Insight Focus
- World Bank warns of ‘human catastrophe’ on food security.
- German fertiliser prices surge over 87%.
- Indonesia bans palm oil exports.
Global financial institutions and corporations are warning of the knock-on effects on the global economy of Russia’s invasion of Ukraine.
The World Bank cut its 2022 global economic growth forecast to 3.2% from 4.1%. Addressing the issue of food security, its president, David Malpass, said of the food security issue: “Food crises are bad for everyone, but they’re devastating for the poorest and most vulnerable…Countries must be taking action now to encourage the production of food, energy, and fertiliser. The production chain needs all three. It’s vital for countries, both advanced and developing, to reduce their trade barriers.”
In an interview with the BBC, Malpass described the food-security crisis as “an unfair kind of crisis”.
“It’s a human catastrophe, meaning nutrition goes down. But then it also becomes a political challenge for governments who can’t do anything about it, they didn’t cause it and they see the prices going up,” he added.
The International Monetary Fund also cut its global growth forecast by 0.8 percentage points to 3.6%. It also forecast 2022 inflation at 5.7% in advanced economies and 8.7% in emerging market and developing economies — 1.8 and 2.8 percentage points higher than it projected in January.
Nestlé Signals Inflation Worries
The world’s largest food corporation, Nestlé, said cost inflation continued to increase sharplyand would require further pricing and mitigating actions over the course of the year. However, it said consumer demand for its products held up despite it raising prices by 5.2%. Its prices increased 7.7% in Latin America but fell 0.5% in the Greater China region.
German Economic Woes
The impact of the crisis on developed economies can be seen in reports from Germany. Producer price data released by Federal Statistics Office Destatis (in German) for March showed the highest year-on-year rise since records began in 1949 of 30.9%. Destatis said prices of fertilisers and nitrogen compounds surged 87.2%. Russia is a major fertiliser exporter. Energy prices surged 83.8%, and animal feed was 45.7% more expensive.
Managing Director of the German Dairy Association Eckhard Heuser told Handelsblatt in an interview that the rise in energy, fertiliser and feed costs were factors behind the rise in farmgate milk prices. He said milk prices were now EUR 0.43/kg (USD 0.47/kg) compared with an average of EUR 0.36/kg in 2021. Heuser added that he expected the price to rise to EUR 0.50/kg. “These are prices I’ve never seen in my 30 years in the industry,” he said. Heuser also said some of the price rise was due to consumer hoarding and dairy-product producers overstocking.
The shockwaves rippling out from the war in Ukraine coming on top of the disruption to supply chains caused by the coronavirus pandemic have caused economic think tank Hamburg Institure of International Economics HWWI (in German) to predict that Germany, Europe’s largest economy will enter recession in Q1’22, meaning a second quarter of economic contraction after the economy shrank in Q4’21. “If the war in Ukraine drags on and sanctions are ratcheted up there is the threat of a deep recession,” HWWI’s academic director, Michael Berlemann, said.
UK Consumers Tighten Belts Elsewhere in Europe, consumers are reining in spending. UK March retail sales volumes fell 1.4% on the month, with food store volumes falling 1.1%, the Office for National Statistics (ONS) reported.
The ONS attributed the fall in food-store sales to higher spending in pubs and restaurants linked to reduced coronavirus restrictions, as well as the impact of rising food prices on the cost of living. It cited its Opinions and Lifestyle Survey covering March 16-27, which found that 87% of adults reported that their cost of living had increased over the last month. The most common reason given was an increase in the price of food shopping (88%).
Zimbabwe Wrestles with Grain & Bread Prices
In Zimbabwe, the price of a standard loaf of bread rose 30% last week, the My Zimbabwe website reported. It also quoted Grain Millers Association of Zimbabwe President Tafadzwa Musarara as warning of possible bread shortages. Musarara said Zimbabwe would need to import 155k tonnes of wheat to cover the gap between domestic production and demand.
Asian Countries Hit Too
The inflationary ripples have also washed up on Asia’s shores. In India, annual wholesale inflation hit 14.55% in March, Reuters reported, with fuel prices soaring 34.52% compared with 31.50% in February.
In the Philippines, the soaring cost of fertiliser leading to lower yields has caused the US Department of Agriculture’s Global Agricultural Information Network to cut its forecast for sugar output in the 2023 marketing year by 50k tonnes to 2m tonnes. It also forecast consumption would remain unchanged on the year at 2.3m tonnes because demand would be constrained by high prices following lower domestic production and no increase in imports to stabilize prices.
Indonesia will effectively ban palm oil exports from the 28th April, until further notice, after President Joko Widodo announced a halting of shipments of cooking oil and its raw materials to control soaring domestic prices, Reuters reported. Most of the country’s cooking oil derives from palm oil, of which Indonesia is the world’s largest producer and exporter.
Ukraine’s Infrastructure Strained by War
In Ukraine, Russia’s invasion has damaged or destroyed up to 30% of the country’s infrastructure at a cost of USD 100 billion, Infrastructure Minister Oleksander Kubrakov told Reuters. The UN’s Office for the Coordination of Humanitarian Affairs in Ukraine tweeted that up to 30% of agricultural fields in Ukraine won’t be used to plant wheat, barley, sunflowers, and corn this year.
In addition, Ukraine has insufficient storage capacity even for its reduced 2022 grain harvest, the UN’s World Food Programme said, with the country struggling to export existing stocks during the invasion by Russia. Reuters quoted Jakob Kern, the World Food Programme’s emergency coordinator in Ukraine, as saying that “the main concern at this stage is the lack of storage capacity to bring in the 2022 grain harvest. An estimated 15m tonnes of grains will not have space in the silos around the country.”
Russia Looks to Help Its Food Sector
Ideas Russia might not be as self-reliant as it might profess were backed up by an Interfax report quoting a letter from associations representing Russian producers of food products and packaging for the food industry asking Prime Minister Mikhail Mishustin not to restrict the entry of heavy trucks from the EU that deliver feedstock for the industry.
The government is looking into to helping domestic farmers by possibly extending the fixing of prices for mineral fertilisers until the end of the year, Interfax reported. In a separate report, it said the Russian government had eased restrictions on chemical fertilizer exports, temporarily raising export quotas for Russian producers by almost 700k tonnes until the 31st May.
Export quotas have been raised by 231k tonnes to 5.7m tonnes for nitrogen fertilisers, and by 466k tonnes to about 5.6m tonnes for complex fertilisers, Interfax said.
Russia is also helping its allies abroad. Reuters reported that it donated nearly 20k tonnes of wheat to Cuba. However, Russian ambassador to Cuba Andrei Guskov said the ship transporting the wheat was stalled off the island for a month by Western sanctions on Russia. Banking-related restrictions had complicated Russia´s payments to the shipper, he said.
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