Inflation fears have recently focused on energy, but food may soon demand more attention.

Even before the Ukraine war, supply in some key agricultural products was being squeezed, with soaring prices. Now, loss of supply from Ukraine and Russia has combined with price pressures on fertiliser and diesel to bring new challenge to Europe. Europe buys around 40 per cent of Ukraine’s agricultural exports. In many countries this will add to pressure on real incomes and to inequalities. Scotland could be forced to rethink food policy and accelerate moves to resilience and supply security.

With a perfect climate and geology for agriculture, Ukraine was known as the “bread basket of Europe”. This combination of fertile plains and favourable climate made the country the leading global exporter of sunflower oil and in the top five for wheat, maize and rapeseed. Sunflower oil is an ingredient in many prepared foods, including baby food. Disruption to spring planting will hit this year’s crop with likely continuing consequences for future years. Ukraine’s grain exports from Black Sea ports are suspended. Key commodities prices have already risen by 30% or more, making UK food inflation likely to more than double the previously expected 5%.

Fertiliser costs and higher operating expenses add to the problems. Belarus and Russia are estimated to account for 40% of global potash production, with the disruption driving fertiliser prices up by more than 50%. Indeed, electricity rationing in China in 2021 had hit fertiliser production even before the war. Supply disruption means that in addition to price rises we can expect lower crop yields.

The tragedy in Ukraine is adding to pain in developing countries where hunger was already increasing. More worrying than the pressure on Europe, is the impact on the Middle East, Yemen, Bangladesh and Africa. In February, the United Nations Food and Agriculture Organisation (UNFAO) food price index reached its highest ever value, rising at the fastest rate since the 2008 financial crisis. Before the pandemic, the UNFAO estimated that 9% of the world’s population were facing food insecurity and going hungry. Global food aid programmes are under pressure and this month the International Monetary Fund warned that the world’s food supplies are in peril. The UN World Food Programme relied on Ukraine and Russia for more than half the grain it distributes.

At times, over the last decade, food price increases have been exacerbated by trading in financial markets. Trading in future commodity prices has a disproportionate impact on producers and consumers globally. Some question the fairness of allocation of food and critical agricultural inputs by open market price. It is not clear if financial market speculation has ever caused lasting food price rises, but there may be more political calls for control. Food may not flow as freely round the world in future, nor be as easily bought on the open market.

Mitigating the impact of this emerging global food crisis will require action not only on grain and food but on the more subtle determinants of crop yields and quality. The crisis involves nutrients, fertiliser and diesel. The cost of producing nitrogen fertiliser is directly linked to the cost of fuel, and other sources of crude oil are not as favourable for diesel production as Russian oil. All this adds to the challenge for a global food system that was already under pressure. Currently diesel stocks around the world are much lower than normal, with rationing in some countries a real possibility.

Beyond the immediate emergency, these challenges highlight the need to transform the global food system using green energy. Encouraging more sustainable diets would also help – a significant portion of Russia and Ukraine’s grain production feeds pigs. In the longer term, some developments in food science are promising and this merits more investment. But short term there will be pressure to ease food quality standards – for example by allowing imports from countries with genetically modified crops. Ukraine could mean lowering Europe’s ambitions to address the impact of farming on the climate and environment. Farmers may need to give less attention to their work on nature protection, and instead be encouraged to increase intensity of production.

These pressures point to the need to address food security as a strategic issue of national resilience. Other countries may follow China and Argentina in restricting food or fertiliser exports at a time of shortages. The challenge for Scotland is whether food – an area of excellence – can be brought into a circular economy, with more direct domestic consumption of our own produce? Scotland may be better placed than most in Europe in terms of its agriculture but will still need to adapt to the new age of food insecurity. The hardest hit household budgets will be of those who can least afford price rises.

There need not be conflict between food security, healthy diet and a sustainable economy if focus is put on a circular economy with more local supply. Supermarket chains should also be brought into this discussion on supporting Scotland’s farmers.

It should mean more encouragement for local produce and less waste. Support for allotments might help, too. A high oil price may serve to discourage expensively flown-in food and tilt the balance back to high quality local alternatives. Consumers may need to get used to what their own nation produces and the concept of seasons. Some chefs and food writers are already taking a lead in promoting this.

Food insecurity not only demands a national response to secure affordable domestic supply, but also recognition of the potential humanitarian disaster further afield. The International Food Policy Research Institute estimates that exports from Russia and Ukraine represented 12% of all the food calories traded in the world. The food crisis in other parts of the world will need more aid to avoid starvation and could increase the migration pressure on Europe. There is also a real risk of regional conflicts breaking out if poor countries are outbid for food and fertiliser by richer ones.

There are strong beliefs on all sides of the political spectrum, making it harder to agree policy. What is certain is that without action to increase production, the impact of food insecurity will bear most heavily on the already disadvantaged.

The war seems set to damage the global food system, with potential to change land and water use and set back action on carbon and climate change. In Scotland and internationally, food is set to become a hot political topic very quickly.

Colin McLean is managing director of SVM Asset Management.