Saturday, June 22, 2024

Climate and War, Pandemic and Profiteering Add Up to Global Food Crisis

More than a quarter of a billion people are facing acute hunger amid conflict and mass displacement, as human-caused climate change, government-sanctioned oil prices, and hedge fund speculation contribute to global food insecurity.

Add the lingering impacts of Russia’s Ukraine war and the COVID-19 pandemic, and the result is record-high food prices for consumers across the board. But it is the millions of people in developing countries who risk going to bed famished, as pressure on food budgets increases despite subsiding inflation, stagnant farm incomes, and consistently falling commodity prices, with April showing the first increase in a year.

Increased costs along the supply chain are a factor, finds a report by Fitch Ratings. The cost pressures of primary inputs like raw commodities and fertilizers may finally be falling, but it can take as long as a year for that drop to carry into retail prices, the agency explains. “Fitch’s statistical analysis suggests sharp increases in input costs in early 2022 are only now being reflected in domestic food consumer price index (CPI) rates.” These higher input costs are felt first by farmers, then by processors, and finally by retailers.

Though inflation will likely subside in the coming months, Fitch adds, “risks remain from extreme weather events, low inventories in global grain markets, and geopolitical developments.”

Multiple Factors Strain Food Systems

Russia’s invasion of Ukraine in February 2022 had a massive initial impact on food prices. Trade routes were disrupted, access to commodity crops and farm inputs was limited, and energy costs increased. But the “Ukrainian factor” has become less of an issue for global commodity prices, which are increasingly influenced by China’s protective food policies and by the Organization of the Petroleum Exporting Countries’ (OPEC) management of oil prices, Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University, told The Energy Mix.

The war brought food prices to public attention, but the food system was strained well before the war because of challenges linked to climate change, the pandemic, and speculation by hedge funds, issues that persist to this day.

These combined factors had a devastating effect on world hunger. By mid-2022, the number of people requiring urgent humanitarian assistance was forecast [pdf] to reach up to 205 million across 45 of the 53 countries and territories included in the Global Report on Food Crises (GRFC). At the time, the figure was reported as higher than at any other point in the report’s six-year history, but that record was shattered in 2023, with GRFC finding in its latest report that more than a quarter of a billion people now face acute levels of hunger, some “on the brink of starvation.”

“We are moving in the wrong direction,” the report warned. “Conflicts and mass displacement continue to drive global hunger.”

“Rising poverty, deepening inequalities, rampant underdevelopment, the climate crisis, and natural disasters also contribute to food insecurity.”

And the most vulnerable will bear the brunt of this failure, the report stated, as they face soaring food prices that were aggravated by the pandemic, and despite some declines, are still above 2019 levels.

Persistently high energy prices are also among the most severe issues affecting food prices. They drive up the costs for processing and transporting food, which can account for 75% of retail prices.

“Energy has always been an issue,” Charlebois said. “Energy impacts retail food prices and it will continue to do so.”

Environmental policies to offset the impacts of climate change are likely contributing to higher energy costs, but “we don’t know for sure,” he added.

Adding to the cost issue, packaged food companies and food processors have been able to increase profits by keeping retail prices high even after cost pressures subsided.

Climate disasters have made matters worse, raising food costs by affecting production, supply chains, and labour availability over several years, as droughts, heat waves, and other extreme weather events become more frequent and severe. In Canada, fires in the western provinces, severe drought across the Prairies, and unseasonal weather events in other parts of the country caused high food prices in 2021.

Farmers elsewhere—in South AmericaEast Africa, and Europe, to name a few—have also reported yield losses from climate events.

The uncertainty sown by climate change and conflict also has a secondary effect on food prices, as volatile economic conditions make fertile ground for hedge fund speculation, which pulls profits from commodities trading and adds to the costs burdening consumers. Those profits can be significant—a recent analysis by Unearthed, Greenpeace’s investigative news unit, found that 10 hedge funds made US$1.9 billion in profits ahead of the Ukraine war food price spike.

Sophie Van Huellen, lecturer in development economics at University of Manchester, links the speculation to similar circumstances in 2007-08, when rising food insecurity and global crises precipitated a food price spike of 224%.

“While soaring food prices threaten food security globally, large food trading firms are profiting,” Van Huellen wrote for The Conversation. “These companies bet on the direction of food prices by storing or trading substantial amounts of goods—making big financial gains as a result.”

Developing Countries Face Greater Insecurity

Global issues may be at the root of the food price crisis, but those issues have a disproportionate impact on people in developing countries. One way to analyze the disparity is to look at differences in household food expenses. People in developing countries spend a larger amount of their income on food, so increases in food costs have a larger impact on their overall budget. Many people have no option but to eat less food and to eat less diverse foods.

“Some families have taken children out of school and in some countries, girls are forced into early marriage to reduce household expenditures,” said Claudia Ringler, director of the Natural Resources & Resilience Unit at the International Food Policy Research Institute (IFPRI). Wealthy countries are also better equipped to offer social assistance when the going gets tough.

“This is not to say that poor people in rich countries go through food crises unscathed,” she added. “They just have a much better chance to make it through without going to bed hungry.”

The crisis is further compounded in countries with currencies shrinking in value compared to the United States dollar, which can keep costs high in local currencies even as they fall in global markets. Poor countries are much more exposed to food price shocks because they pay a much higher percentage of the national income to import food and energy, said Harry Verhoeven, senior research scholar at Columbia University’s School of International and Public Affairs.

And when the disproportionate challenges from high food prices intersect with other issues they drive worsening outcomes in developing countries. Limited access to food, for example, causes greater levels of malnutrition that can cause poor health and development. The connection of food to energy can also undermine the capacity of countries and communities to build resilience, as developing countries tend to be energy importers vulnerable to spiking costs. This can then affect their access to energy needed for food production, opening the door to even higher food prices and food insecurity.

“You have a pretty strong impact of energy on food prices, mostly because it tends to limit the amount of food that poor countries themselves are able to produce and therefore becoming more dependent on imports,” Verhoeven said.

Ringler said a key intervention, one that offsets the vulnerability of food systems, is to provide “continued, sustained investment in agricultural research and development” that can “drive growth in agricultural production systems that work for poor women and men farmers and poor consumers.”

National farm research systems, “particularly those in Africa also urgently need financial support for research to adapt crops, livestock, and natural systems to a hotter, more extreme climate future, for example, through developing sustainable irrigation systems,” she told The Mix.

This article first appeared in The Energy Mix, and is republished under a Creative Commons license.

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