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PODCAST
Mar 30, 2024
24:57 MINS
Ep. 211 - Global food security: Inflation impact and government responses
![Carlos Cardenas Contributor Image](https://cdn.ihsmarkit.com/www/prot/images/0124/Carlos-Cardenas-400x400.jpg)
Carlos Cardenas
Director, Latin America Country Risk and Forecasting, S&P Global Market Intelligence
![Hanna Luchnikava-Schorsch Contributor Image](https://cdn.ihsmarkit.com/www/images/LuchnikavaSchorsch-Hanna-SP_260367110914132432.jpg)
Hanna Luchnikava-Schorsch
Principal Economist, Asia Pacific, Global Economics, S&P Global Market Intelligence
![Ronel Oberholzer Contributor Image](https://cdn.ihsmarkit.com/www2/a/p/media/images/DEFAULT_USER_IMAGE.jpg)
Ronel Oberholzer
Head of sub-Saharan economics
Climate-related effects have been augmented by weather phenomena such as El Niño in certain geographies. This is impacting agricultural production while hampering policymakers’ ability to contain food prices.
Countries such as India and Indonesia resorted to restricting exports of rice and palm oil in 2023 to prevent domestic civil unrest and inflation, chafing some trading partners. Russia’s withdrawal from the Black Sea Grain Initiative and the shipping disruptions in the Red Sea show the increased vulnerability of food supply chains to geopolitical events.
In part two of our two-part series on global food security, we will cover how higher food prices influence overall inflation, the impact of food security risks on jobs and the workforce, the potential for social unrest, and how governments are responding.
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Transcript
- Transcript for this podcast Ep. 211 - Global food security
-
Presentation
You're listening to the Economics & Country Risk podcast from S&P Global Market Intelligence. In each episode, our experts will provide you with the where, how and when to make decisions that transform your business.
Kristen Hallam
Hello, and welcome to Part 2 of our series on global food security. In part 1 of our series, we discussed the role of 3 key regions in the global food supply chain: the impact of the El Nino weather pattern, who benefits from higher food prices and who will pay the costs.
In part 2, we will cover how higher food prices influence overall inflation, the impact of food security risks on jobs and the workforce, the potential for social unrest and how governments are responding.
Our panel of experts from S&P Global Market Intelligence is Carlos Cardenas, Head of Latin America Insights and Analysis; Hanna Luchnikava-Schorsch, Principal Economist, Asia Pacific Economics; and Ronel Oberholzer, Head of Sub-Saharan Economics.
I'm Kristen Hallam, Lead Content Strategist for Global Intelligence and Analytics and your moderator for this discussion. Let's begin.
Question and Answer
Kristen Hallam
Hanna, if consumers are paying, will that impact the progress we've been seeing on bringing down overall consumer price inflation or is food-related inflation stabilizing?
Hanna Luchnikava-Schorsch
Right. So the impact of El Nino this particular season wasn't as dramatic as many have feared or compared to past events. But we did see pretty significant increases in food prices and overall inflation across the region from the second half of 2023.
In fact, for Asia food inflation has accelerated pretty quickly during the third and fourth quarter of calendar year 2023, reaching almost 9% year-on-year by December. And that translated into higher overall consumer price inflation, which almost reached 6% by the end of calendar year 2023, and this is the upper limit of the central bank's inflation target. So that's where the impact has been quite substantial.
And as a country, and this is an example and a representation of a broader South Asia is Pakistan, food inflation for the year as a whole has reached almost 40% year-on-year. This, of course, has been exacerbated not just by the production issues, but also by significant pressures on the Pakistani rupee due to its balance of payment crisis, which made import of agricultural commodities even more costly, but that drove Pakistan's headline inflation to a record time of 30%.
Even in Japan, which is known for its struggle to bring inflation up or to come up from a deflation, we have seen that hot conditions and hot weather generally has made production of fresh food difficult, and combined with rising global prices for imports of non-fresh food, that has contributed to the rise in food inflation at the end of 2023, beginning of this year and is also contributing to higher headline inflation.
Generally, for the region, we do expect that overall and food inflation will come down during the year as the impact of El Nino are phased out. We will see a more normal conditions during April, June.
One more important factor to mention is that for 2024 summer, we are expecting another weather phenomenon, which is called La Nina, and it is usually bringing favorable conditions for agricultural outputs to most of the Asian countries. So that's sort of an upside risk we are watching, which could still translate into better yet inflation outcomes for the region as a whole.
But we do see that the number of countries in the region, including India, but also Pakistan, Bangladesh, Vietnam will likely continue to struggle with high food prices. Inflation in India is going to remain in the 5% range for the year as a whole, this is our current projection. For the region as a whole, the trend is currently for easing food and headline inflation.
