Geoeconomic and geopolitical risks affecting the future of food security
According to Webangah News quoted by Mehr’s reporter, Hossein Shirzad, an analyst of agricultural issues and its development wrote in a special note for Mehr; In 2024, the issue of preserving family farms, the dynamics of artificial intelligence in the food industry, and the role of the oceans in the food market have emerged as new issues that geopolitical competition hegemonic in particular Between China and the United States, and efforts to monitor production and food markets by the European Union, and the future role of emerging powers will provoke for years to come. The oceans are home to 94% of all life on the planet, and the seas are an important source of economic and national security, as well as 90% of the world’s trade in agricultural commodities is transported by sea, but many of the world’s busiest maritime transit corridors are subject to There is a risk of geopolitical disruption and it is predicted that deep sea mining will take at least one third of the supply of vital minerals needed for energy transmission. Therefore, stakeholders and food companies need to consider “ocean geopolitics” when setting up their supply chain and sustainability strategies.
Recent FAO Food Outlook Report It shows that despite positive predictions in the “inflation-recession” paradox, global food production systems face geopolitical tensions in the international economy, such as the role of exchange rates and growing demand from emerging economies, shocks from extreme weather events, policy changes and developments in Other markets are vulnerable.
Unbalanced exploitation systems with excessive reliance on agricultural land and intensive use of agricultural chemicals lead to There is an increasing need for fertilizers to maintain production, which further increases production costs. According to a report by Oxford Economics, global food prices are expected to decrease in 2024, bringing some comfort to consumers in urban metropolises. But the issue of food price increase is a multi-faceted issue and is due to a complex set of reasons including logistics bottlenecks, subsidy policies, regional conflicts, middle class demands, urban population growth, climate change and supply chain disruptions. The supply chains of many food companies are exposed to geopolitical developments, and conflicts are one of the main causes of price shocks. Armed conflicts have disrupted food production and distribution chains, exacerbated shortages, and increased prices. The conflicts also displaced millions of people and affected their ability to produce and access food. For example, the war between Russia and Ukraine, known as the European breadbasket, has significantly reduced wheat, corn and sunflower exports, resulting in food price fluctuations. Even war creates labor shortages that potentially hinder post-war economic recovery.
The impact of conflict on migration can have a significant impact on food production at different levels. At the local level, conflict may force people off their farms, which can contribute to halting agricultural production, resulting in food shortages and rising prices. Conflict-induced migration can also affect labor market dynamics in the agricultural sector on a global scale. Migrants who leave conflict zones often seek employment opportunities in the agricultural sector in other countries. Many of them may join the ranks of agricultural workers, which in turn can help increase food production. However, migrants face a range of challenges, such as legal barriers to work, poor living conditions, and limited access to services. Therefore, immigration policies and labor laws can play a key role in managing these challenges. Effective strategies can help integrate migrants into host communities and increase their contribution to food production.
The main driving force behind the decline in food prices is “abundant supply” for many important crops, especially wheat and corn. Is. Of course, the high export power of Russia’s wheat has also affected the international markets and kept the prices low. In the meantime, the effects of the commodity futures markets for basic foodstuffs are also undeniable. Commodity futures markets have three important economic functions; First, they help producers, traders and processors (commercial market players or suppliers) hedge their price risks. That is, they accept price risks less than risk aversion hedges. Second, they are important for price discovery in spot markets because they allow commodity traders to establish benchmarks for current prices. Finally, derivatives markets provide trading efficiency by reducing transaction costs. As a result, investments become more productive and price volatility decreases. For these reasons, food commodity speculation is an essential part of financial markets today.
Historically, after the stock market crash of 2002, agricultural commodities due to their relatively low correlation With the returns of other asset classes, they have become a popular asset class in the portfolios of financial institutions and the general investment community. From that period onwards, agricultural commodity futures and options contracts have increased sharply, as a result, speculative activities have also increased significantly in the food sector.
Effect corona to all kinds of pests and wars in the field of agriculture
In the last three years, economic shocks, such as the Covid-19 pandemic and its consequences, in addition to slowing economies It has reduced the purchasing power of consumers, lowered incomes and increased unemployment, which has increasingly affected demand and prices. Extreme weather events such as droughts and hurricanes have also affected agricultural production, reducing supply and increasing production costs, resulting in higher prices for consumers. For example, extreme weather events and diseases have hampered the harvest and increased the price of oranges in Brazil and Florida. Citrus production has declined by an average of 3 percent annually since 2003, and according to the International Monetary Fund, the global price of oranges has increased from $2.76 in 2023 to $3.68 in April 2024. Flooding in southern Brazil, which started last month, has caused 2.2 billion dollars in damage, including 680 million dollars in agricultural damage.
