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Best of EM Global Food Prices in Crisis
30 Plays2 years ago
In this episode, we explore the current state of global food prices. Dr Murat Ulgen, Global Head of GEMs Research at HSBC, hosts World Bank Senior Economists John Baffes and Peter Nagle as they discuss the larger backdrop against which global food prices are rising, the factors that are directly impacting these price changes and finish by taking a look at what the policy response has been and the knock-on consequences of higher prices.
Emerging Markets Spotlight is a podcast miniseries created and hosted by HSBC that seeks to explore and understand the complex and critically important issues facing the world’s emerging markets. For further insight and information around emerging markets, visit Accessing Emerging Markets | HSBC.
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Transcript
Introduction and Subscription Invitation
00:00:02
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes.
00:00:16
Speaker
Thanks for listening.
00:00:17
Speaker
And now onto today's show.
Challenges in Emerging Markets
00:00:32
Speaker
Welcome to the Emerging Market Spotlight, a podcast series from HSBC.
00:00:38
Speaker
The emerging markets landscape is more complex than ever at a time of divergent monetary policy, high commodity prices, supply chain disruptions and geopolitical tensions.
00:00:52
Speaker
Join us as we speak with world's leading institutional investors, experts, policymakers, and thought leaders to explore the challenges and opportunities.
00:01:03
Speaker
Make sure you subscribe to HSBC Global Viewpoint and stay up to date with new episodes.
00:01:10
Speaker
Thanks for listening.
00:01:11
Speaker
And now on to today's show.
Food Price Volatility Discussion
00:01:19
Speaker
Well, good morning, good afternoon, and good evening.
00:01:21
Speaker
Well, first of all, my name is Murat Turgent.
00:01:23
Speaker
I'm the Global Head of Emerging Markets Research.
00:01:25
Speaker
I have two guests, two experts of their fields, very distinguished guests.
00:01:29
Speaker
So let me introduce them first.
00:01:32
Speaker
We have Mr. John Buffess, who is the Senior Agriculture Economist Development Economic Prospects Group at the World Bank.
00:01:41
Speaker
and Mr. Peter Nagel, who is also Senior Economist Prospects Group at the World Bank as well.
00:01:46
Speaker
So Peter and John, welcome and thank you very much for joining us today.
00:01:50
Speaker
Well, obviously, global food prices have been very, very volatile.
00:01:53
Speaker
The food prices and commodity prices have come off from their peak levels, like compared to earlier in the year, the outbreak of the Russia-Ukraine war, but they're still elevated and a lot of factors are feeding into it.
00:02:09
Speaker
And given that they have a relatively high share in the EM consumption basket, it would be great to discuss what they all mean for EM inflation prospects or growth prospects.
00:02:20
Speaker
So we will take a deep dive on all these factors and obviously focus on the previous commodity price shocks as well.
00:02:26
Speaker
And I have to say, Peter and John, they published a fantastic paper in April.
00:02:30
Speaker
You may have seen it.
00:02:31
Speaker
It's a World Bank paper.
00:02:33
Speaker
It's about the impact of the war in Ukrainian commodity markets.
00:02:36
Speaker
So super tiny.
00:02:37
Speaker
And I'm sure they may want to refer to that paper as well.
00:02:40
Speaker
So without further ado, Peter, can we start with you sort of to paint the global backdrop for us, the general macro backdrop
00:02:47
Speaker
for commodities markets, particularly for the energy commodities and oil markets.
00:02:52
Speaker
And then we go to John to discuss the agricultural commodities.
00:02:55
Speaker
So Peter, over to
Oil Market Dynamics
00:02:56
Speaker
you.
00:02:56
Speaker
Thank you very much.
00:02:57
Speaker
Thanks very much.
00:02:58
Speaker
And it's a pleasure to be here with you today.
00:03:00
Speaker
As you said, Mirat, there's many different factors affecting commodity markets at present, and we're seeing huge price volatility at the moment.
00:03:08
Speaker
And I think that reflects two competing narratives.
00:03:11
Speaker
On the one hand, you have widespread concerns about the state of the global economy.
00:03:18
Speaker
We have a significant and rapid tightening of monetary policy by central banks around the world, and that's leading to concerns about a global economic slowdown, if not an outright global recession.
00:03:33
Speaker
Now set against that, you have widespread concerns on the supply side that we might have insufficient supplies.
