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“Dangerous New Phase” of Food Price Crisis
Experts sound alarm that countries are having to choose between paying off ballooning debt and reducing hunger
Did You Know That…
21 countries are “nearing catastrophic levels of both debt distress and food insecurity”? These include Afghanistan, Cameroon, Haiti, Lebanon, and Sri Lanka.
About 60% of low-income countries, and 30% of middle-income countries, are now considered at high risk of (or already in) debt distress?
In 2021, developing countries paid $356 billion in interest payments alone? In contrast, the development aid they received was $185 billion.
Global public debt is at its highest in almost 60 years and that 21% of developing countries’ sovereign debt is owed to China?
64 developing countries spent more on debt payments than on healthcare during the first year of COVID-19?
The Poverty-Hunger Vicious Cycle
“As debts spiral out of control and the world's poorest countries struggle to meet the basic needs of their populations, today's rapidly rising rates of hunger and poverty could soon become a tidal wave, reversing decades of progress, and sparking further instability and conflict.”
That is the stark warning from ‘Breaking the cycle of unsustainable food systems, hunger, and debt’, a new report from the International Panel of Experts on Sustainable Food Systems (IPES-Food).
Essentially, paying back the ballooning debt will leave poor countries with insufficient money for things like social protection, building resilience to climate change and transforming food systems. It also means millions more going hungry.
"The severity of this current moment is more like the 1982 developing country debt crisis – when suddenly interest rate hikes in Western countries, aimed at curbing inflation, triggered a massive crisis for countries across the developing world who were unable to repay debts,” Jennifer Clapp, an economist I admire hugely and a member of IPES-Food, said in an e-mail.
“If anything, the current crisis is worse than the 1980s, because it is also paired with a major world food price crisis – and they’re both reinforcing each other. As interest rates continue to climb, the situation presents a double whammy for many countries that are both hunger hotspots and experiencing unsustainable levels of debt. The situation is urgent and requires action.”
When the 1980s began, world economy was on shaky grounds, no thanks to a breakdown of the post-World War II consensus on the global economic governance architecture, oil price shocks, and persistently high inflation.
So when developed countries raised their interest rates, poor countries saw a jump in their debt service payments. In August 1982, Mexico said it could no longer pay and thus started a chain of sovereign debt defaults around the world.
Financial support provided to these countries was based on them adopting a set of policies that were “underpinned by a strong belief in unfettered markets and a reduced role for government”.
These ‘structural adjustment’ policies became collectively known as the Washington Consensus - can you guess why? - and some experts say the crisis was responsible for a lost decade of development in Latin America and Africa.
This is a highly condensed version of what went wrong. If you want a fuller one, this 24-pager does a great job of explaining things in terms that helped me understand.
According to IPES-Food, these policies by institutions like the International Monetary Fund (IMF) and the World Bank had huge implications for food systems, because developing countries were required to cut state expenditures on social programmes in public health, education, etc, liberalise their economies, and prioritise export-led growth in sectors like agriculture to earn foreign exchange that could be used to repay debts.
These programmes “undermined developing countries’ capacity to meet domestic food needs without dependence on imports, particularly by marginalising small-scale food producers and displacing traditional diets”.
Food Systems and the Four Horsemen
Policymakers are “ignoring” the critical role played by insustainable, inequitable and import-heavy food systems on rising debt and hunger levels, IPES-Food said, and identified four key ways they are doing this.
1. Import dependencies and dollar dependencies
The structural adjustment programmes mentioned above pushed cash-poor but resource-rich countries to produce and export cash crops and rely on imports for staple foods like rice and wheat. At the same time, multilateral trade liberalisation meant high-subsidised foods from rich nations turned up in these places.
A decline in staple food production in Africa, where food import bills have more than tripled over the last few decades.
Countries that relied on Russia and Ukraine for their wheat consumption had a nightmare when the former invaded the latter. I’ve covered this in the Emerging Hunger Hotspots series I’ve been coordinating for The New Humanitarian.
Exports have grown but that hasn’t reduced hunger and poverty in many of these countries. Argentina is a perfect example.
2. Extractive financial flows
IPES-Food said after the 2007-2008 food crisis, agri-development funding has increasingly come through corporate-friendly public-private partnerships (PPPs) which focused on “ramping up productivity via chemical inputs, and developing agri-exports and growth corridors”.
