Author: George Mangion - Senior Partner PKF Malta
Published on Malta Business Weekly: 2 June 2022

Many countries are facing growing levels of food insecurity, reversing years of development gains, and threatening the achievement of Sustainable Development Goals by 2030. Even before COVID-19 reduced incomes and disrupted supply chains, chronic and acute hunger was on the rise due to various factors. Here it is opportune to explain the mechanism to measure the global food price index. This is based on the prices of commodities such as meat, dairy, cereals and other goods - unfortunately, as can be explained in this article, prices are at their highest in a decade.

Food insecurity can be defined as a situation either for a long or short period where food intake or eating patterns is disrupted due to lack of money and other factors. Many people around the world are not able to meet their required needs exacerbating problems that increase their food insecurity risk. One can mention the fear in Malta of high prices hitting the supply of LPG once the massive subsidy paid by the government is exhausted. So far, there is no scope for panic, and this was the advice given by a senior official at Liquigas Malta. He assured everyone that the company had secured enough supplies of LPG “for a good number of months”.

Again, a lot depends on the subsidy issued by the government as world prices have skyrocketed. Another worry is the temporary rationing of certain foodstuffs. Bargain supermarket Lidl has put a limit on the number of basic items customers can purchase, as importers warn the war in Ukraine is impacting supply chains. For example, clients can only buy five items of canned fruits and vegetables, while toilet paper, kitchen towels and napkins are limited to three pieces per item and per receipt.

As the scarcity of sunflower oil produced in Ukraine is becoming felt, currently, supermarkets allow customers to buy only three one-litre bottles. It goes without saying that the war in Ukraine has upset the price of wheat, cereals and animal feed. The price of wheat has risen by almost 30% since the war broke out and 60% since last January. Wheat rose to $373 per tonne on the futures market, 30% higher than the $287 it closed at on 23 February, the day before the Russian invasion. LPG prices also skyrocketed in the wake of the Russian invasion. The good news was announced by the finance minister Clyde Caruana, saying the government is expected to budget a further €200 million over and above the first tranche of €200 million earmarked for the post-COVID response to inflation and supply chain disruptions. Why is the procurement of such important feedstocks so difficult? Part of the answer lies with sanctions imposed by the EU on Russian banks.

A number of banks were banned from the use of the SWIFT payment system. For instance, banks had their foreign reserves frozen by the EU. The list includes the foreign reserves of the Russian Central Bank. Again, no SWIFT payment facility was permitted at Bank Otkritie, Novikombank, Promsvyazbank, Rossiya Bank, Sovcombank, VEB, and VTB Bank. To complicate matters, deliveries of essential grains have halted once the Black Sea is currently closed off because of the actions of Russian warships. In an unprecedented move, trade shipping routes have been disrupted, and no wheat is making it out of Russia or Ukraine through that channel. When a country like Ukraine, which provides food for 400 million people, is out of the market, it creates volatility.

The United Nations is stressing the need to get ports running again - with 36 countries importing more than 50 per cent of their grain from that region. Failure to open the ports in the Odessa region is a declaration of war on global food security and will, unless resolved quickly, result in famines, destabilisation and mass migration around the world. Why is the war in Ukraine so disruptive? The answer is because records show that both Russia and Ukraine supply 28% of globally traded wheat, 29% of the barley, 15% of the maise and 75% of the sunflower oil. Russia and Ukraine contribute about half the cereals imported by Lebanon and Tunisia; for Libya and Egypt, the figure is two-thirds. The war is disrupting these supplies because Ukraine has mined its waters to deter any assault, while to complicate matters, Russia is blockading the port of Odesa.

Away from the turmoil in eastern Ukraine, we cannot omit to mention how Brazil, itself a pivotal meat producer needs to import essential fertiliser to grow crops for cows to graze, and nearly half of that came from Russia and Belarus last year. In March, the Brazilian farm minister said that the country only has enough fertiliser to last until October, raising the possibility of a crisis when the planting season begins in September.

Even before the Russian invasion, the World Food Programme had warned that 2022 would be a terrible year. China, the largest wheat producer, has said that, after rains delayed planting last year, this crop may be at its worst ever. No comfort was forthcoming from António Guterres, the UN Secretary-General.

He warned on 18 May that the coming months threaten “the spectre of a global food shortage” that could last for years. The high cost of staple foods has already pushed upwards the number of people who cannot be sure of getting enough to eat. As can be expected, households in emerging economies spend 25% of their budgets on food - and in sub-Saharan Africa, as much as 40%. In Egypt, bread provides 30% of all calories. It is no consolation that 25 million tonnes of corn and wheat, equivalent to the annual consumption of all of the world’s least developed economies, are trapped in Ukraine. To solve the shortage and food insecurity while missiles wreak havoc in eastern Ukraine, can negotiators persuade President Putin to allow unhindered Ukrainian exports.

Again, ideally, Ukraine has to de-mine the approach to Odesa; and Turkey needs to let naval escorts through the Bosporus. The global food security challenge is straightforward, as can be witnessed by warnings issued by friends of the Earth Malta campaigns for Food Security in Malta. One way of achieving stability of supply is to protect and regulate domestic agricultural production and trade, pushing for more equitable rights for fisheries and farm-based communities and educating property developers to stop pouring concrete over arable land. As a Mediterranean country with a passion for food, Maltese consumers have a right to know where their daily food comes from and how sustainable is the supply.

Author: George Mangion - Senior Partner PKF Malta
Published on Malta Business Weekly: 2 June 2022
Get in touch: info@pkfmalta.com