilizer prices; 2. Includes fertilizers in aggregate, where prominent fertilizers
are urea (nitrogen), di-ammonium phosphate (phosphate) and potash (potassium)
Source: World Bank; EIA; OEC; CIA World Factbook; UN Comtrade; BCG case experience & analysis

VietnamRaised export tax rate on
fertilizers to cool domestic prices

India
High fertilizer prices led toprice caps on Di-Ammonium
Phosphate purchases

Copyright © 2022 by Boston Consulting Group. All rights reserved.

2

United States
Considering export restrictionof crude oil to ease soaring
domestic fuel prices
9Prepared: 13 July 2022

2

Mid-term
negative loop

Africa, Middle East & Asia net importers of significant Agrifoods & Cereals values
Net trade balance (exports minus imports), 2019 $B1

Overall Agrifoods1

Ensuing
protectionismand export
restrictions tocreate further
volatility in aninterconnected
global foodsystemCereals deep-dive2

Net trade balance ($B)(80)-(60)(60)-(40)(40)-(20)

Net trade balance ($B)(20)-(0)

0-10

11-20

21-30

31-40

41-50

(8)-(4)(5)-(4)(4)-(3)(2)-(0)

0-4

5-8

9-12

13-16

17-20

Exporters considering and imposing export bans to protect local food markets
Current protectionist measures affect 5.5% of global calories
India
Hot weather led to wheat andsugar export bans, reversing
earlier pledge to boost
shipments

Argentina
Blocked soybean oil, livestockand soybean meal exports asprices skyrocket

Indonesia
Temporarily banned palm oil
product & palm kernel exports,
mandating producers to set aside
20% of supply for local buyers
10

Note: All values in USD. 1. HTS Code Chapter 1 to 15; 2. HTS Code Chapter 10. Source: OEC; UN Comtrade; Eurasia Group; Reuters; BCG analysis

Prepared: 13 July 2022

3

Food system funding will come under further pressureLong-term impact

The funding gap to achieve SDGs,
including a resilient food system,
was high before the war$17.9TGap in financing needed tomeet the UN's Sustainable
Development Goals in the
period 2020-2025

We risk going fromhaving a gap to achieve theSDGs to having an abyss."— UNCTAD Secretary General

Many additional urgent priorities will also need to beaddressed by donor funds$2.2B
EBRD1 package announced in March tosupport the Ukrainian private sector$1.4B
IMF support for Ukraine to cope witheconomic shock caused by War$4.5B
G7 commitment to addressing global
food security in 2022

$170B
Response envelope under considerationby the WBG2 for developing countries
facing compounding crises
1. European Bank for Reconstruction and Development; 2. World Bank Group
Source: EBRD; IMF; Reuters; WBG; BCG case experience & analysis

11Prepared: 13 July 2022

The War is a tipping point for an already fragile food system characterized
by underlying challenges

WAVE 1
Humanitarian crisis
food scarcity & high prices

WAVE 2Mid-term negative loop
Trade & yields disruption

WAVE 3Long-term impact
Drag on systemic resilience

Underlying challenges
A Climate disruption: Extreme weather events lead to reduction in yields & potential impacts on distribution
B Covid-induced fiscal stress: Depleted treasuries & borrowing capacity, with many countries facing distress

Source: BCG case experience & analysis

12Prepared: 13 July 2022

Climatedisruption

Agricultural yields are deteriorating and upcoming harvests face risk
from extreme weather events, exacerbating War impacts

Agricultural impact

Extreme events

Climate risks challenge agriculture
Extreme weather (e.g., heatwaves,
floods, hurricanes) have wiped out
crops, worsening yield uncertainty
Water scarcity has reduced agricultural
productivity in markets that must rationwater; California harvests to suffer
Annual food yields have seen 5.3%
lower growth since 1961; yields set tofall 10-25% for each degree of warming
Arable land & productivity reduced
due to droughts; share of land
affected to triple by 2050

Extreme weather conditions to hit resource-poor countries the hardest
Extreme variability
in rainfall observed inover 27 countries1
Significant rainfall orvegetation deficit
Significant excess
rainfall

3.3-3.6B people highly
vulnerable to climate impacts
Hotspots concentrated in South Asia, Central / South America, & sub-Saharan Africa

1. ‘Significant excess rainfall’ is defined as current rainfall (3-month average) more than 30% above normal (20-year average). ‘Significant rainfall or vegetation deficit’ is defined as current rainfall (3month average) more than 20% below normal (20-year average) OR current vegetation deficit defined by Normalized Difference Vegetation Index (NDVI) more than 10% below normal.
Source: IPCC; Eurasia Group; BCG case experience & analysis

13

Copyright © 2022 by Boston Consulting Group. All rights reserved.

