Looming global food crisis: How bad it can get?

| Updated: August 04, 2022 21:59:21

Two young men mixing rice and lentils to prepare a meal in Dhaka. 	—Xinhua  Photo Two young men mixing rice and lentils to prepare a meal in Dhaka. —Xinhua Photo

The Food and Agriculture Organisation (FAO) and the UN World Food Programme (WFP) in early June this year issued a stark warning of multiple looming food crises driven by conflict, weather extremes, economic shocks, the lingering effects of Covid-19,  and ripple effects of the Russia-Ukraine conflict.

Seven years ago, the United Nations (UN) vowed to eradicate hunger by 2030, but an unprecedented number of people, estimated at 345 million people in 82 countries are now facing acute food insecurity. 50 million people in 45 countries face food emergency this year along with 882,000 people are facing food catastrophe.

The world's agriculture and food systems are facing a serious crisis. A number of overlapping crises including the ongoing Covid-19 pandemic, supply chain bottlenecks for agricultural inputs like fertiliser and output like grains, in particular wheat, natural disasters induced by climate change and the Russia-Ukraine conflict which the US has turned into a NATO proxy war against Russia in Ukraine, a war which does not look like will be over in the foreseeable future together have led to what the UN has described as "the greatest cost of living crisis in generations".

Food prices were already high before the  conflict started in February, now as the conflict turned into a war  driving food prices even higher. The global food crisis has been further exacerbated by growing number of countries imposing restrictions on food export to ease domestic food market conditions. Global commodity markets continue to face upward price pressures due to supply shortages as well as  rising fuel and fertiliser prices.

The problem has further been compounded due to Ukraine mining its own ports thus halting its own wheat exports as well the US and the EU imposed sanctions on Russian exports affecting  non-targeted countries to trade with Russia. The major commodities that have been affected due the trade bans include wheat, maize and fertiliser. Now countries around the world are finding it impossible to import fertiliser from Russia and Belarus, also a country under US sanctions impacting on their food production. These two countries are the major suppliers of fertiliser.

Meanwhile, Moscow and Kyiv signed an agreement in Istanbul on July, 22, brokered by Turkey and the UN enabling Ukraine to resume exporting its grain from three key Ukrainian  ports in the Black sea - Odessa, Chernomorsk and Yuzhny. Ukraine is a notable player in the global grain and oilseeds export market.

According to the FAO's Global Food Price Index, a measure of the monthly change in international price of a basket of food commodities was up by 23 per cent in June on the  year on year basis. It is expected that the deal will lead to the resumption of exports of food grains from  Ukraine which would bring some much needed relief to the grain market. The deal when operational will increase wheat and vegetable oil supplies of which Ukraine is a large supplier. But concerns about the price of rice, the staple diet across Asia  still remain. 

However, grain prices are unlikely to return to the pre-conflict levels due to a number of factors that existed two years prior to the conflict driving up agricultural commodity prices. These include drought in many parts of the world, increased use of grain for making bio-fuel and animal feed. In fact, if fossil fuels continue to remain expensive as it is now, the incentive grows to divert grains into the energy sector.

Therefore, the deal signed in Istanbul will likely to have very marginal impact on food grain prices. So, the coming months will indicate how the implementation of the deal is progressing and the benefits that will flow on to grain importing countries. With the US led NATO proxy war against Russia in Ukraine continuing, realities on the ground can change anytime.

Fuel and fertiliser were the main drivers of a 58 per cent rise in the cost of internationally traded farm inputs last year and this year has already recorded  a further 21 per cent rise for the same inputs. The US sanctions on exports of fuel and fertiliser from Russia  is one of the major contributing factors to  this rapid price escalation. This economic shock waves emanating from Ukraine are  pushing many developing countries  over the edge.

"We are deeply concerned about the combined impact of overlapping crises jeopardizing people's ability to produce and access food, pushing millions more into extreme levels of poverty" said FAO Director General Qu Dongyu. Many developing countries like Bangladesh with significant proportion of population living under the poverty line are increasingly becoming unable to afford nutritional diet and can not meet basic health care expenses. 20.15 per cent of the population in Bangladesh live below the national poverty line as estimated in 2019.

But according to the South Asian Network on Economic Modelling (SANEM), the percentage of the population living below the upper poverty line has nearly doubled from 20.16 per cent in 2018 to 42 per cent in 2020. The percentage of extremely poor trebled from 9.4 per cent 2018 to 28.5 per cent  in 2020.

According to the UN sponsored report titled "The State of Food Security and Nutrition in the World, 2020", a total of 73.5 per cent of the people in Bangladesh are unable to afford healthy food. What is more concerning is that the number of people belonging this category is showing a rising trend.

It is not only food price hikes  but also rising fuel prices that are the principal drivers of the current inflationary surges around the world. Rapidly rising food prices are not only causing widespread human sufferings but also could lead to destabilising the political, economic  and social order as  Sri Lanka is witnessing now.