00:03:41
Speaker
And for energy that reflects several years of low investment in fossil fuels.
00:03:47
Speaker
That really starts in 2014 and has been exacerbated over the past couple of years.
00:03:53
Speaker
We still have some supply side effects from the disruption from the pandemic.
00:03:58
Speaker
And of course, these factors have been turbocharged by
00:04:01
Speaker
the impacts of the war in Ukraine.
00:04:04
Speaker
So on the demand side, if we take a look at oil, for example, I think the worries that we're seeing around demand are still just that, they're worries.
00:04:14
Speaker
If you look at the actual data, there has been some slowing in oil demand growth, but it's still positive.
00:04:21
Speaker
And the International Energy Agency is expecting growth of 2 million barrels a day this year and next year.
00:04:28
Speaker
So still pretty rapid growth despite the economic backdrop.
00:04:33
Speaker
I think on the supply side, you have an array of factors that are potentially quite concerning.
00:04:40
Speaker
Whilst Russian exports have held up fairly well so far, they are expected to come off towards the end of this year as EU sanctions ramp up.
00:04:50
Speaker
The EU will fully ban crude oil from December and oil products from February.
00:04:55
Speaker
And that's expected to take around one and a half to 2 million barrels a day off the market.
00:05:00
Speaker
On top of that, we know that OPEC Plus are essentially at their maximum production capacity.
00:05:06
Speaker
Many of their members are producing well under target.
00:05:10
Speaker
And on top of that, the group actually announced a production cut, albeit a very modest one.
00:05:15
Speaker
But it's an indication that they're happy for oil prices to be quite a bit higher than they perhaps had previously had as their
00:05:24
Speaker
an implicit target um opec of course also has very minimal spare capacity at the moment um it's really only saudi arabia and perhaps uae that have any spare capacity and that leaves the oil market vulnerable to to shocks
00:05:41
Speaker
Other important factors are the drawdown of strategic petroleum reserves, particularly in the United States.
00:05:48
Speaker
This has been pretty substantial, maybe around 1 million barrels a day of extra supply to the market.
00:05:55
Speaker
And that's expected to come to an end within the next month.
00:05:58
Speaker
It could, of course, be extended, but there's no guarantee there.
00:06:02
Speaker
And finally, in terms of the US more broadly, US shale is once again expected to come to the rescue.
00:06:09
Speaker
And there are these very substantial predictions for production growth this year and next.
00:06:15
Speaker
But so far, it doesn't look like that's on track.
00:06:18
Speaker
If you look at the rig count, it's still quite subdued.
00:06:21
Speaker
And increasingly, these companies are focused more on returning cash to shareholders rather than increasing production.
00:06:29
Speaker
And even for the ones that do want to increase production, there are many supply side factors that are restricting them, such as a shortage of labor, a shortage of equipment and parts.
Impact of Russian Supply Cuts on Europe
00:06:39
Speaker
And so it is going to be hard for the US to ramp up.
00:06:42
Speaker
So I think whilst we are seeing much, you know, quite a sharp pullback in oil prices recently, over the one to two year horizon, we think that these supply factors will start to outweigh the worries about demand.
00:06:58
Speaker
Now, in contrast to previous energy crises, in fact, oil is almost the sideshow in its natural gas and coal where all of the action is.
00:07:06
Speaker
What we've seen is Russia has shut off flows to Europe.
00:07:12
Speaker
Europe has managed to rebuild its inventories, but only at great cost.
00:07:16
Speaker
It's basically sucked in every available cargo of liquefied natural gas around the world.
00:07:21
Speaker
And that's had really severe ramifications on other countries.
00:07:24
Speaker
I mean, Pakistan, for example, hasn't been able to
00:07:28
Speaker
bid for any LNG cargoes because Europe has just been drawing all of them in.
00:07:33
Speaker
So a lot will depend this year on how severe or mild the winter in Europe is.
00:07:37
Speaker
I think if it's mild Europe can probably squeak through, but if you do see a severe winter, it could require pretty drastic reductions in natural gas demand.
00:07:47
Speaker
And for policymakers, the key question there is going to be how much of that is borne by industry or how much is borne by households.
Factors Behind Food Price Volatility
00:07:56
Speaker
So with that brief overview, probably a little pessimistic, but I think that's the state of the world we're in.
