Aug 12 , 2023
By warn Jennifer Clap , Phil Howard
While global food prices have retreated from their peak, the danger of unpredictable spikes lingers, with repercussions for everyone, especially the vulnerable, warn Jennifer Clapp, a professor at the University of Waterloo, and Phil Howard, a professor of Community Sustainability at Michigan State University, in this commentary provided by Project Syndicate (PS)
The COVID-19 pandemic and the war in Ukraine have caused commodity prices to soar in recent years, severely undermining global food security. Global food prices are now down from their peaks a year ago, but no one should be complacent: the world's food woes are far from over. The risk of additional price volatility remains high.
With Russian President Vladimir Putin's annulment of the Black Sea Grain Initiative and attacks on export infrastructure in Ukraine, grain prices have ticked upward again. But dysfunctional food markets are a long-term risk. Wheat remains more than twice as expensive as it was before the pandemic. Food-price inflation still exceeds five percent in most developing countries, as high as 30pc in Rwanda and Egypt. Another global food-price spike is likely.
The real problem is that the growing market power of major agribusiness firms is raising the risk that extreme food-price swings will become the norm.
Consider the fertiliser sector. The tripling of fertiliser prices in 2020-22 – which drove up food prices – was partly fueled by higher costs for nitrogen fertiliser, which reflected the rising price of natural gas. But new data from GRAIN/IATP show that leading firms hiked fertiliser prices well beyond what was needed to cover increased production costs, increasing their operating profits to 36pc, even as they sold less product.
The resulting profit ratios were three times higher than before the Ukraine war began, and well above the 13pc average posted by S&P 500 firms.
Global grain traders have similarly been able to translate tighter supplies into record profits. In mid-2022, grain multinational Archer-Daniels-Midland (ADM) recorded its highest-ever quarterly profits. Its rival Cargill also banked record profits, with total revenues soaring by 23pc.
Such profiteering is made possible by growing corporate concentration in the food and fertiliser sectors. ADM and Cargill are two of the four "ABCD" firms – along with Bunge and Dreyfus – that control an estimated 70pc to 90pc of the world grain market. Four firms account for 75pc of nitrogen-fertiliser production in the United States, and 72pc of the potash-fertiliser market globally.
Through decades of mergers and acquisitions, such firms have expanded their influence up and down the supply chain, while amassing vast amounts of market data. A proposed 34 billion dollar merger between Bunge and Viterra – the grain arm of the commodity giant Glencore – would mean further concentration of soybean and canola processing and distribution across the Americas.
Leading agribusiness firms enjoy huge supply-management and price-setting power, akin to the role of OPEC in oil markets. And they are not afraid to use it: previous episodes of market turbulence – in the 1970s and 2008-11 - also led to higher profits in the fertiliser and grain-trading sectors. In a 2021 filing to US regulators, Nutrien, the world's largest fertiliser company, admitted that its "higher selling prices more than offset higher raw-material costs and lower sales volume."
For the world's poor, who spend as much as 60pc of their incomes on food, every percentage point of food-price inflation can be devastating. Skyrocketing import costs for food and fertilisers are also one reason many low- and middle-income countries are facing their worst debt crisis in 60 years.
Farmers, meanwhile, are mostly unable to benefit from soaring food prices, mainly because the costs of inputs – supplied primarily by major firms with immense market power – are rising even faster than commodity prices. Many farmers are struggling to stay afloat with farmgate prices plummeting and debt rising (owing to interest-rate hikes). As Russia's actions in Ukraine prompt wheat futures to surge again, it has become clear that food prices can spike without warning. There is little doubt that more shocks will come. The consequences will likely be compounded if a few companies still hold such inordinate power over the world's food systems. That is why governments must act to change incentives before the next crisis arrives.
Compelling calls have been made to tax agribusiness` windfall profits and re-invest the funds in climate-resilient food systems. Government scrutiny of fertiliser price-gouging – as farmers' groups have demanded – is also needed, along with more robust enforcement of competition policies to curb excessive mergers and acquisitions. Governments need to consider doing what they have been reluctant to do for decades – stepping in to break up monopolies.
The Bunge-Viterra merger offers an ideal opportunity to assess what kind of consolidation is in the public interest and to send a clear message: profiteering from food crises will no longer be tolerated.
PUBLISHED ON Aug 12,2023 [ VOL 24 , NO 1215]
Life Matters | Apr 26,2019
Fortune News | Jun 04,2022
Radar | May 13,2023
Verbatim | Jun 17,2023
Commentaries | Sep 26,2021
Fortune News | May 06,2023
Fortune News | Apr 06,2019
Fortune News | Dec 27,2018
Fortune News | Apr 20,2019
Agenda | Feb 09,2019
Photo Gallery | 82885 Views | May 06,2019
Photo Gallery | 75037 Views | Apr 26,2019
Fineline | 58615 Views | Oct 03,2020
Fortune News | 58400 Views | Jul 18,2020
Commentaries | Dec 02,2023
Life Matters |
My Opinion | Dec 02,2023
Sunday with Eden | Dec 02,2023
Agenda | Dec 02,2023
Editorial | Dec 02,2023
Dec 24 , 2022
Biniam Mikru heads the department of cabinet affairs under Mayor Adanech Abiebie. But...
Jul 2 , 2022 . By RUTH TAYE
On a rainy afternoon last week, a coffee processing facility in the capital's Akaki-Qality District was abuzz with activ...
Nov 27 , 2021
Against my will, I have witnessed the most terrible defeat of reason and the most sa...
Nov 13 , 2021
Plans and reality do not always gel. They rarely do in a fast-moving world. Every act...
Leaders of the National Election Board are in a charm offensive mood, of a sort. Last week, they organised a rare tour for members of the me...
When the country's most senior diplomats and envoys return back to their posts after two-week debriefings, they leave behind a point or two...
Dec 2 , 2023
The symphony of traffic noise in Addis Abeba is not just a sign of life, but a siren...
Nov 25 , 2023
Ethiopia's quest to develop a functioning capital market is a demanding yet not unach...
Nov 18 , 2023
Prime Minister Abiy Ahmed (PhD) has made a fervent call for landlocked Ethiopia to ga...
Nov 11 , 2023
In November last year, a ray of hope pierced the gloomy skies of Ethiopia as the Pret...
I have a love-hate relationship with my phone. It is my go to source for information. I enjoy interacting with text messages and browsing t...
Over the weekend, I attended a wedding where my husband was one of the protocols. Despite the typical joy...
Dec 2 , 2023 . By MUNIR SHEMSU
Mamo Mihretu, the governor of the National Bank of Ethiopia (NBE), has outlined a com...
Dec 2 , 2023 . By AKSAH ITALO
BGI Ethiopia, one of the largest brewing companies, is in the throes of a major trans...
Minister of Agriculture, Girma Amentie (PhD), is leading a charge to overhaul the fer...
Dec 2 , 2023 . By AKSAH ITALO
Amidst accession to a cross-regional trade, one of the oldest industries is strugglin...
Or see contact page