View this article online: https://www.claimsjournal.com/news/international/2008/06/09/90765.htm
The rise in world food prices carries implications for both rich and poor countries – the latter will more fully feel the impact, as well as the insurance industry. The recent conference in Rome, organized by the UN’s Food and Agriculture Organization (FAO), “has warned industrialized countries that unless they increase yields, eliminate barriers and move food to where it is needed, a global catastrophe could result,” said an article on the Lloyd’s web site (www.lloyds.com).
UN Secretary General Ban Ki-moon told the conference that food production has to rise by 50 percent by 2030 to meet demand. Food costs have reached a 30-year high in real terms, causing riots in some countries.
In addition Lloyd’s notes: “Poorer countries have seen a 40 percent increase in their food imports bill this year, and experts say some countries’ food bills have doubled in the past year. Global food price increases have been driven by increased demand, poor weather and an increase in the area of land used to grow crops for bio-fuels.
“Restrictions on rice exports have been put in place in major producing countries such as India, China, and Vietnam. Importers such as Bangladesh, the Philippines and Nigeria have been hit hard. In Egypt, where bread is subsidized, price increases are putting a big strain on the government’s budget.
“The global food shortage is heightening political risks around the world and different countries are likely to be impacted in different ways, according to Rafael Gomes, deputy director of political risk at Exclusive Analysis, a strategic forecasting company working with the ten largest political risk syndicates at Lloyd’s.”
He explained that the “problems associated with food shortages” will lead to both increased claims on political risk policies and will stimulate demand for cover from businesses at risk. “The main relevant policies are contract frustration; non-payment and non-delivery; asset damage from political violence; expropriation due to land being re-allocated for agriculture; and, at the extreme, nationalization of food industries,” Gomes warned.”
Political risk insurance is a specialist business for a number of Lloyd’s syndicates. “We’re watching the effect the price rises are having on soft commodity businesses. That includes wheat, soybeans and rice,” noted Simon Low, Political Risks underwriter with Ark Underwriting. “The biggest concerns we have are riots and potential seizure by foreign governments. If the clients’ stocks of soft commodities are left waiting around a port we would want to make sure that suitable security measures are in place to protect them.”
Low indicated that there’s also concerns with “governments bringing in protectionism and import or export embargoes,” which is “important in terms of contract frustration. For instance, a business might have a contract to deliver a quantity of a commodity, but they are prevented from doing so by a “force majeure” peril. “This could mean having to find wheat, for example, from another source as a distressed buyer and being unable to secure the return of any deposits they may have made,” he explained. “”We are reviewing the amount of contract frustration cover we are offering for this type of situation.”
Lloyd’s concluded: “The rise in food prices has wide implications. Where the local environment is being put under stress due to food shortages there will be a knock on effect as people become more concerned about putting food on the table than keeping the economy on track. Low warned: “A smooth running economy depends on its workforce being able to obtain basic foodstuffs and operate in a secure safe environment.”
Source: Lloyd’s