Lasting food fiasco

Globalisation in the democratic world is a force that can drive positive change through collaborative action. It epitomises the philosophy that a combined whole can achieve far greater than individual units would do standalone. This flowery notion of globalisation proved to be awfully contradictory when autocratic actions of a single government greatly exacerbated the risk of food unaffordability for millions across the globe.

One may argue that there are other factors as well, but Putin's reckless war in Ukraine at the most unfavorable time has been the prime and direct factor behind the collapse of food systems globally. The war has made it truly tough for economies to recover from the shocks of the pandemic. It has also made the agricultural impact of climate change more pronounced.

In this article, we shall have a cursory glance over how the entire world is reeling under high food inflation. We shall also retrospect how we have arrived at this situation and how near is the end to this crisis.

Present state

We, as humans, have long enjoyed the fruits of living in an interconnected world. Together we have created miracles and taken human civilisation to great heights. And now, we all appear to fall apart, almost simultaneously, as one of the most basic requirements for human survival — the food — is verging on unaffordability in all continents around the world.

In the Indian subcontinent, Sri Lanka is reeling under the worst crisis it has witnessed ever since its independence. As per National Consumer Price Index (NCPI), the inflation in the country has surged from 17.5 per cent in February to 21.5 per cent in March this year. More worryingly, its food inflation increased from 24 per cent in February to 29.5 per cent in March. Apart from the universal factors of the Russia-Ukraine war and the Covid-19 pandemic, lack of foreign reserves has contributed to its turmoil — crippling the country's capacity to import food items for feeding its population.

Inflation scenario has been no good in Pakistan at 12.7 per cent in March — remaining in the double digit for nine consecutive months. The Ukraine war and the pandemic have only exacerbated the persistent problem in Pakistan, resulting from a range of malpractices including hoarding and rampant corruption alongside, of course, the government's policy failure. In Bangladesh, inflation stands at a 17-month high figure of 6.22 per cent — with food inflation in villages and cities hovering around 6.71 per cent and 6.15 per cent respectively. Nepal, too, is seen to be following the trails of Sri Lanka.

In India, as per National Statistical Office data, consumer food price inflation has nearly doubled since March 2021 — with food price inflation in rural areas rising from 3.94 per cent in March 2021 to 8.04 per cent in March 2022.

China is also struggling hard to maintain a positive growth rate. Severe lockdowns and curtailment measures have not just put the country's economic prospects in the realm of uncertainty but also jeopardised the greater global economy. In the United States, the rate of consumer prices has reached the fastest level over the four decades, with signs of immediate recovery getting bleaker.

As for Europe, it is sandwiched between the demand and supply constraints emanating from the crises in the US and China, apart from directly being at the receiving end of the Russia-Ukraine war. For Africa — which is home to 70 per cent of the world's poor — rising food prices have almost become the question of survival.

Reasons

Broadly, the reasons behind high food inflation across the globe can be pinned down to three factors:

Russia-Ukraine war: The war is the single-biggest factor behind rising food inflation globally. Russia and Ukraine are the leading exporters of wheat and other staple food items. Numerous poor countries in West Asia and Africa directly depend on Russian and Ukrainian imports for feeding their population. Deliberate blockage of the Black Sea trade route by Russia has cut off many poor countries from their regular food supply.

Additionally, the constrained supplies of secondary items, particularly those involved in production of food grains — like fertilisers, pesticides and DAP — have a direct bearing on the pockets of farmers, with marginal ones even deciding to cultivate less land.

Furthermore, rising fuel prices, which have a ripple effect on prices of most commodities on account of increased transportation charges, have made things worse.

Demand-supply disruptions on account of the Covid-19 pandemic: As the Covid-19 pandemic is gradually receding, the demand for goods and services have started to pick up. This spurt in demand, however, is not reciprocated by supplies that may take some time to come to the pre-pandemic levels. The simple economics — high demand and low supply lead to inflation — is further compounded by a whole range of factors to take the problem to monstrous proportions.

The pandemic also resulted in labor shortage due to curtailed employment. This manifested into two dangerous consequences — production process was hampered, resulting in restrained supplies of commodities; and the purchasing power of individuals and families reduced drastically. This implies that even marginal increases in food prices will have correlation with worsening hunger situations. Further, the apprehensions around the fourth wave have made things worse.

Impact of climate change and extreme weather events: Climate change scenario is getting worse with each passing day. Drought and disproportionate precipitation in different parts of the world have hampered food production, disrupting supply chains considerably.

