No Country Thrives on an Empty Stomach


Last year we looked at emerging markets’ vulnerability to rising food prices and political instability. That was mere weeks before Russia invaded Ukraine, starting awar that has reshaped global food supply chains.

Since then, rising food prices have fueled discontent around the world, sparking demonstrations in Pakistan, Ecuador, India, and many other countries.1 In this follow-up, we update our analysis on food prices and incorporate countries’ unemployment numbers using a misery index.

Food and fertiliser prices have fallen from their recent peaks (Figures 1a and 1b). However, both remain at historical highs, because Russia and Ukraine are major food exporters, and Russia and Belarus are major fertiliser producers. The geopolitical situation remains tense. Moreover, volatile oil prices and increasingly uncertain weather have raised the cost of producing and transporting food.

Figure 1A: Food and Agriculture Organization of the United Nations (FAO) World Food Price Index

PGIM Food and Agriculture Organization of the United Nations (FAO) World Food Price Index

Source: Macrobond.

Figure 1B: Green Market North America Fertiliser Price Index (in U.S. dollar)

PGIM Green Market North America Fertiliser Price Index (in U.S. dollar)

Source: Macrobond.

In recent months, most analysts and investors have focused on the inflationary impact of rising food prices. This impact has been particularly strong in emerging markets, where food is a larger part of the consumption basket than in developed markets.

If food prices stabilize or fluctuate around current values, their impact will gradually drop out of inflation data. However, the level of food prices is set to remain much higher than in recent years, which is eroding purchasing power.

Households can only recover this lost purchasing power if their income growth accelerates, an unlikely development as EM economies slow in coming months. As a result, higher food prices imply lower food affordability and lower food security, even if inflation stabilises.

This combination of high prices, low or slowly rising incomes, and uncertain or decreasing food security is a recipe for social discontent. Ultimately, it may cause governments to loosen their fiscal stances, renegotiate the national debt or, in an extreme case, be replaced.

Our analysis aimed to identify which countries are most vulnerable to social challenges under these conditions.

First, we calculated a new index capturing inflation, unemployment, and food insecurity. Then, we plotted that new index against the World Bank’s Political Stability & Absence of Violence/Terrorism metric, which measures each country’s vulnerability to social unrest.2

Figure 2

First, we calculated each country’s “misery index” as the sum of a country’s most recent unemployment and inflation rates. A higher misery index value represents a more challenging economic situation.3

This incorporates a measure of labour market strength into our earlier analysis because higher unemployment presents a social challenge that can translate into political unrest.

Then, we used the Economist’s Global Food Insecurity Index to measure how precarious food availability is in each country.

Next, we normalized both the misery index and the food insecurity index to values between 0 and +1, and took the average of the two. The misery index and the food security index are measured on inverse scales, so we subtracted the normalised food security index from 1. In that way, the higher the sum of the two, the worse the combination of food security and economic conditions, as expressed by our new index.


Figure 3: Combined Misery and Food Insecurity Index versus Political Stability Index

Source: The Economist, Haver.

No clear geographic pattern emerges in the chart, but the “worst” quadrant, top left, contains several Sub-Saharan credits. In this quadrant, high food prices pose significant humanitarian, social, and fiscal challenges. Recent protest in Kenya, for example, highlight these challenges.

By contrast, countries in the bottom-right quadrant have less “misery”, more food security, and more political stability relative to their peers. These credits stand out as potential relative-value opportunities. For example, we consider Costa Rica to be improving as its Fiscal Responsibility Law, in accordance with its IMF programme, continues to improve its credit fundamentals. Qatar also stands out as it continues to benefit from increased demand from natural gas from European buyers.

Our analysis establishes a clear connection between socioeconomic conditions and political stability. We will continue to monitor these dynamics closely as part of our sovereign credit selection process, with particular attention to variables such as food security.

1 Hossain, Naomi and Jeffrey Hallock. Food, energy & cost of living protests, 2022. Friedrich Ebert Stiftung, December 2022.

2 Our sample includes only 47 of the countries in JP Morgan’s EMBI Global Diversified Index (EMBIG D) of hard-currency government bonds, because the Economist’s Global Food Insecurity Index does not cover all of the index’s component countries. EMBIG D countries excluded from The Economist’s Global Food Insecurity Index are: Armenia, Barbados, Croatia, Gabon, Georgia, Iraq, Jamaica, Lebanon, Maldives, Mongolia, Namibia, Papua New Guinea, Suriname, Trinidad & Tobago. We also exclude Argentina and Turkey because their extreme inflation rates distort their misery indexes. Finally, we exclude countries whose governments are in default (Sri Lanka, Ghana, Zambia, Lebanon, Russia, Ukraine). We exclude Rwanda and Honduras due to data availability issues.

3 The economist Art Okun created his “misery index” in the 1960s to assess the U.S. and other developed economies. It remains useful to assess emerging markets although the presence of informal employment may negatively affect the index’s value in emerging markets.

Source(s) of data (unless otherwise noted): PGIM Fixed Income as of March 29, 2023.

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PGIM Fixed Income
PGIM Fixed Income

PGIM Fixed Income is a global asset manager offering active solutions across all fixed income markets. The company has portfolio management and research teams in Newark, New Jersey, London, Amsterdam, Zurich, Munich, Singapore, Hong Kong, and Tokyo. As of December 31, 2022, the firm has $770 billion of assets under management, including $350 billion in institutional assets, $169 billion in retail assets, and $251 billion in proprietary assets. Nearly 1000 institutional investors entrust PGIM Fixed Income with their assets.

Rupal Shah
Principal, Client Advisory Group
655 Broad Street
Newark, NJ, USA 07102

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