00:08:02
Speaker
I'll pass over to John to talk a bit more about agriculture and also the broader impacts of the war in Ukraine.
00:08:09
Speaker
Well, thanks, Pete, and thank you very much, Murat.
00:08:12
Speaker
I'm delighted to be part of this.
00:08:14
Speaker
Let me begin by touching upon the issue of price volatility for food commodities and the kinds of disruptions that we have seen in the global food commodity markets.
00:08:26
Speaker
In terms of what is behind the price volatility that we have experienced the past couple of years, of course, the first issue is the pandemic, which caused quite a few supply disruptions around the world.
00:08:38
Speaker
Then we had some adverse weather patterns, especially in Latin America, that affected the crops such as soybeans and wheat.
00:08:48
Speaker
We also had some problems in Southeast Asia that affected crops such as palm oil.
00:08:54
Speaker
And more importantly, of course, we had the war in Ukraine, which disrupted the exports of a number of commodities, especially wheat.
00:09:01
Speaker
And Ukraine, along with Russia, are accounting for a good chunk of the wheat export market.
00:09:08
Speaker
So when Russia invaded Ukraine, exports from Ukraine came to practically to zero.
00:09:15
Speaker
And that sort of induced fears of further supply disruptions.
00:09:20
Speaker
Now, since then, not since then, I mean, for the past three months, I would say agricultural prices, especially wheat prices have kind of entered a downward path, they have declined a little.
00:09:31
Speaker
And that reflects the fact that Russia agreed to let some of the export ports of Ukraine to start operating.
00:09:38
Speaker
So the world market has seen some, I would say, some relative stability in terms of price volatility.
00:09:46
Speaker
As we move ahead, like the short term, the medium term outlook, a lot will depend, of course, what kind of actions various countries are going to take in terms of policy restrictions, including, of course, whether we're going to see exports coming out of Ukraine and Russia.
Energy and Food Market Connections
00:10:03
Speaker
A couple of years we did see a number of policy restrictions, especially export restrictions by numerous countries.
00:10:10
Speaker
Another issue that I would like to highlight is the fact that energy commodities and food commodities are linked and are linked very closely, both in the short term and in the long term.
00:10:24
Speaker
And just as a side note, I mean, for the ones that have been in a farm, if you visit a farm, what you see is trucks, tractors, water pumps, fertilizer, chemicals, etc.
00:10:37
Speaker
And everything, all those items depend on energy.
00:10:41
Speaker
They run on energy.
00:10:42
Speaker
To summarize, we have seen volatility, which on the one hand comes from the pandemic and the supply disruptions and the export restrictions.
00:10:55
Speaker
But on the other side, it comes also through the strong links between energy and the non-energy commodity markets and the food commodity markets.
00:11:06
Speaker
Comparing what is unfolding now, the current sort of price spike, and if we compare it with the spikes that took place back in 2007-8, as well as in 2011-12, I would say there's also, there's of course the similarity
00:11:22
Speaker
between the energy price spikes in the sense of both then and now we have increased in energy prices that of course, of course, affects the cost of production.
00:11:30
Speaker
The second similarity is the policy restrictions, which I mentioned, which are in terms of numbers the same, but they are less restrictive, I would say now, but there's a third, I would say difference.
00:11:41
Speaker
And that is what has helped in a sense food prices.
00:11:46
Speaker
They have not skyrocketed as one we have
Policy Responses to Price Shocks
00:11:48
Speaker
expected.
00:11:48
Speaker
It's the fact that
00:11:50
Speaker
food markets now are much better supplied than what they were back then, especially in 2007 and 2008.
00:11:57
Speaker
And that's why we have seen quite a bit of volatility in food markets, not as much as one would have expected.
00:12:05
Speaker
Of course, if we have adverse weather events like next year or the year after, stocks, inventors will be depleted and we'll have probably more severe problems.
00:12:15
Speaker
I will stop here and as Pete said, unfortunately, I don't have better news, but anyway.
00:12:22
Speaker
Excellent.
00:12:23
Speaker
Thank you very much, Peter and John, for setting the stage very nicely for our succeeding discussion.
00:12:29
Speaker
Perhaps
00:12:31
Speaker
I can pick your brains on the policy response.
00:12:35
Speaker
I mean, given the shock we've seen on commodities, and obviously there's a supply and demand element, commodities in general and agricultural commodities in particular, how do you see the policy response?