The alarming economic and political crisis in Sri Lanka shows what may occur in countries resembling the similar trajectory. Food security and political stability are often inextricably linked, especially for many Asian and African governments sensitivity about food security may be linked to fear of social instability and political upheaval. Food security thus becomes an issue of regime survival.

Longstanding poor governance and corruption in Sri Lanka has combined with economic crises, rising inflation, and food and fuel shortages that led to snap the threads  of political, economic and social stability. The result is unrest, riots, collapse of the government and forcing the President of the country to flee. Sri Lanka is a perfect example of a developing country collapsing under economic stress.

Sri Lanka is unlikely to be the last country to face economic, social and political strife. Countries run poorly and in severe economic distress with high debt burdens are the ones, according to analysts, likely to face similar turmoil in the near future. Once  a developing country that runs out of the foreign exchange reserves necessary to import basic necessities like food and fuel, the pressure becomes too much to bear by the people who already are coping with high food and fuel prices.

The IMF has already warned further on-the ground strife associated with the burden of costs of living, especially where governments are ill prepared to provide a cushion for households.  In fact, no country will be immune from social, political and economic upheavals when access to food issue turns into food crisis leading to widespread hunger.

Even in many developed countries, the costs of living crisis is causing hunger among people belonging to the economically disadvantaged groups. People in low-income countries like Bangladesh are already spending almost half of  their income  on food. Increasingly rising prices of food and fuels will prove to be catastrophic for these people.  It is estimated that about 2.3 million people  face moderate to severe difficulties in obtaining enough food to eat-- in Afghanistan, Yemen and  three other African countries.

UN Secretary General Antonio Guterres last month while addressing officials from dozens of developed countries in Berlin warned that the world faces "catastrophe" because of the growing shortage of food around the world. He further added, "There is a real risk of that multiple famines will be declared in 2022. And 2023 could be even worse". 

Oxfam estimates that as many as 323 million people are on the brink of starvation and the UN estimate puts 869 million people in danger of facing hunger. The WFP and FAO warned that acute food insecurity could worsen in 20 countries  or areas between June and September in 2022. The WFP Director also warned that a looming hunger catastrophe is set to explode over the next two years which will have serious political consequences. He also added that the number of people classed as "acutely food insecure" by the UN before the Covid crisis was 130 million but after Covid this number rose to 276 million.

Another threat to food security is the growing population, projected to reach 9.8 billion by 2050 and 11.2  billion by 2100 from the current 7.6 billion. Also, there is the prospect of increased economic migration across country borders as a  result of food shortages. Internal migration is the first concern for many countries because internal migration is often a natural "coping response" in times of famine.

The high incidence of food insecurity reveals the fragility of the global food systems. They are further strained by natural calamities, the pandemic, rising conflicts and food price inflation. As a general rule, higher prices generally encourage farmers to plant and produce more, but their input prices are also rising and future harvests could suffer as a result.  That gives no incentive to plant more to respond to the supply shortages that have driven up prices. The FAO in a report recently published agree that higher prices will not lead to more supply. Those higher prices may continue rising next year and beyond.

Food has also become another very important commodity and is being traded as a commodity in international markets resulting in financialisation of food. In fact, 98 per cent of commodity futures end without any physical exchange of commodities. Therefore, price hikes in international food markets trigger severe prolonged food crisis.

With food prices rising to record levels, net food importing countries like Bangladesh face serious crisis. Now Russia at proxy war in Ukraine with the US led NATO, responding to the crisis looks more difficult for these countries as supplies of wheat, vegetable oils and fertiliser from Russia and Ukraine remain disrupted. Impacts are falling heavily on a country like Bangladesh which has recorded a significant rise in food prices since early this year along with volatility  in the supply of fertiliser including disruptions in the domestic production of fertiliser due to gas supply shortages. Rice production in Bangladesh relies heavily on the use of fertiliser.

As the IMF cut global growth forecast again on last Tuesday, this could affect Bangladesh exports impacting on growth and employment with consequences for poor households. According to the FAO, 40 million (27 per cent)  Bangladeshis are already undernourished. That means not having access to adequate amounts of safe, nutritious food to sustain a healthy and productive life.

Bangladesh will have to buy food and fuel at higher prices negatively impacting on the current account balance and the foreign exchange reserves consequently causing the taka to depreciate further. At the same time Bangladesh exports are also facing uncertainties due to global economic slowdown, sanctions and global transport bottlenecks. All these will cause further rises in price levels.

Therefore, Bangladesh needs to stabilse the market to secure its food security primarily by agrarian policy  interventions to stimulate  domestic food production with special emphasis on farmers to enable them to increase productivity. At the same time the government must introduce short term  measures such as targeted cash assistance instead of subsidies along with other social protection measures, raise direct taxes but decrease indirect taxes such as VAT, SD and tariff. In the long-term context, sweeping structural reforms are urgently needed including scaling up climate resilience.

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