Exacerbating poverty

Reflecting the characteristic trait of the largely capitalist world, research institutions have safely declared that the poorest will be hardest hit amid the ongoing global food crisis. The World Bank has estimated that the ongoing crisis will force an additional 75 million to 95 million people to live in extreme poverty in 2022, compared to pre-pandemic projections. The United Nations, too, in its report released on April 13, stated that "77 million people slipped into poverty in 2021 as governments struggled to service debts and secure early vaccine access."

While the number of people living in poverty could increase, the most direct impact this time will not just be limited to their education and healthcare, but will spill down to curtailing the basic necessity — food. As per an Oxfam report, rising food costs account for 17 per cent of consumer spending in wealthy countries, but as much as 40 per cent in sub-Saharan Africa. Since food is a universal necessity, its rising cost will impact all, but the degree of the same would vary with the socio-economic profiling of nations. As an instance, focusing singularly on the United States, the Oxfam report pointed out that while the richest fifth of the families spend seven per cent of their income on food, the poorest fifth spend nearly four times higher at 27 per cent! The same is the situation elsewhere in the world. African countries remain the worst sufferers.

How the rising food inflation actually translates on the ground is that poor families start cutting items, or at least the quantity of the same, from their plate — inevitably inviting health-related crises. At the same time, there have been negative externalities at the macro level as well. In a report titled 'First Crisis, then Catastrophe', Oxfam said a wave of governments in low-income countries were close to defaulting on their debts, and could be forced to cut public spending to pay creditors and import food and fuel. We have a classic example in our neighborhood in Sri Lanka — which again is not the only one.

Projections

The overall inflation and the food inflation will take some time to subside. A recent IMF report estimated "the rate of inflation in advanced economies to reach a 38-year high of 5.7 per cent, while price increases in emerging markets and developing economies will accelerate to 8.7 per cent, the fastest clip since the global financial crisis in 2008." The report added that the "rates would then cool next year to 2.5 per cent and 6.5 per cent, respectively."

The IMF report is a clear indication that the food inflation will take at least a year to subside. The projection appears justified as the factors leading up to the present crisis will themselves take ample time to be diluted. The Russia-Ukraine war is showing no signs of receding. Climate change is not a problem that can be solved in a couple of years. The pandemic, even if it doesn't offer great shocks, will take some time to fade away. Also, bringing supply side arrangements back in shape is not a day's game. Furthermore, Indonesia has extended its ban of palm oil to India. Given India's heavy dependence on palm oil imports, the prices of edible oil — which are already exorbitantly high — will shoot up further.

At the same time, currently, India's wholesale inflation rate (13.1 per cent) is double the retail inflation (6.07 per cent). It is known that wholesale precedes retail in the supply chain. And therefore, the effect of the former gets passed on to the latter after a certain lag. It won't be completely wrong to say that retail inflation may see an upward trajectory in the near future.

The Reserve Bank of India, in its recent monetary policy review, acknowledged the gravity of rising inflation and may modify interest rates in the coming review meeting. India's somewhat confident posture can be traced to the fact that it is being seen as an alternative exporter of wheat and other agricultural items. In FY 2021-22, India exported about 7 million tons of wheat and is expected to export 10 million tons this fiscal year.

In the first place, India's capacity to fill the void left by the Russia-Ukraine war is very limited. Secondly, India's export ambitions will have to be balanced with domestic consumption. Despite adequate buffer stocks, those in the lower strata of socio-economic hierarchy are cutting on their plates. Through a balanced approach only, India can help tackle the food inflation in due course — both domestically and internationally.

Conclusion

We started with how authoritative actions of a single government headed by Putin has exacerbated the crisis that could have been avoided to a great extent. We shall conclude on an optimistic note that responsible collaborative actions can churn out a solution at the global level.

Nations must respond positively to the joint appeal by the heads of the World Bank Group, International Monetary Fund, WFP, and the World Trade` Organisation — which called "on the international community to urgently support vulnerable countries through coordinated actions ranging from provision of emergency food supplies, financial support, increased agricultural production, and open trade." The joint statement further urged "all countries to keep trade open and avoid restrictive measures such as export bans on food or fertiliser that further exacerbate the suffering of the most vulnerable people."

It remains to be seen how fast, and in what manner, the world responds to this crisis. Though it appears to be a long game, for the time being, we can hope that humans will triumph soon.

Views expressed are personal