SAPTU’s input on current of world food supply situation

The secretary-general of the United Nations, Antonio Guterres had the following to say with regards to food security at a virtual food conference on food security held in Berlin Germany in June 2022. Guterres said that in many parts of the world there is a food shortage developing which will lead to global shortage of food in developing countries. He called it a global disaster and famine is pending in these countries this year. He encouraged countries to take practical steps to stabilise world food markets and the volatility of food prices; in other words the commodity of food supply should be stabilised.

The war in the Ukraine have worsened the problem of food security in the world which in any case was brewing for years. Adding to this is the disruption of climatic conditions, the Covid-19 pandemic and deeply embedded economic differences between developing and poor countries, and developed countries.

Guterres also stated that according to the UN’s IPC, an integrated food security classification more than 460,000 inhabitants in South Sudan, Somalia, and Yemen are suffering from malnutrition and the situation is one step away from declaring a famine in the region. According to the IPC 34 million people in other countries are on the verge of a famine. According to Guterres there is a real possibility that famines in 2022 and 2023 will be declared in several regions of the world and the situation can only worsen. The Russian-Ukraine crisis will not be solved unless the warring parties can come to an agreement. It is accurately estimated that the two countries supply 29% of wheat exports to the world which came to a dead end as no wheat was shipped through the ports of Ukraine. Russia demands that Western sanctions must be lifted before wheat and fertiliser exports will be re-introduced.

This situation is very serious and South Africa is already feeling the pinch in food exports to Russia; mainly fruits. The press statement forwarded on the closure of the Ashton canning plant and the reducing of fruit production by farmers is in direct contradiction to the situation Guterres explained.

The World Bank in its June 2022 World Economic Prospects Report said that in just two years after COVID-19 , the epidemic caused the deepest global recession since World War 2, the world economy is again in danger. This time it is facing high inflation and slow growth at the same time. Even if a global recession is averted, the pain of stagflation could persist for several years – unless major supply increases are set in motion.

Amid the war in Ukraine, surging inflation, and rising interest rates, global economic growth is expected to slump in 2022. Several years of above-average inflation and below-average growth are now likely, with potentially destabilising consequences for low- and middle-income economies. It is a phenomenon stagflation that the world has not seen since the 1970s.

The World Bank forecasts reflect a sizable downgrade to the outlook: global growth is expected to slow sharply from 5.7 percent in 2021 to 2.9 percent in 2022. This also reflects a nearly one-third cut to the January 2022 forecast which was 4.1 percent. The surge in energy and food prices, along with the supply and trade disruptions triggered by the war in the Ukraine and the necessary interest rate normalisation now underway, account for most of the downgrade.

Covid-19 already dealt a major setback to income growth and poverty reduction in developing economics. The fallout from the war in Ukraine compounds challenges for many of them. They are expected to grow 3.4 percent in 2022 – barely half the rate in 2021 and well below the average from 2011 through 2019. Middle-income countries will see a sharp downgrade to growth in 2022, losing 1.3 percentage points relative to the January forecast. Because of the adverse shocks of the past two years, real income per capita in 2023 will remain below pre-COVID-19 levels in about 40 percent of developing economies. For many countries recession will be hard to avoid. With supply of natural gas constrained, especially for use in fertiliser and electric grids in poorer countries, announcements of major production increases worldwide will be essential for braking out of stagflation and restoring noninflationary growth.

The World Bank continue in its report to say the danger of stagflation is considerable today. Between 2021 and 2024 growth is projected to have slowed by 2.7 percentage points, more than twice the deceleration between 1976 and 1979. Subdued growth will likely persist throughout the decade because of weak investment in most of the world. With inflation now running at multidecade highs in many countries and supply expected to grow slowly, there is a risk that inflation will remain higher for longer than currently anticipated.

External public debt in developing economies is at record levels today. Most of it is owed to private creditors, and much of it involves variable interest rates that could spike suddenly. As global financing conditions tighten and currencies depreciate, debt distress-preciously confined to low-income economies is spreading to middle-income countries.

The removal of monetary accommodation in the United States and other advanced economics, along with the ensuing increase in global borrowing costs, represents another significant headwind for the developing world. In addition over the next two years, most of the fiscal support provided in 2020 to fight the pandemic will have been unwound. Despite this consolidation, debt levels will remain high.

Having said the above what are the positives. Importantly, policy makers are in a better position today to stave off stagflation headwinds. Monetary policy frameworks are more credible with clear price stability mandates for central banks in advanced and many developing economics alike. Long-term inflation expectations are also better anchored. Existing technology and capital have the capacity to provide massive increases in supply, holding down price expectations.

What is to be done then. Reducing the risk of stagflation will require targeted and impactful measures by policy makers across the world. The Banks report spells out what they can do to avoid the worst outcomes-and why that work must begin immediately. In an extraordinary era of overlapping global crises, policy makers across the world will need to focus their efforts  in five key areas:

First limit the harm to people affected by the war in Ukraine by coordinating the crisis response, including delivery of emergency food, medical, and financial aid to war-torn areas. It will also be necessary to share the burden of housing, supporting, and possibly relocating refugees and internally displaced people.

Second, counter the spike in oil and food prices. It is essential to boost the supply of key food and energy commodities. Markets look forward, so even announcements of future supply would help reduce prices and inflation expectations. In the poorest nations at great risk of a food crisis, social safety nets should be buttressed. It is also crucial to avoid export and import restrictions that magnify the rise in prices.

Third, step up debt relief efforts. Debt vulnerabilities were acute for low-income countries, even before the pandemic. As debt distress spreads to middle-income countries, the risk for the global economy is growing. Debt relief needs to be rapid, comprehensive, and sizable in order to minimise debt overhang and future growth.

Fourth, strengthen health preparedness and efforts to contain COVID-19. Expanding vaccination coverage in low-income countries, including that for COVID-19 vaccinations, must be a global priority.

Fifth, speed the transition to low-carbon energy sources. Reducing dependency on fossil fuels will need more investments in electricity grids, cleaner energy sources, and greater energy efficiency. National policy makers should create climate-smart regulatory frameworks, adjust incentive structures, and strengthen land use regulations.

There is good reason to expect that, once the war in Ukraine stops, efforts will redouble-including by the World Bank Group to rebuild the Ukrainian economy and revive global growth.

Photo by Markus Spiske on Unsplash