00:12:46
Speaker
Is it satisfactory?
00:12:47
Speaker
Is it counterproductive?
00:12:48
Speaker
So can we talk a little bit about the policy perhaps with the same division of labor?
00:12:52
Speaker
Peter, we start with you.
00:12:54
Speaker
on broad commodities backdrop, oil markets, et cetera, and then go to John for agricultural commodities more specifically.
00:13:02
Speaker
Thank you.
00:13:03
Speaker
Yes, it's a great question.
00:13:05
Speaker
I think what we've seen in terms of the scale of the increases in energy prices, they have necessitated a huge amount of policy response.
00:13:15
Speaker
The question is whether that's the right policy response.
00:13:18
Speaker
So what we've seen, the most policy responses have been tax cuts or price subsidies.
00:13:25
Speaker
We've seen that in almost every country around the world, particularly in Europe.
00:13:30
Speaker
Governments have been spending huge amounts of money on price caps for households, particularly for electricity and natural gas bills.
00:13:39
Speaker
Now, the scale of the increase in prices we've seen means that you do need substantial help.
00:13:44
Speaker
Households are really struggling.
00:13:46
Speaker
But to some extent, putting price caps in place doesn't do anything to address the underlying demand and supply imbalance.
00:13:55
Speaker
And so what we've seen in Europe is that industry has been the one to suffer the brunt of adjusting on the demand side.
00:14:03
Speaker
Simon Carnes, Now there have been some policy measures on the supply side and that I think is where you can really that that's the best way to address these issues fundamentally we need more energy.
00:14:13
Speaker
Simon Carnes, The EU has announced a lot of plans to boost renewables, but of course that will take time individual countries have implemented measures to.
00:14:24
Speaker
increase their ability to import liquefied natural gas, building new infrastructure and terminals.
00:14:31
Speaker
And that's welcome to the extent it addresses energy supply issues.
00:14:36
Speaker
But of course, it's in March contradiction to the EU's broader climate change objectives.
00:14:43
Speaker
I think beyond this, what we would recommend is more targeted support to households rather than these widespread
00:14:51
Speaker
rebates or price caps.
00:14:53
Speaker
But of course, that's in an ideal world.
00:14:55
Speaker
And in practice, it's very hard to do.
00:14:57
Speaker
And when households generally are suffering, price caps are a simple tool.
00:15:02
Speaker
So perhaps not the policy responses that we would like to see, but it's not an idealized world either.
00:15:10
Speaker
John, I'll pass over to you on agriculture.
00:15:12
Speaker
Yeah, thanks, Pete.
00:15:13
Speaker
We did have quite a number of policy responses, export bans, etc.
00:15:20
Speaker
in agriculture, but not as bad as we had seen before.
00:15:25
Speaker
And one of the reasons may be, again, I have an interest to say that, is that this time the international organizations, as well as I would say the financial press, etc., they brought the issue to the forefront very early on.
00:15:38
Speaker
I would like to believe that that helped.
00:15:40
Speaker
Excellent.
00:15:40
Speaker
Thank you.
00:15:41
Speaker
Thank you, John.
00:15:41
Speaker
I think one of the questions is how will the energy price shock impact the transition to cleaner forms of energy?
00:15:48
Speaker
Maybe to you, Peter.
00:15:50
Speaker
Yes, this is the hot topic at the moment.
00:15:53
Speaker
I think on the one hand, this presents a real opportunity to policymakers to accelerate the energy transition.
00:16:01
Speaker
But the way I view it is that the war in Ukraine is likely to delay the transition in the near term, but perhaps accelerate it in the longer term.
00:16:11
Speaker
And what I mean by that is that energy security has really come to the fore.
00:16:16
Speaker
The importance of energy security has risen very high on policymakers' lists of priorities.
00:16:23
Speaker
And in the short term, policymakers are willing to do anything to secure that, including returning to fossil fuels.
00:16:29
Speaker
You see that in Europe, you see that in many other countries.
00:16:32
Speaker
The question is whether alongside that short term response, they put in place measures to promote the necessary investment in renewable energy, which also has very real energy security benefits.
00:16:46
Speaker
So I do think it will have very significant consequences for the energy transition.
00:16:51
Speaker
As I said, a delay perhaps in the near term, but potentially accelerating it in the longer term.
