Ep. 211 - Global food security: Inflation impact and government responses

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Hello, and welcome to part two of our series on global food security. In part one of our series, we discussed the role of three 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 two, 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, Carlos Cardenas, head of Latin America Insights and Analysis. Hannah Luchnikava Shorch, Principal Economist, Asia Pacific Economics. And Ronald 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. Hannah, 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?

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Right. So the impact of El Niño 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 India, 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 endof 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. Another 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 years. This, of course, has been exacerbated not just by the production issues, but also by significantpressures on the Pakistani rupee due to its balance of payments crisis, which made imports of agricultural commodities even more costly. But that drove Pakistan's headline inflation to a record high of 30%. Even in Japan, which is known for its struggle to bring inflation up or to come up from deflation, we have seen that hot conditions and hot weather generallyhas made production of fresh food difficult

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and combined with rising global prices for imports of non-fresh food, that has contributed to a rise in food inflation at the end of 2023, beginning of this year, and is also contributing to higher headline inflation.

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Generally, for the region, we do expect that overall and food inflation will come down during the year as the impacts of El Niño are faced out. We will see more normal conditions during April June. One more important factor to mention is that for 2020 summer, we are expecting another other phenomenon which is called La Niña. And it is usually bringing favorable conditions for agriculturaloutputs 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 a 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.

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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?

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Yeah, 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 Latin macroeconomics team expects this trajectory towards lower inflation to continue in 2024. Looking into the data, when we looked specifically into food, we have seen significant improvements. Chile, for example, had in January 23,23.6% for 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, yeah, indeed a big improvement there. What it's interesting is, 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 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 percent inflation. Venezuela, of course, is not there, triple digit inflation. Surinameas well, very high inflation. But as a whole, that trajectory towards improvement, it's expected

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to continue throughout the rest of the year. And Ronell, how does this apply to sub-Saharan Africa? Will this impact the progress on overall inflation?

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Yes, Kristen, good inflation in sub-saharan Africa has been coming down or slowing.

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I would rather say from the very high 30, 40s percent coming down.

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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 vulnerableto increase global food prices and changes in the terms of trade and the disruption in the region very vulnerable to increase 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 dream became even more pronounced with the start of the COVID-19 pandemic and the subsequent Russian-Ukraine conflict.Sub-Saharan Africa experience 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 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.to decrease recently. There are still risks that inflation could go up again. Carlos also mentioned that. This is the unpredictable weather and security problems in the region as well that can affect food prices. Now this, together with the ongoing weakness in the global supply change, like what's happening in the Red Sea at the moment and the Russia-Ukraine conflict could make inflation worse again.

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What impact could food security risks have on the workforce and jobs? Carlos, let's go to you first on that.

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Well, in terms of impact on the workforce and job, and if we look at, again, that projection that from the United Nations Food and Agriculture Organization on Latin America sector growing to provide about a quarter of the world's food And if we look at, again, that projection that from the United Nations Food and Agriculture Organization on Latin America sector growing to provide about a quarter 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 whether those resources are managed well.In Latin America, that's not always the case. But again, when you look at the numbers, 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're seeing, you would say, 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 this content, especially among unions. Overall, there's not a, you would say, campaign just about that. It's mostly 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. Yeah, 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 coming 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 protest as a whole, one of the main hotspots to watch.

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And Hannah, how about in APAC, what impact might we see on the workforce and jobs from food security risks?

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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 these countries where we might see most of the impact. But what is even more important is so 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 disconted among farmers. And there is no surprise that we are currently seeing,again, large protests by Indian farmers, thousands of farmers are protesting and demanding basically higher minimum agricultural prices for their commodities, as well as some benefits like pensions and waivers of loans. And this is really a result of such events like El Niño, which are affecting agricultural outputs from year on year. Political as this might be very contentious, particularly ahead of the upcoming general elections in India. We have seen that three 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.