High temperatures threaten cotton production in the world’s fifth largest cotton producer, Pakistan. Nearly 10% of the total crop in Sindh, one of the most fertile provinces of the country, has been damaged by heat and the situation is on the verge of getting worse; In addition to cotton, excessive heat also affects sugarcane, export fruits such as mangoes, citrus fruits, bananas and seasonal vegetables such as peppers, tomatoes, potatoes and some lentils.
New research shows that the emergence of new diseases in livestock herds and animals that are common diseases between humans and Livestock are known to be strongly related to human pressures on the biodiversity of ecosystems. Trillions of dollars are wasted on agricultural, fisheries and fossil fuel subsidies that could be used to help combat climate change instead of harming people and the planet.
Fluctuations in fertilizer markets, caused by sanctions, trade restrictions and armed conflicts in Russia, Ukraine, Belarus and Recently, the usurping Zionist regime has also increased the costs of agricultural production in the case of potash, which is reflected in the higher prices of food products. War not only causes direct destruction, but also creates risk associated with currency fluctuations.
Many developing economies, which are mainly based on agriculture, have tied their financial resources to the US dollar. to cover their financial obligations, therefore, the continuous strengthening of the dollar compared to other currencies is a threat to these countries, especially to their agricultural and food sectors. In addition, possible limitations in economic growth in different regions of the world could affect global demand for agricultural and food products and have negative consequences for global food security. The war in Ukraine has also had a significant impact on Black Sea logistics, increasing trade costs and affecting elements of the transport infrastructure – land transport, ports and warehouses. Trade restrictions, such as export bans, have exacerbated the global food crisis, limited international food trade, and increased prices in global markets.
According to the Agricultural Systems Public Policy Observatory, since the pandemic, global average food inflation It has reached 28% per year, which is a high figure compared to the general inflation of 19% per year. This is despite the fact that international food prices have decreased by 9% annually in the same period, which shows that other economic, political and environmental factors play a major role in food inflation.
Latin America and the Caribbean are important regions of 16 net food exporting countries and 16 net importing countries, so this The region has benefited from the increase in international food prices, but it has also been one of the regions affected by food insecurity due to factors such as the increasing poverty trap. While global food prices have declined from their peak levels at the start of the Ukraine conflict, they remain above pre-conflict levels.
Climatic changes that increase the temperature and increase the intensity and frequency of extreme events such as heat waves, droughts and The flood, it turns out, has led to more volatile capital flows, higher risk insurance, lower yields and reduced productivity in many parts of the world. This in turn has increased food prices through supply shocks. Bad weather has undermined agribusiness confidence and the outlook for crops, with cocoa recently hitting record highs as West African farmers battle bad weather and disease.
Global warming and increasing food inflation
The world will be 1.5 degrees Celsius warmer on average by 2024, which will only increase extreme events atmosphere and in turn inflation in production costs.
Many of these events have also disrupted supply chains and infrastructure such as roads and reduced water levels in major rivers. have given. In 2023, whether due to conflicts or climate change, several countries have imposed export bans on major agricultural commodities (e.g., India, Myanmar and Russia for rice, Thailand for sugar, Argentina for beef). These restrictions affect countries that are heavily dependent on imports.
Meanwhile, several shortcomings in global food system policies also contribute to food inflation. One of these issues is the inadequacy of storage facilities, especially in low and middle income countries. Another thing is the concentration of food production in specific regions and selected crops (60% of plant calories are provided by rice, wheat and corn), wheat and corn together with rice make up more than half of the global calorie intake. This means that their price direction has greatly affected the food budgets of consumers around the world.
The fact that global food chains are dominated by a small number of multinational companies is undeniable because even though Wheat and corn prices have fallen sharply, while rice prices have been rising steadily as export restrictions imposed by India, which accounts for about 40 percent of the world’s rice production, have hampered global supply. Poor harvests in India and the Philippines last year also increased prices. Contrary to the stagnation observed in wheat and corn prices, raw rice futures have increased by more than 8% since last year.