Current Global Food Price Situation
00:16:56
Speaker
Thank you, Peter.
00:16:57
Speaker
So maybe this one is for John.
00:16:59
Speaker
Global food prices don't appear to be in crisis with an agricultural organization.
00:17:05
Speaker
Food prices just up 3.3% year to date.
00:17:08
Speaker
Why is food in CPI so much higher?
00:17:11
Speaker
This is a good question.
00:17:13
Speaker
Yes, if you look at the data and you pick the right sort of months,
00:17:18
Speaker
If you start from, let's say, May to August, you see a decline in the food price point to make.
00:17:23
Speaker
Are we in a crisis?
00:17:25
Speaker
Let me make two points here.
00:17:26
Speaker
The first point is that the FAA price index, as well as the World Bank Commodity Price Index and other price indices, food price indices, we monitor prices at what we call export level or FOB or CIF level at the border pretty much.
00:17:41
Speaker
And of course, between the border, the price in the border and our dinner plates and the breakfast plates, there's a huge difference.
00:17:50
Speaker
You have transportation costs, storage costs, a lot of labor, other inputs, energy inputs, et cetera, et cetera.
00:17:57
Speaker
And that's why we see the CPI being persistent while we do not see a corresponding sort of push from the primary commodity side.
00:18:06
Speaker
The second reason is that it takes time also from
00:18:10
Speaker
the primary commodity sort of shock to be transmitted around the world.
00:18:16
Speaker
And that's why we see some countries have higher inflation, experienced higher inflation.
00:18:20
Speaker
Three months ago, other countries experienced higher inflation now.
00:18:26
Speaker
Now, why we call it a crisis?
00:18:28
Speaker
I think that's a fair question.
00:18:30
Speaker
But I wouldn't call it a price crisis because the commentator raised a good point that the price has increased, but not as much.
00:18:37
Speaker
Perhaps one can go back to Houston and see even larger price increases.
00:18:42
Speaker
But what we experience now is that disruption in supplies.
00:18:45
Speaker
For example, when following the invasion back in
00:18:49
Speaker
In February, a lot of grains, especially wheat that was supposed to go to countries such as the Middle East and North Africa, wheat simply did not arrive there.
00:18:59
Speaker
And we did see within a matter of weeks some food prices skyrocketing there to increase by a factor of two or by a factor of three.
00:19:07
Speaker
So the conclusion here is that the crisis, so to speak, or the volatility has had a disproportional impact across the globe.
00:19:17
Speaker
And it hit hard countries that were dependent on imports from Russia and Ukraine.
00:19:24
Speaker
So yes, it may not be a crisis for all, but it's certainly a crisis for some countries.
00:19:30
Speaker
for some countries.
00:19:31
Speaker
And of course, the other issue is that in a lot of low income countries, as we know, or in all I would say low income countries, even small price increase play a huge role because in low income countries, about 50 to 60% of disposable income goes for food, something which is not the case for advanced economies where only 10 to 15% goes for food.
00:19:54
Speaker
So even for small price increase for those countries pay
00:19:57
Speaker
they pay a huge price consuming.
Energy Commodity Shocks and Historical Precedents
00:20:01
Speaker
Thank you, John.
00:20:02
Speaker
No, it's great.
00:20:02
Speaker
And perhaps I may go back to an earlier question, which essentially was saying, you know, why could this shock be longer lasting?
00:20:09
Speaker
I mean, there's interlinkages between, you know, energy commodities and agricultural commodities through three various channels.
00:20:14
Speaker
But I know you also discuss in the paper, maybe Peter Moore for you, that there aren't enough substitutes when it comes to energy commodities.
00:20:23
Speaker
Can you open that up for us, please?
00:20:26
Speaker
Thank you.
00:20:27
Speaker
Thank you, yes.
00:20:28
Speaker
And so in the paper, what we do is look back at previous energy crises, particularly the 1970s oil price shocks.
00:20:36
Speaker
And we looked at how
00:20:38
Speaker
those evolved and how they were addressed.
00:20:41
Speaker
And what we found was that, particularly in the oil price shocks of the 1970s, you had this widespread substitution away from crude oil and towards coal and natural gas.
00:20:53
Speaker
So back then, crude oil was used in electricity generation and countries shifted fairly rapidly towards coal and also nuclear power.
00:21:05
Speaker
On top of that, you had a lot of increases in energy efficiency and appliances.