APrepared: 13 July 2022

Covid-induced high debt levels across ~60% of low-income countries
limit fiscal capacity to respond to food challenges

Covid-induced
fiscal stress

Low-income countries1 in debt distress or at highrisk doubled to ~60% since 2015
Low-income countries indebtedness (%)

28

33

33

35

33

30

24

21

17

23
12

36

35

38

46

45

25

25

21

50

23

24

29

3

3

15

16

5

6

2

0

2

2009 10

11

12

13

14

In debt distress

15

30

High

35

31

33

33

33
20
Medium-income

47

45

43

10

12

13

20

21 2022

38

37

42

9

11

12

17

18

19

35
26

19

10

External debt service as a share of exports, developing countries
by income group (%)

High-income (developing)

39
37

17

10

Cost of debt servicing rises for developing countries2

MediumLow

Low-income

10

0
2011

Copyright © 2022 by Boston Consulting Group. All rights reserved.

B

2012

2013

2014

2015

2016

2017

2018

2019

2020

At least 100 countries will have to reduce spending onsocial programs to meet debt payments1

1. According to the World Bank Atlas method, countries with Gross National Income of $1,085 or less in 2021. Source: IMF; UNCTAD; BCG case experience & analysis

14Prepared: 13 July 2022

AGENDA

Perspective on Global Food Crisis
Global Food Crisis trends
Public & private sector impact
Implications for leaders
Copyright © 2022 by Boston Consulting Group. All rights reserved.

War in Ukraine:
Global Update
and Global Food
Crisis15

Prepared: 13 July 2022

The disruption is uneven, leading to different implications
51 countries severely exposed to the impacts
from the current food crunch

Risk level1:

High

MediumLow

Public sector perspective

Interconnected impacts across global value chains,for upstream, downstream & financial sector players
Inputs

Production

Volatility in input supply(e.g., fertilizer) increases
prices (as much as 300%)

Input costs, prices received
lead to planting decisions
to minimize disruption

Supply crunch forcustomers, higher
earnings (50%+ above
expectations) for companies

Canadian farmers areplanting 6% more wheat,
13% more durum at theexpense of canola, down 7%Distribution

Consumer/Retail

Truck freight prices
increased 25.8% between
June 2021 and May 2022

CPG companies exposed to
one-time costs due towithdrawal from Russia~20% of container vessels
trapped at congested ports,
creating supply challenges
for distributors

Long- term supply risks(e.g., environmental impactof using palm oil overUkrainian sunflower oil)

Trade/
Aggregation
Net-exporters expected tofill gap left by Russia andUkraine (e.g., Turkey, Brazil,
India)
However, protectionismand export bans hindersinternational business

Investors &Banks/Funds
Concessional capital
likely to decline with
inflation increase (2022projections: 6.7% globally)
Other asset classes more
appealing with market
volatility driving increased
diversification

Private sector perspective

1. Includes analysis of current food insecurity levels, ongoing conflict, climate risks, debt-to-GDP ratio, import reliance, and other measures of fiscal health and humanitarian need
Source: AgriCensus; Winsight; BCG case experience & analysis

16Prepared: 13 July 2022

Public sector | Impact varies across country archetypes; food aid & monetarysubsidies key solutions for most adversely affected countries

Selfsufficiency

Examplecountries

Facing major
hunger & famine
risks

Exposed to
productivity andhunger risks

Reliant on
agricultural input
imports

Haiti
South Sudan
Sri Lanka
Yemen

Cuba
Ethiopia
Nigeria
Pakistan

Colombia
Kenya
Peru
Philippines

Key focus • Immediate food aid andcash transfers
areas• Immediate food aid andcash transfers• Subsidies for staples and • Fertilizer subsidies
fertilizer• Strategic grain reserves

GermanyJapan
Switzerland
United Kingdom• Forward contracts &minimum support prices• Regional trade
agreements• Climate-smart ag,
storage & distribution• Novel farming methods(e.g., permaculture)• Tax incentives• Skills training andagricultural job creation• Commercialization of
non-staple crops

Source: BCG case experience & analysis

High-income, reliant
on food & input
imports• Food loss and waste
reduction

Net food exporters
capable of fillingsystem gaps
BrazilCanadaIndia
United States• Climate-smart practices• Increase of carboncompetitive exports• Commercialization of nonstaple crops• Circular food economy• Food loss/waste reduction

17

Prepared: 13 July 2022

Private sector | Significant, long-term impacts for entire value chain
demonstrated by three key indicators
Ukraine/Russia supply 12% of traded calories, disrupting food availability

Foodavailability

War not only risks harvested crops but also produce most recently planted and upcoming seasonsFertilizer price pressure leads to producers planting fewer crops, different crops or skipping fertilizer — cumulatively
impacting global food availability in the medium term
Consumer and industrial companies relying on food commodities face increasing pressure to diversify sourcing
Prices for key consumer staples have skyrocketed, esp. grains & oilseeds, and could continue to do so
Downstream businesses and processors face cost increases and decision to pass down to consumers

Food affordability challenges household spending in durables and long-term resilience-building
Copyright © 2022 by Boston Consulting Group. All rights reserved.