According to experts; Food costs could rise between 1.5 and 1.8 percent annually by 2035, or even higher food inflation in some warmer parts of the world. Probably, these numbers will increase by 4% as climate change worsens.
Studies have shown that inflationary pressures in the Global South, particularly across Africa and South America, are likely to The reason for the effects will be higher oil and gas prices. The increase in oil prices affects not only the operational costs of agriculture, but also the costs of production inputs such as fertilizers and pesticides, which are highly dependent on oil prices.
Research by the European Central Bank last year, which shows that by 2030, food inflation in Europe could be between 0 .43 to 0.93 percent. In this study, the researchers of this European institution highlight the 2022 heat wave in Europe as an example of short-term inflation. Finally, high inflation, food insecurity and the increase in the price of energy carriers, increasing debt levels, tougher financial conditions, fluctuations in capital flows and exchange rates, and the intensification of geopolitical tensions will fuel the turbulence in 2025.
The sharp and continuous increase in inflation that started in 2021 and reached alarming proportions in 2022, It is of greatest concern to the world’s poor, and food insecurity in the form of extreme poverty is expected to increase worldwide. It goes without saying that the effect of inflation is not equally felt in the economies. Low- and middle-income countries are more vulnerable to high inflation than richer, developed countries, as low-income households in emerging and developing economies spend roughly 50 percent of their income on food, while high-income households spend only 20 percent. They spend their income on food. While higher food prices can benefit food sellers in developing economies, most of the poor are net buyers of food, so rising food prices have severe impacts on human health and living standards, increasing overall poverty and exacerbating the risks of social unrest. and the growth of fundamentalism.
The Middle East and North Africa (MENA) region is a diverse picture with 20 countries and home to more than 400 million people. in terms of food security conditions, under the influence of economic, social and political heterogeneity. Although agriculture plays a central role in many Middle Eastern and North African economies, it faces challenges such as limited water resources, climate change, and political conflicts. The region’s reliance on food imports exposes it to global market price fluctuations and supply issues. It makes it vulnerable. The MENA region is one of the most vulnerable regions in the world to the effects of climate change, experiencing higher temperatures, rising sea levels, droughts, floods, severe air shortages, and polluted air.
Food security production and commercial policies
So far, due to seasonal production and weather-related fluctuations in crop performance, speculative storage Cereals and oilseeds and increasing government strategic reserves have helped offset supply shocks. Today, financial speculation – trading in commodity futures markets – plays an important role in stabilizing agricultural commodity prices and reducing risk for consumers and producers, as the overall share of grain and oilseed crops passing through formal commodity markets has steadily increased over the past decades. And today, price developments in agricultural commodity exchanges strongly affect spot markets around the world. In an active market, financial speculation exclusively serves the demand for hedging of market players. Prices are determined by fundamental factors, that is, long-term, basic information about actual production facilities and market structures. When speculative activity is rampant and financial speculators trade primarily among themselves, financial speculation becomes excessive and prices may deviate from market expectations of supply or demand.
The continuation of the war in Ukraine and the conflict between the occupying regime of Quds and Hamas in the Middle East, which is caused by the insecurity of ships carrying grain in The Red Sea just got more complicated, showing the extent to which geopolitical developments are a key determinant of how global food trade will perform in 2024. Elections around the world are also likely to have a significant impact on the direction of the global food economy. By the beginning of 2025, the people of the world will go to the polls in at least 64 countries, including Iran. This impact can be seen not only through potential changes in trade policies and investments in food and agriculture, but also through increased uncertainty and political polarization. will be observed. Moreover, rising populism poses significant threats to long-term stability and economic performance. Left-wing populist governments often implement policies that can bring short-term benefits at the expense of long-term sustainability. Such policies include trade protectionism or increased government spending (fiscal expansion), which can disrupt global trade flows, increase food market volatility, and inhibit long-term growth in agricultural production.
A recent study covering a sample of 60 countries between 1990 and 2020 shows that countries In the medium and long term, under left-wing populist governments, they experience lower output and real per capita GDP growth. In addition, governments may implement changes in trade policy, such as changing tariffs or quotas, which can have a significant impact on the allocative, technical, and economic efficiency of the agricultural sector. Such measures can affect the availability of imported agricultural products and can affect the pricing of local production. Another important approach may be investing in agricultural research, which is usually aimed at increasing productivity and sustainable development in agriculture. New technologies and practices can bring long-term benefits both in terms of production and environmental protection.