00:21:11
Speaker
You had a lot of government policies put in place to have things like fuel efficiency standards in the US.
00:21:18
Speaker
There was a really dramatic improvement in the efficiency of US cars.
00:21:24
Speaker
Now, if you compare that with today,
00:21:27
Speaker
As I said at the start, it's almost oil prices which are the cheapest form of fuel at the moment and the highest increases have been for natural gas and coal.
00:21:37
Speaker
So you have much less scope for substitution to a cheaper fuel.
00:21:42
Speaker
I mean, that's one reason perhaps why we might expect to see more rapid deployment of renewables if we think that those are increasingly the cheapest option.
00:21:51
Speaker
So potentially a reason for optimism amongst our other gloomy comments.
00:21:57
Speaker
We are seeing some government policies on the efficiency side, but really we think these are not perhaps sufficient.
00:22:06
Speaker
There is more that governments could do in that regard.
00:22:09
Speaker
And again, as I said at the start, the price signal is one of the best ways to achieve that.
00:22:14
Speaker
The market has a way of balancing demand and supply, but if you mute that price signal by putting in place price caps, then you're kind of shutting off that natural correction.
Biofuels and Grain Prices
00:22:24
Speaker
And I think, you know, beyond this, you also have the fact that energy costs as a share of GDP have fallen quite substantially, particularly in advanced economies.
00:22:34
Speaker
And so perhaps consumers might be a little less sensitive to oil prices than they were back in the 1970s.
00:22:40
Speaker
Excellent.
00:22:40
Speaker
Thank you, Peter.
00:22:41
Speaker
Now, I totally take your point about the price signals when you bring caps or perhaps even sort of these export bands or restrictions, as you talked about, which is suppressing the price signal.
00:22:52
Speaker
Okay, let's move on.
00:22:53
Speaker
It's an interesting question for you, John, I guess.
00:22:56
Speaker
Are biofers and ethanol contributing significantly to increasing grain prices?
00:23:01
Speaker
Great.
00:23:02
Speaker
Thanks, Monad.
00:23:02
Speaker
Thanks, the commentator.
00:23:04
Speaker
This is a...
00:23:06
Speaker
Great question that I was going to answer it anyway.
00:23:09
Speaker
That's I found it very, very interesting, very important.
00:23:13
Speaker
Certainly they do contribute.
00:23:15
Speaker
Nobody, we cannot deny that.
00:23:17
Speaker
And the numbers are supporting shortspeakers.
00:23:23
Speaker
According to our calculations, about 3 to 4% of global Arab land is allocated to the production of biofuels.
00:23:31
Speaker
That's quite a bit of a big chunk of land that's allocated to biofuels.
00:23:37
Speaker
Other number that I would like to highlight here and make the contrast in biofuels is, as I said, on the one hand, three to four percent of land is allocated for the production biofuels.
00:23:47
Speaker
But when we see how much biofuels account for in terms of energy, they account for about 1.8 percent for total oil consumption, but they only account for 0.6 to 0.7 percent for total energy consumption.
00:24:07
Speaker
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00:24:28
Speaker
We do a lot of negative sort of damage, if I could put it plainly on the food side, and we only get a little benefit on the energy side.
00:24:41
Speaker
So this is one aspect of biofuels.
00:24:43
Speaker
And the other aspect is that quite a bit of research
00:24:47
Speaker
has come out recently and earlier, I would say, that they are questioning whether there are environmental benefits in the first place.
00:24:55
Speaker
So we have this diversion, but it does not guarantee that we do have environmental benefits.
De-globalization and Market Inefficiencies
00:25:01
Speaker
So I think it's a legitimate question to ask.
00:25:04
Speaker
Do biofuels help?
00:25:06
Speaker
And I don't know.
00:25:07
Speaker
I don't think the answer is positive here.
00:25:10
Speaker
Excellent.
00:25:10
Speaker
Thank you, John.
00:25:13
Speaker
So maybe more sort of on a big picture philosophical question long term.
00:25:17
Speaker
I know we did touch upon this here and there, like with export spend and stuff.
00:25:22
Speaker
But I think it's a very relevant question, especially in the current global backdrop.
00:25:26
Speaker
What impact could de-globalization and rising protections have on food inflation and markets?
00:25:32
Speaker
I think this question is more broad based, not only agriculture, food commodities, but also for global commodities, energy commodities and everywhere.