Kristen Hallam
Carlos, same question for Latin America. If consumers are paying, will that impact the progress we've seen on bringing down overall consumer price inflation?
Carlos Cardenas
Yes. For Latin America, it's in a way relatively positive news because inflation has been on a downward trajectory. Central banks across the region actually started to lower interest rates since last year, Brazil, Peru, Chile, for example. And our LatAm macroeconomics team expects this trajectory towards a lower inflation to continue in 2024.
Looking into the data, when we look specifically into food, we have seen, yes, significant improvements. Chile, for example, had in January '23, 23.6% food inflation. January of this year it went down to 5.2%. Colombia had 26% last January, now it went down to 2.9%, again, only food inflation. And Brazil went down from 11% to 2.17%. So there has been, yes, indeed, a big improvement there.
Now what is interesting, it's, again, all of our economists or when you look into their forecast, they have climate disruptions, droughts as one of the potential main risks to that forecast and to that trajectory. So that's when, again, the unpredictability come. But I think, overall, with some exceptions, of course, Argentina is not there. I think it was something like 295% inflation. Venezuela, of course, is not there, triple-digit inflation. Suriname as well, very high inflation.
But as a whole, that trajectory towards improvement is expected to continue throughout the rest of the year.
Kristen Hallam
And Ronel, how does this apply to Sub-Saharan Africa? Will this impact the progress on overall inflation?
Ronel Oberholzer
Yes, Kristen. Food Inflation in Sub-Saharan Africa has been coming down or slowing, I would rather say from the very high 30%, 40% coming down. But we must remember that in Sub-Saharan Africa, inflation behaves differently compared to advanced economies mainly due to the fact that the food is imported, and that food makes up between 30% and roughly about 45% of what people buy in Sub-Saharan Africa.
So this makes inflation in the region very vulnerable to increased global food prices and changes in the terms of trade and the disruption in the global food supply chain. So you can actually call Sub-Saharan Africa inflation taker if that is a term that we can use.
So this stream became even more pronounced with the start of the COVID-19 pandemic and the subsequent Russia-Ukraine conflict. Sub-Saharan Africa experienced inflation rising because of the war disrupting global commodity prices, especially food and oil, the percentage of the weight of food and energy in the CPI baskets.
So as I said, because of higher global commodity markets, which was made worse by the increased government spending, subsidies were also imposed on fuel, and this actually led to a higher demand for goods in the countries and that kept inflation high.
So while global food prices have started to decrease recently, there are still risks that inflation could go up again. Carlos also mentioned that, this is the unpredictable weather and security programs in the region as well that can affect food prices. Now this, together with the ongoing weakness in the global supply chain like what's happening in the Red Sea at the moment and the Russia-Ukraine conflict, could make inflation worse again.
Kristen Hallam
What impact could food security risks have on the workforce and jobs? Carlos, let's go to you first on that.
Carlos Cardenas
Well, in terms of impact on the workforce and job and if we look at, again, that projection from United Nations Food and Agriculture Organization on Latin America sector growing to provide about 1/4 of the world's food by the end of the decade, I think it could potentially be a positive story because that growth projection throughout the region could potentially be a source of employment for Latin America.
And it's always about the question on whether those resources are managed well. In Latin America, that's not always the case. But again, when you look at the numbers, I get 15.1% growth in Brazil last year, it's really impressive, and potentially, there could be an opportunity there in terms of employment.
In terms of labor as a whole and strikes in particular, we are seeing -- you would see a lot of discontent in Latin America, but not necessarily just connected to food inflation or food security. It's part of many issues on why you have discontent, especially among unions. Overall, there's not a, you would say, campaign just about that. It's mostly you have opposition towards privatizations and so forth.
And for us, Argentina, it's the one that we're watching the closest because you have that contradiction. Yes, big player in agribusiness, but inflation of triple digits and very interesting political momentum because we've had a political outsider now coming into power, promising very deep austerity cuts and the unions already since the beginning of the year starting to mobilize to try to protest against that. But the government, at the same time, using the momentum of having just come into power to try to move things as fast as possible negotiating with Congress, it's a bit difficult. But that's the one where, again, we're looking at in terms of labor, not produce as a whole, one of the main hotpots to watch.
Kristen Hallam
And Hanna, how about in APAC, what impact might we see on the workforce and jobs from food security risks?
Hanna Luchnikava-Schorsch
So I'll answer it from a more of economic angle here and look at really a share of agricultural employment in some of the Asian countries. And what we see is that, particularly in South Asia and Southeast Asia, very large share of active labor force is involved in the farm sector.