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Other than the European farmers' protests, could we see unrest in other regions? Carlos, how about in Latin America?

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Yeah, 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 situation where the farmers are facing or are protesting against the removal of subsidies, diesel subsidies in particular. And for Latin America, if you would have measures like that, it would really lead to significant unrest in this content, especially from the truckers,which have disrupted in places like Colombia and Brazil supply chains. For Latin America as a whole, again, the protests are most related to cost of living crisis as a whole. And the key thing which we have flacked 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 now realized that most of the time, rather than just go to protest in frontof the presidential building or the main, you would say, a square of the capitals, 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 going and blockading 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 lookat 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 amounts of consumption for industrial usagerather than for the population or for farming and agribusiness. So that's a pattern that will continue throughout the region. And yeah, it's going to hit both for government stability side but also from company's ability to operate.

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Hannah, how about in the APAC region, could we see unrest there?

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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, 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 either already seen or undergoing run-up elections. They'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 increase risk of protests related to cost of living. Rather than that, food-related protests do not have that much of a linkwith political stability in the region. We might see some increase in protests 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.

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And Ronel, how about in sub-Saharan Africa, is food security a source or potential source

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of political instability and unrest? I'd like to rephrase that slightly and maybe just throw 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 concernsacross the region. If we take Ethiopia, for example, it's really a stark illustration of our combination of factors like climate issues, insurgency and unrest can really severely impact on food security. Ethiopia weed production, which contributes about 20% to the total African weed production has taken a serious hit, especially in the northern regions, not only due to the weather shocks caused by the Alnino,but also because in the areas like Tigray, Amhara, Afar, Somalia, and Aromia, which are the key weed-producing regions, are really grappling with subnational conflicts over the past three years, and this has led to millions of people being displaced. So overall sub-Saharan Africa phase is really a complex array of challenges, including conflicts, human rights violations, and economic struggles,and countries like Ethiopia, Mozambi, Camero, 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.

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So now we've 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.

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Basically in two ways. Now, for Latin America, the region as a whole avoided the protectionist approach. You had countries like Mexico, for example, to try to stabilize inflation, opting to eliminate or pull 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 thatwe're really watching long term is that vulnerability towards the fertilized 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, 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 moreinto the long terms. Hannah 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

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part of the region. And Hannah, how about an APAC? How are governments responding?

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Right. So I would say that since the probably most severe, one of the most severe immune 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 three 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 government says 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 Alinio this year, but also just supply management strategies overall have also approved across the region. The second group of strategies which the governments really use, 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 againby introducing an export ban on non-Basmati rice in the summer of last year. It also issued restrictions on experts of sugar in the summer of last year. It also issued restrictions on experts 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. Expert 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 exports 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, the set of measures which the governments are using, of course, is subsidies and cash handouts to the most poor in their countries, as well as subsidized loans to farmers to make sure they mitigate the impact of prices on the cost of living.

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Ronell, how about in sub-Saharan Africa, how are governments responding?

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Yes, I'd like to divide this in between the short term and the longer term. So over the short term, governments are actually really committed to increasing food security. So they've been investing quite a lot in agricultural research and the regional agri-food value change. They are trying to encourage sustainable farming practices, especially among the small-holder farmers, implementing social safety needs and facilitating access to finance,coupled with debt relief and financial support.

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And they're also developing inter-Africa trade. And this is where the Africa Continental Free Trade Agreement plays a very, very

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important role in freeing up tariffs, etc. 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 stables. 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 savingsfrom 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 $13 trillion US dollars every year until 2030 to meet its 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 moneyfor this. And we will have to get the private sector involved in this goal. All right. Well, we've given you a lot to think about today. And we're have to get the private sector involved in this goal. All right.

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Well, we've given you a lot to think about today, and we're committed to continuing the conversation. Please look for more coverage on our blog. Thanks to Hannah, Ronell, and Carlos for sharing their insights with us, and thanks to you for engaging with us today.

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