00:25:39
Speaker
So maybe Peter, we can start with you.
00:25:43
Speaker
Yes, no, it's a really important point.
00:25:45
Speaker
I think particularly in the case of energy, as I said, energy security is becoming very important and that's leading countries to really shift patterns of trade.
00:25:58
Speaker
And these by their nature are inefficient.
00:26:00
Speaker
In an ideal world, commodities will flow to their
00:26:04
Speaker
you know, nearest people or places with the shortest transport cost.
00:26:09
Speaker
And instead, what we're seeing is if we take the example of Europe, shipping natural gas by pipeline from Russia to Europe is a very cost effective way of transporting natural gas.
00:26:19
Speaker
Now, instead, Europe is importing liquefied natural gas from all over the world, from from very far off places.
00:26:28
Speaker
And this pushes up the cost of transporting it, both in terms of the dollar cost, but also the energy cost.
00:26:34
Speaker
And the same is true for coal.
00:26:36
Speaker
There was this story doing the rounds the other day about Tanzania, which typically only exports coal to its most immediate neighbors and is now seeing demand from Europe, even though the cost of shipping coal from Tanzania to Europe is extremely high.
00:26:55
Speaker
and would be uneconomic at normal levels of coal prices.
00:27:00
Speaker
So I think the inefficiency argument is definitely there and a concern.
00:27:04
Speaker
And to the extent that this makes markets more costly, it will also serve to push up prices ultimately for the consumer as well.
Regional Food Price Impacts
00:27:13
Speaker
Perfect.
00:27:14
Speaker
So, Jonathan, can you touch on the regional differences in rising food prices?
00:27:18
Speaker
Which regions are most impacted by this and obviously which the least?
00:27:22
Speaker
Yes, first, let me say that when you look at the sort of a heat map on the food price increase, you see if you color red for food prices, which experience inflation, let's say above 5%, you just need the world map becoming red.
00:27:42
Speaker
So it's taking place across the world.
00:27:45
Speaker
F. G. affects both developing and developed countries, so nobody has escaped so to speak that, but when you zoom in into food commodities, I would say that probably sub Saharan Africa and what we call the MENA region, the North Africa and the Middle East region, they have been affected the most.
00:28:08
Speaker
And the Middle East and North Africa region is a as I will elaborate it earlier in the discussions because they have direct links with the imports from Russia and the Ukraine simply because of geography there proximity, so to speak.
00:28:24
Speaker
So those are the regions I would say that have been affected the most.
00:28:27
Speaker
Now, the regions that have been affected the least is East Asia, the Pacific region, which includes China, Thailand, Indonesia, and those countries.
00:28:39
Speaker
And the reason that, in our opinion, this region has been affected the least is because from a cultural perspective, they are a rice consuming nation, they are rice consuming nations.
00:28:51
Speaker
And in contrast to Middle Eastern North Africa, which are wheat consuming nations.
00:28:57
Speaker
So the price of rice did not increase much, has been quite stable throughout the past three to four years.
00:29:03
Speaker
And that's probably the reason why we do not see much food price inflation in the East Asia region, while we saw the most in North Africa in the Middle East.
00:29:14
Speaker
So we do see quite a bit of variation.
00:29:17
Speaker
But again, as I said earlier, if you look at the map, nobody has escaped.
Conclusion and Further Reading
00:29:21
Speaker
Excellent.
00:29:22
Speaker
Excellent.
00:29:22
Speaker
Thank you so much, John, Peter.
00:29:24
Speaker
So this was an amazing discussion, very insightful.
00:29:28
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Really, really appreciate your participation.
00:29:30
Speaker
And once again, I would highly recommend this amazing paper, World Bank paper from April, where John and Peter co-authored on the impact of the war in Ukraine and commodity markets.
00:29:41
Speaker
Really very enlightening.
00:29:43
Speaker
Peter and John, thank you very much again.
00:29:45
Speaker
Have a great rest of the day.
00:29:46
Speaker
Thank you.
00:29:47
Speaker
Thank you.
00:29:51
Speaker
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00:29:55
Speaker
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00:29:58
Speaker
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00:30:05
Speaker
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00:30:14
Speaker
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00:30:20
Speaker
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00:30:44
Speaker
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00:30:47
Speaker
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00:30:49
Speaker
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