It singled out the Gates Foundation-led Alliance for a Green Revolution in Africa (AGRA), the US government-led Feed the Future initiative, the now-defunct G8 New Alliance on Food Security and Nutrition, as well as China's Belt and Road Initiative, for pushing this path.
“Although they were meant to boost the growth and economic competitiveness of low-income countries, PPPs and other agri-development financing vehicles have contributed to further erosion of state functions and accountability mechanisms, and are arguably undermining public finances in the longer term.”
The authors also said PPPs tend to be an expensive and risky - funders typically expect 15-20% annual returns and about three times as expensive as public financing - and are less visible to citizens.
3. Boom-bust cycles and corporate consolidation
These cycles often lead to widespread consolidation in the agriculture sector and another damaging one might already be underway.
The losers will be the world’s poorest who have to buy their food.
The winners, as can already be seen in news reports, are today’s agribusiness giants. Grain traders are making a mint and the world’s 9 top fertiliser companies were expected to quadruple their profits in 2022 compared to 2020.
4. Climate breakdown
I’ve covered the “unhappy marriage” of food systems and climate change here many times so I won’t bore you with the details, except to say that many highly indebted countries are also highly vulnerable to climate impacts.
This means they are stuck between a rock and a hard place: they need to take on more debt if they want to invest in measures to protect themselves and their harvests.
The proportion of climate finance that goes to transforming food systems is pitiably low - just 3% - and what funds there are tend to be on carbon offsets/removals and carbon farming, which “risk reinforcing large-scale commodity production” at the expense of food security.
“What’s missing is any holistic thinking to address the twin food and debt crises together – in other words, to tackle the root causes,” Lim Li Ching, co-chair of IPES-Food, said in an e-mail.
The report recommends three sweeping actions - the right level of debt relief and development finance, windfall taxes on grain traders and other agribusiness beneficiaries of food price spikes and redistribute the benefits, and a reform of institutions like the World Bank and IMF and how food systems are governed.
“Developing countries have long demanded an automatic debt standstill in the face of external shocks and climate disasters. This has to be followed by comprehensive debt restructuring involving both public and private lenders, additional to any disaster recovery funds,” wrote Ching.
Mia Mottley, the charismatic Prime Minister of Barbados, has proposed The Bridgetown Initiative to tackle the triple crises - cost-of-living, debt, and climate change - and this agenda is gaining momentum.
But Ching said any new initiative for climate financing or debt restructuring like Bridgetown “must not repeat the mistakes of the past – of damaging conditionalities and colonial power relations”.
For Jennifer, she is concerned that “many of the governments that have the means to help alleviate the debt crisis have strong interests in keeping poorer countries dependent on buying their food exports and fertilisers, even though this is exacerbating the debt problems”.
“Powerful interests stand to lose from a transformation of food systems to move away from excessive food imports towards more self reliance."
My 2 Cents
Quite often, I see a news story or a report about finance and I tend to shy away from reading it because I find the topic too complicated and the terminology too technical. There’s also the perception that it’s a “specialist topic” only dedicated professionals - financial journalists, economists, etc - should cover and discuss.
My new plan is to no longer do that. Working on the Hunger Profiteers investigation and reading important reports like this one made me realise that keeping us scared and ignorant is how we got to where we are. So yeah, I’m going to stay awake and keep a watchful eye from now on.
Three Good Reads
This Algorithm Could Ruin Your Life - WIRED and Lighthouse Reports
I know, I know - this isn’t a food or climate story, but this brilliant investigation into welfare surveillance algorithm by my colleagues at Lighthouse, co-published with WIRED, deserves a mention. Or two. Background info about the investigation can be found here.
Inside the Suspicion Machine - WIRED and Lighthouse Reports
One reason this investigation is special is because my colleagues were able to take apart the machine learning algorithm of a risk scoring system from the inside out, and the result is this engrossing, interactive explanation of the system.
Our Brains Weren’t Designed for This Kind of Food - New York Times
Since I’ve shared two non-food/climate reads, let’s make this a trio, in that this one isn’t exactly a read… it’s more of a listen. A 90-minute discussion between neurologist Stephan Guyenet and Ezra Klein that really challenges the assumptions we often make about what we eat and what that does to our bodies.