Food
pricesSome producers and net exporters benefit from short-term price hikes that can support investment decisions

Bottlenecks in the Turkish Straits, a critical chokepoint, impact global transport

Transport
pricesThe Ukraine war, climate disruptions, and underinvestment in Black Sea infrastructure has resulted in skyrocketingshipping costs
With Ukrainian airspace closed and airlines avoiding Russian airspace, air freight rates are also spiking

Source: BCG case experience & analysis

18Prepared: 13 July 2022

AGENDA

Perspective on Global Food Crisis
Global Food Crisis trends
Public & private sector impact
Implications for leaders
Copyright © 2022 by Boston Consulting Group. All rights reserved.

War in Ukraine:
Global Update
and Global Food
Crisis19

Prepared: 13 July 2022

Implications for public, private, and social sector leaders

Support humanitarian assistance efforts
Develop resilience plan to direct resources(e.g., budget priorities and allocation)
Strengthen plans for just energy transition
and agricultural climate goals
Increase volume and carbon
competitiveness of key exports (e.g., wheat)
Support commercialization of alternatives
to staples (e.g., indigenous whole grains)
Revisit key agricultural incentives (e.g., tax
exemptions, timebound subsidies, etc.)
Source: BCG case experience & analysis

PrivatesectorDevelop resilience plan to identify
chokepoints, and map resources to adapt
during times of uncertainty

SocialsectorDeliver humanitarian assistance & provide
technical assistance to capacity building

Balance near-term profits with market
potential in Global South and long-term gains

Advocate for increases in climate-relatedaid, debt restructuring, and coordination ofclimate action

Diversify value chains, especially sourcing,
and types of commodities, where possible

Support strengthening of food & fertilizer
import facilities in highly exposed locations

Invest in reducing food loss and waste,especially in the downstream segments

Advocate for innovative trade policies (e.g.,
duty free protocols in regional blocs) andfinancial mechanisms to increase capital flows

Accelerate climate-smart practices tostabilize prices and increase traceability

20

Copyright © 2022 by Boston Consulting Group. All rights reserved.

PublicsectorPrepared: 13 July 2022

Teams across BCG are actively monitoring impact

Nikolaus LangManaging Director & Senior Partner
Global Practice Area Leader, Global Advantage
E: Lang.Nikolaus@bcg.com
Marc Gilbert
Managing Director & Senior Partner
Global Lead, Geopolitics & Trade Impact
E: Gilbert.Marc@bcg.com
Michael McAdoo
Partner & Director
Global Trade & Investment
E: McAdoo.Michael@bcg.com
Kasey Maggard
Global Practice Management Director
Global Advantage
E: Maggard.Kasey@bcg.com
Ken Carlstedt
Associate Director
Global Trade Risk & Compliance
E: Carlstedt.Ken@bcg.com
Leandro J. Urbano
Consultant
E: Urbano.Leandro@bcg.com

Social Impact Practice Area
Rich Hutchinson
Managing Director & Senior Partner
Global Practice Area Leader, Social Impact
E: Hutchinson.Rich@bcg.com

Wendy Woods
Managing Director & Senior Partner
Vice Chair Social Impact, Climate & Sustainability
E: Woods.Wendy@bcg.com

Mathieu Lamiaux
Managing Director & Senior Partner
Social Impact & Health Care
E: Lamiaux.Mathieu@bcg.com

Shalini Unnikrishnan
Managing Director & Partner
Social Impact & Climate & Sustainability
E: Unnikrishnan.Shalini@bcg.com

Chris Mitchell
Managing Director & Partner
Social Impact & Consumer
E: Mitchell.Chris@bcg.com

Sonya HooManaging Director & Partner
Social Impact & Public Sector
E: Hoo.Sonya@bcg.com

Copyright © 2022 by Boston Consulting Group. All rights reserved.

Global Advantage Practice Area

Shruthi Baskaran-Makanju
Principal
Social Impact
E: Baskaran-Makanju.Shruthi@bcg.com

21

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