In India, this is really for up to 50% of labor force active in the agricultural sector. So if the jobs are affected due to the food security concerns and lower output of food, this will be really in this country is where we might see most of the impact.
But what is even more important is not just the jobs themselves, but the level of income and also the impact on farmers' indebtedness. Again, as an example of India, by government estimates, nearly 50% of Indian farmers are indebted and that also means that there is a very high level of discontent in maize farmers. And there is no surprise that we are currently seeing again large protests by Indian formers. Thousands of farmers are protesting and demanding basically higher minimum agricultural prices for the commodities as well as some benefits like pensions and waivers of loans. And this is really a result of such events like El Nino, which are affecting agricultural outputs from year-on-year.
Politically, this might be very contentious, particularly ahead of the upcoming general elections in India. We have seen that 3 years ago when the Indian government was trying to implement contentious agricultural reform, it really had to back down, which was very unusual for this government based on several months of farmers' protests. So these issues are very much current and important within the environment in which the countries are operating, particularly in the current election season in India, but also in some of the other South Asian and Southeast Asian economies at this point.
Kristen Hallam
Other than the European farmers' protests, could we see unrest in other regions? Carlos, how about in Latin America?
Carlos Cardenas
Yes. I mean, certainly. For Latin America, it's interesting that you mentioned Europe because in there, it's, of course, a situation where the farmers are facing or are protesting against the removal of subsidies, diesel subsidy in particular. And for Latin America, if you would have measures like that, it would really lead to significant unrest and discontent, especially from the truckers, which have disrupted in places like Colombia and Brazil in supply chains.
For Latin America, as a whole, again, the protests are mostly related to cost of living crisis as a whole. And the key thing, which we have flagged in the past is that once we have those waves of unrest erupting like we've seen in the past in Chile, in Colombia, in Ecuador, the protesters or the pressure groups have realized that most of the time rather than just go through protests in front of the presidential building or the main, you would say, square of the capital, they really managed to obtain change or pressure the government into really listening by targeting the most profitable economic sectors.
So that translates into higher risks of ports being blocked. Even if it's not related at all to mining, protesters are going and blocking mining facilities, oil facilities. And again, that awareness of, okay, we have to go to those areas where we can impact the greatest economically, it's a pattern that we think it's going to continue more and more.
And at the same time, when we look at unrest, especially in the region, it also translates a lot into the specific industries that are using large amounts of water. Those water-intensive industries, extractive industries, in particular, but we also have seen it for manufacturing, for example, where communities might either protest or pressure the government or take legal action because they feel concerns about that huge amount of consumption for industrial usage rather than for the population or for farming and agribusiness.
So that's a pattern that will continue throughout the region. And yes, it's going to hit both for government's stability, but also from company's ability to operate.
Kristen Hallam
Hanna, how about in the APAC region, could we see unrest there?
Hanna Luchnikava-Schorsch
We could. But the unrest in Asia Pacific, which is related to food concerns is mostly related really to the cost of living. As I mentioned, we have already seen a significant increase in farmers' protests in India this year. We are also seeing such events across the rest of South Asia, in particular, Pakistan, Bangladesh and Sri Lanka.
This is also related to the fact that all of these countries are -- have either already seen or on the run-up elections. We've seen general elections in Pakistan and Bangladesh in January. We are heading into a general election in India around April, May. We will have a general election in Sri Lanka in the fall. So this is where we are seeing certainly an increased risk of protests related to cost of living.
Rather than that, food-related products do not have that much of a link with political stability in the region. We might see some increase in products related generally to unemployment, not necessarily just to farmers' unemployment, but broader speaking, and of course, related to elections in terms of election irregularities and so on. So this is really an overview for the region in terms of the risk of protests.
Kristen Hallam
And Ronel, how about in Sub-Saharan Africa, is food security source -- a potential source of political instability and unrest?
Ronel Oberholzer
I'll like to rephrase it slightly and maybe just turn it a little bit around and say that in Sub-Saharan Africa food security actually faces serious challenges from political instability and unrest and that these issues create a ripple effect causing humanitarian, social and economic concerns across the region.
If we take the Ethiopia, for example, it's really a stark illustration of our combination of factors like climate issues, insurgency and unrest can really impact on food security. Ethiopia wheat production, which contributes about 20% to the total African wheat production has taken a serious hit, especially in the northern regions, not only due to the weather shocks caused by the El Niño, but also because in the areas like Tigray, Amhara, Afar, Somali and Oromia, which are the key wheat-producing regions, were really grappling with sub-national conflicts over the past 3 years and this has led to the millions of people being displaced.
