Falling food prices will not end the problem of world hunger

By David Fickling

The food crisis of 2022 seems to be receding after it “broke out” so suddenly.

Red spring wheat rose to nearly $13/bushel in March, prompting the world’s biggest wheat importer, Egypt, to devalue its currency. It now trades around $8, down more than a third.

Indonesia suspended palm oil exports in April due to a similar rise in prices. Prices are now down more than 40% from their highs. Corn prices have fallen by nearly a quarter since the start of May.

Sugar and Arabica coffee prices have hit one-year and nine-month lows respectively in recent weeks.

It is tempting to see this as a sign that the crisis that has driven the population of undernourished people to the highest level since the mid-2000s is finally ending. Unfortunately this is unlikely to happen.

And that’s because, despite the attention paid to the problems of food insecurity, the pricing of agricultural contracts on major exchanges is just one of many factors contributing to world hunger – and in many cases, not even the most important.

For example, few of the populations experiencing hunger pay for their food in US dollars. This means that exchange rate fluctuations can be just as important as changes in commodity price benchmarks in determining the prices ultimately paid.

Rising commodity prices since the end of 2021 have driven the price of wheat in US dollar terms 23% higher – but the devaluation in the Egyptian pound has been even more damaging, adding a further 25% to local currency prices. In Turkey, the third largest buyer of wheat, the collapsing pound has added 171% to costs. In Pakistan, the falling rupee has increased costs by 53%.

These currency effects may be long-lasting. Import-reliant emerging economies often subsidize imported food, which puts pressure on household budgets whenever commodity prices rise.

Fiscals in most countries are already under unprecedented pressure due to the pandemic, so there is little room for further deterioration.

If shrinking government budgets and foreign exchange reserves cause a currency crisis for a year or two, even a drop in dollar-denominated food prices will not be enough to stop the local cost of imported products from rising further.

This is not the only way the coronavirus is causing long-term effects in the food sector. The number of people employed worldwide fell in 2020 for the first time in about a generation, as more than 100 million were laid off or stayed at home to deal with the effects of the pandemic.

A similar number, 97 million, have been driven below the global poverty line of $1.9 a day. Incomes for the bottom 40% of the world’s population fell 6.7% last year from levels expected before the pandemic, compared with a 2.8% drop for the richest 40%.

The result was a smaller pool of income available to buy food, exacerbating the problems of an already struggling public sector.

As the Nobel Prize-winning economist Amartya Sen showed in his landmark 1981 study of hunger, most signs of acute food crisis are caused not by an absolute lack of food, but by food prices rising beyond the ability to pay. poorer members of society for this.

These problems are exacerbated by conflict, which continues to be the most important cause of hunger worldwide. War and unrest can choke supply chains, crash currencies, destroy jobs and drive up prices all at the same time.

The war in Ukraine is only the latest case of such disasters. The number of people displaced by conflict (a decent proxy for deaths from unrest worldwide) at the end of 2021 was the highest since records began, according to the United Nations High Commissioner for Refugees, up by 8% compared to the previous year and double compared to the previous year.

Finally, the effects of climate and weather disasters must be considered.

For people in low-income countries most at risk of hunger, global commodity prices are often disconnected because they lack the cash or supply connections to buy from international markets.

Indeed, in parts of the world dependent on the export of crops such as palm oil, cocoa or coffee, falling commodity prices are just as likely to cause problems as rising ones, choking off income for farmers.

This makes floods like those that swept through Pakistan last week, or droughts like the one that has hit East Africa in recent years, as much of a threat as geopolitics.

Falling food prices, if sustained, may at least provide some relief for the 768 million undernourished people worldwide. It will not be enough to reverse the four-year trend of increasing food insecurity. To do this, the world must confront deeper problems, from the long-term impact of the coronavirus to the persistent effects of inequality, war and conflict.