By Carmen M. Reinhart and Rob Subbaraman
- PETERSBURG/SINGAPORE – Even before the pandemic, there were signs that global food prices could soon surge. Extreme weather events induced by climate change have become more common. African swine fever wiped out over one-quarter of the world’s pig population last year, causing food prices in China to increase by 15-22% year on year so far in 2020. And more recently, the worst locust blight in 70 years has destroyed crops in East Africa. In Kenya, the price of maize, a staple food, has risen by over 60% since 2019.
COVID-19 is amplifying the risk of a worldwide food-price spike, which would trigger outright crises in many developing countries. In the poorest of these, food accounts for 40-60% of the consumption basket, about 5-6 times its share in advanced economies.
While lockdowns have led to a collapse in demand for durable goods and discretionary services, the opposite is true of food. In cities around the world, reports of panic buying and food hoarding have proliferated since the pandemic began.
On the supply side, global grain stockpiles are healthy but could quickly be depleted as the virus disrupts food production and distribution. And shortages of animal feed, fertilizers, and pesticides have increased both the costs of farming and the risk of bad harvests.
Moreover, from harvesting fruits and vegetables in India to operating meat plants in America, labor shortages are becoming increasingly apparent as cross-border travel restrictions in much of the world disrupt the normal seasonal cycle of migrant farm workers. And transportation shortages are making it more challenging to get produce to market – when there is one.
Farmers need to reconfigure their supply chains away from bulk wholesale to (currently closed) restaurants, hotels, and schools, and toward grocery stores and home delivery. But that takes time, not least because commercial and consumer food products are prepared and packaged differently. In the meantime, fresh produce has had to be destroyed.
Furthermore, some major food-producing countries have already imposed export bans or quotas in response to the pandemic, as Russia and Kazakhstan have done for grain, and India and Vietnam have done for rice. Meanwhile, other countries are stockpiling food through accelerated imports, as is true of the Philippines (rice) and Egypt (wheat).
Such food protectionism may seem like a good way to provide relief to the most vulnerable segments of the population, but simultaneous interventions by many governments can result in a global food-price surge, as happened in 2010-11. The World Bank estimates that protectionism accounted for about 40% of the increase in the global price of wheat and 25% of the rise in maize prices at that time.
One can understand these countries’ nervousness. While the COVID-19 pandemic has led to falling growth, rising unemployment, widening fiscal deficits, and soaring debt in advanced and emerging economies alike, the appearance of new infection hotbeds in developing countries will mean an even starker tradeoff between saving lives and protecting livelihoods. Moreover, developing countries are already facing a sudden stop in capital and remittance inflows and a collapse in tourism, while the terms of trade and currencies of the many oil and primary-commodity exporters among them are crashing. Even before COVID-19, many low-income countries were at serious risk of debt distress. And many of these economies are also highly vulnerable to a spike in food prices.
Nomura’s Food Vulnerability Index ranks 110 countries based on their exposure to large food-price swings, taking into account their nominal GDP per capita, the share of food in household consumption, and net food imports. The latest reading shows that of the 50 countries most vulnerable to a sustained rise in food prices, nearly all are developing economies that account for nearly three-fifths of the world’s population.
In fact, surging food prices would be a global problem, because they are highly regressive everywhere. Even in developed economies, a jump in food prices would drive a bigger wedge between the rich and poor, exacerbating already-severe wealth inequality. No one should ignore the age-old connection between food crises and social unrest.
Multilateral institutions have mobilized quickly during the crisis to provide emergency loans to a record number of developing countries, while G20 creditors have agreed to a temporary suspension of debt-service payments from poor countries that request forbearance. But because the risks posed by surging food prices do not apply only to the most vulnerable economies, temporary debt relief may need to be extended to other countries as well.
With the pandemic threatening to wreak even more economic havoc, governments must work together to address the risk of disruptions to food supply chains. More broadly, some modicum of global policy coordination is essential to prevent food protectionism from becoming the post-pandemic new normal.
Carmen M. Reinhart is Professor of the International Financial System at Harvard University’s Kennedy School of Government. Rob Subbaraman is Head of Global Macro Research at Nomura.
Copyright: Project Syndicate, 2020.