War Cost Emaciates Agricultural Productivity. Stop the War!

Apr 30 , 2022.

There is no ambiguity in the UNDP's assessment of Ethiopia’s economic performance and prospects. A quarterly economic profile on Ethiopia, released in March this year, portrays a rather dismal picture of how much bruise the economy has taken from multiple factors, the civil war taking the prominence. The verdict on agriculture productivity should cause sleep deprivation to the policymakers in charge of the macroeconomy. There can be a drop to a negative growth rate in agriculture production in the fiscal year 2022!

The experts at the UNDP estimated crop production for last year to have increased by a mere two percent. It ought to be a frustrating outcome compared to the historical trend of a sector growing by an average of 24pc over a decade. Agriculture is the mainstay of Ethiopia's economy, both in the size of the population it engages, the share it has in the GDP and as a source of primary commodities for exports. The rural population feeds the rest of the country, albeit in a subsistent form of existence.

However, food security has long seemed like a mirage. Rarely has a decade gone by without a drought. If Ethiopia is lucky, these droughts do not devolve into famine. Sadly, it often is the case where drought causes displacement and death, except in 2015 when Ethiopia and its international partners fended off the worst drought that had put over 20 million people at risk of famine.

Yet, successive leaders have long promised that food security was just around the corner.

As far back as 2003, the late Prime Minister Meles Zenawi, following a significant drought event that year, which affected around 13 million people, declared that it was unacceptable. Seven years later, after another drought and crop failure, he had insisted that Ethiopia should become food secure in the shortest period possible. Those passed, and in six years, when 20 million people were yet again in need of food assistance, a new Prime Minister, Hailemariam Dessalegn, was grappling with what seemed like an unrelenting disaster.

These cataclysms were managed relatively better without turning into biblical famine, resembling those in the 70s and 80s. Over a million people in the north were not so lucky in the aftermath of the drought in the early 1980s – a tragedy that no one can vouch it will not be repeated once again in present-day Ethiopia. Armed conflicts and climate crises are the ingredients that create famine. Adding to this toxic cocktail is growing food protectionism and disrupted supply chains. It will be a disaster for Ethiopia, an importer of up to a fifth of all the food its population consumes.

Ethiopia buys one-fourth of its wheat from the global market, where Russia and Ukraine are sources for 30pc of these imports, according to the UNDP.

Russia's aggression on Ukraine has compelled protectionism to resurge across the world. Two countries that used to serve as one of the world's breadbaskets, and one of them a significant energy supplier, are mainly out of business. Russia is under Western sanctions, and Ukraine is too busy fighting back against its bullying neighbour. As energy and food prices rise, other countries worsen the predicament by restricting and hoarding goods essential for life.

The most recent is palm oil. As shipments of sunflower oil - of which Ukraine is the biggest exporter - stalled, substantial demand shifted to palm oil. Indonesia, the world’s largest edible oil exporter, has its government restricting palm oil exports. Initially, Indonesian officials claimed that the ban would not include crude palm oils, but as food inflation climbed there, the restriction was expanded. According to the UN Food & Agriculture Organisation, edible oil prices are already 40pc higher this year, as consumers in Ethiopia know well by now.

Indonesia is neither the only nor the first country to do this, however. China is hoarding a staggering 40pc of the world’s wheat reserves. It does not stop here. Serbia has banned wheat, corn, flour and cooking oil exports. Hungary has stopped all exports of grains, while Algeria has banned all food exports. The world is in a protectionism frenzy.

This is not the first time protectionism has reared, countering an overwhelming narrative of global liberalism in trade. Vietnam and India seized rice exports at the outset of the COVID-19 pandemic, while some Asian countries held on to their fish. After the 2008 financial crisis, India stopped wheat and rice exports for two years as Russia, Ukraine and Belarus paused wheat exports. The Arab Spring and the tragedy of Libya, Syria and Yemen were the consequences.

Export bans, a type of hoarding, are bad for everyone. It is not even helpful for exporting countries as they would no longer be trusted suppliers, not to mention that a source of foreign currency is forgone. Protectionism upends the underpinning of trade. Even if countries can be self-sufficient (autarky), mutual growth can only be realised if they focus on industries with a comparative advantage and import goods and services that incur a high opportunity cost.

Does it mean that trade globalisation is drawing its last breath and should be abandoned?

Probably not. Short of a cataclysmic global war, trade has delivered such wealth and prosperity that there is too much self-interest to abandon it. The same logic applies to countries such as Ethiopia, which never opened up much of their economies. They should liberalise further, especially in the tech and finance sectors, to lift their citizens out of poverty, develop and become competitive on the world stage.

Growing food protectionism, nonetheless, creates an exception. Exporters are hoarding time and again even though the economic argument is poor. With major food exporters like Indonesia, domestic populism makes them less reliable to their customers, such as Ethiopia. Growing geopolitical risks could also mean supply chains are no longer dependable.

The agriculture sector is thus one area where self-sufficiency is necessary. It is no longer an economic argument where agricultural productivity is essential for development and competitiveness. In a world of hoarding and geopolitical insecurity, leaders should consider it a matter of survival and a vital national security issue. Building and expanding productivity in staple grains, such as wheat, teffand rice, and edible oils may come at a higher opportunity cost. The investment that has been funnelled into the agriculture sector, from the collectivism of the Dergueto the commercial farms of the EPRDF era, has shown no meaningful impact.

Instead, since the turn of the century, food imports have nearly tripled.

Compared to the service and industry sectors, the least productive and investible has been agriculture. It required a structural overhaul running the gamut from access to credit, infrastructure and a rethink of land policy and openness to crop modification. The complexity of the problem amounts to food security taking the sweat and labour of generations to attain. No single policy tweaking or throwing a budget at the problem could cut it. It needs consistent and far-sighted leadership at the policymaking and institutional levels to ensure that Ethiopia is not exposed to external volatility.

It is possible to ease the crisis in the immediate, though. The reasons for food inflation and insecurity are three-pronged. Climate crisis, from desert locust infestation to drought, and the consequences of the Russian invasion of Ukraine. The one thing that can repeat the million-plus deaths of the early 1970s and 80s is widespread militarised conflicts.

Putting to work the large labour force and land that is mobilised for war and opening up the supply disruptions would go a long way in easing food inflation. The lack of peace stands between millions of people that could contribute to the growth of the food supply and the sad situation of starvation and non-productivity. No less important is that peace would unlock hundreds of billions of Birr in federal and regional budgets for social welfare and market stabilisation. More investment in food instead of arms can ease the alarmingly high federal budget deficit financing and beef up the foreign currency reserve.

Such efforts can address Ethiopia’s food insecurity problem in no small part. Even in times of relative peace, there are millions of people in need of emergency food assistance. But the process of building structural and political resilience needs to begin now. First, stop the bloody war.

PUBLISHED ON Apr 30,2022 [ VOL 23 , NO 1148]

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