So overall, Sub-Saharan Africa, first, is really a complex array of challenges, including conflicts, human rights violations and economic struggles. And countries like Ethiopia, Mozambique, Cameroon, Nigeria, where we have also recently seen protests due to high-cost living are especially affected and this has resulted in a loss of life, displacement and economic setbacks.
Kristen Hallam
So now we have described impacts on supplies, prices, economies, unrest, stability, how are governments responding? Are there any other impacts that you're seeing in your regions that we should flag for our clients? Carlos, let's go to you first.
Carlos Cardenas
Basically in 2 ways. For Latin America, the region as a whole avoided the protectionist approach. You have countries like Mexico, for example, to try to stabilize inflation opting to eliminate or put on hold any sort of tariff related to the import of foods. Obviously, we had price controls implemented in Argentina, but the new government has now lifted them. And the one that we're really watching long term is that vulnerability towards the fertilizer industry.
The interesting thing is that rather than seeing an approach like we have seen in which governments in the region come to nationalize, to expropriate, it's more of an attitude of, okay, how do we manage to achieve that sovereignty when it comes to fertilizers? How do we manage to increase that domestic production? One, by trying to partner with the private sector. The other one by how to increase the role of state-run companies there, either on their own, or again, in partnership with the private sector or by simply trying to bring more investment into the country. So that's the one more into the long term.
Hanna mentioned before subsidies, that's something that will stay. Again, Brazil, you had this subsidy scheme and that will continue, of course, and it's replicated in other parts of the region.
Kristen Hallam
And Hanna, how about in APAC, how are governments responding?
Hanna Luchnikava-Schorsch
Right. So I would say that since the probably more severe -- one of the most severe El Niño events in history in 2016, the governments in the Asia Pacific region have really strengthened their national resilience to such events. And a number of strategies really has been applied across the regions, which all of them could probably come down to 3 major groups of this.
So one of them would be really to strengthen the buffer stocks of key agricultural commodities, and this is what the governments have gotten really good at across the Asia Pacific region. Of course, because of the improved fiscal finances and foreign exchange reserves buffers, they have a better capacity to import critical food during the time of such events like El Niño this year, but also just supply management strategies overall have also improved across the region.
The second group of strategies, which the governments really used, and that's probably most significant to the Asia Pacific region is, of course, price controls and export controls. We have seen that India has made headlines again by introducing an export ban on non-basmati rice in the summer of last year. It also issued restrictions on exports of sugar in October of the last year, and exports of onions have been restricted until the end of March this year.
But India is really not alone in the Asia Pacific region in doing so, export restrictions really have been introduced across the board. Pakistan currently is restricting exports of onions and bananas, for example. There are a number of restrictions of export of rice imposed by Myanmar and some other countries in the region. So this is really something, which is being utilized in the region itself quite often.
And the third set of measures, which the governments are using, of course, is subsidies and cash handouts to the most poor in the countries as well as subsidized loans to farmers to make sure they mitigate the impact of prices on the cost of living.
Kristen Hallam
Ronel, how about in Sub-Saharan Africa, how are governments responding?
Ronel Oberholzer
Is I'd like to divide this between the short term and the longer term. So over the short term, governments are actually really committed to increasing food security. And so they've been investing quite a lot in agricultural research and the regional agrifood value chain. They are trying to encourage sustainable farming practices, especially among the smallholder farmers, implementing social safety needs and facilitating access to finance, coupled with debt relief and financial support. And they're also developing inter-Africa trade and this is where the African Continental Free Trade Agreement plays a very, very important role in freeing up tariffs, et cetera.
We have seen that the governments actually try to refrain from export bans, although in 2022 we did see Ghana, Burkina Faso and Uganda actually imposing export bans and increasing taxes on export staples.
And if we look at subsidies, we've actually seen a gradual phasing out of agricultural subsidies and this is mainly because the IMF suggests that this is not very productive. And they would prefer that policymakers channel the savings from subsidies to reforms towards strengthening the social protection through cash transfers or investing in a climate-resilient infrastructure.
But what's really a little bit concerning is the longer term. We know that Africa needs about USD 1.3 trillion every year until 2030 to meet Sustainable Development goals. And at this stage, a lot of this money is coming from the governments themselves. But with fiscal consolidation going on, there's just not enough money for this and we will have to get the private sector involved in this goal.
Kristen Hallam
All right. Well, we've given you a lot to think about today and we're committed to continuing the conversation. Please look for more coverage in our blog. Thanks to Hanna, Ronel and Carlos for sharing their insights with us, and thanks to you for engaging with us today.
Thank you for listening to the Economics & Country Risk podcast. Connect with us on LinkedIn and Twitter, and don't forget to subscribe to the podcast so you never miss an episode.
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