Rising prices in interconnected economies risk generating a new protectionism. And this would affect the less self-sufficient countries with little negotiating power. Governments should be very careful because this constant increase is likely to last well beyond the forecasts of early 2021. The comment by Pietro Paganini and Raffaello Morelli, Competere
During the pandemic, the price of raw materials for food use rose dangerously. The price of food has been rising for many months, putting pressure on the poorest – at least 705 million people are below the poverty line (€ 1.67 per day).
In the past, rising food prices coincided with periods of social unrest. A continuous rise in prices could trigger social unrest in the poorest and economically and politically less stable countries, triggering a ripple effect that could also involve the regions where the pandemic is creating political tensions and economic difficulties.
Rising prices in interconnected economies risk generating a new protectionism. And this would affect the less self-sufficient countries with little negotiating power.
- The countries of the Middle East, for example, are not self-sufficient but have financial resources and political strength to build up sufficient stocks by weakening countries rich in raw materials but weak politically and financially.
Governments should be very careful because this steady increase is likely to last well beyond the forecasts of early 2021.
- The increases in 2008 ignited instability across the poorest South of the world, while the peaks of 2010/2011 that followed the Russian grain export ban helped fuel the so-called Arab Springs.
The FAO has developed a risk index (Food Systems Risk) that monitors the dependence of an economy on the import of food raw materials.
- The countries most at risk are those of the Middle East and Northern Africa and part of Central Africa. But the threat, albeit less high, concerns countries such as China, India, and above all Italy, Germany and Spain (not France). The major exporting countries are in the temperate climatic zones, Canada, Russia, USA, but also in Eastern Europe.
Prices have been growing consecutively for 9 months (exceeding + 20% month on month) according to the FAO (Food Price Index); in February alone, the increase was 2.4% on the previous month (2% January to December). It has surpassed the level reached in July 2014.
- In Europe, prices have increased on average by 2.1% in the EU; in the United States by 3%; it is almost double the rate of inflation. In Italy, this increase affects the poorest who spend more than a third of their income on food.
With the pandemic (February 2020) they collapsed violently, betraying expectations that predicted a drastic increase in inflation due to the difficulties of the logistics system (which actually proved to be much more solid and continued to operate efficiently). Rather, the deflation linked to the generalized and decomposed closure of the various economies has exploded. The drop in the price of oil has erased the demand for plant-based alternatives, pushing prices down.
The downward trend quickly reversed with the summer reopening (June 2020).
The main thrust is given by the growth in the prices of vegetable oils (including palm oil) and cereals, while the increase in the prices of sugar and dairy products appears to be more contained.
The reasons for this increase are many: the climate and climate changes that are disrupting the production of primary goods: long periods of drought, which have affected South America, the La Niña phenomenon, storms in Texas, and fires in various regions of the world; the logistical difficulties of Covid-19, the rush to procure all food raw materials by mega countries, such as China, India and Brazil, but also by Middle Eastern countries that have no internal production.
The experience of the pandemic is stimulating a prudent attitude on the part of countries, such as China, pushing them, who can do it, to procure essential ingredients for nutrition.
- This would confirm that the increase is not the simple consequence of the rebound in prices that followed their decline at the beginning of the pandemic (in the period February – May 2020) but should be sought in a change of strategies and policies by countries and operators. , and consumer habits.
The increase in prices aggravates the condition of families already fatigued by the weight of the pandemic, urging greater expectations towards governments whose tools are very few, especially when food chains are long and global.
- Among the countries that suffer the most are Brazil; India which despite the government’s attempt to control prices with subsidies is overwhelmed by peasant protests; in Kashmir the rise in prices sparked violent protests; Nigeria where attacks on farmers and the malfunctioning of distribution have pushed prices upwards; in Sudan, inflation is in the three figures and the price of bread has more than doubled, triggering protests by peasants against the military-civil government.
Italy is a producer of food, but imports most of its raw materials, including wheat. We have an interest in procuring low-cost raw materials. An increase in prices like the one underway would weigh heavily on the weaker groups, but not only.
- The instability in the Middle East would also have a devastating impact on our economy, also generating social confusion due to the migratory phenomena we experience.
It would be advisable to activate massive economic interventions at EU level in order to calm the prices of food products in the world, and thus avoid the continuation of the phenomenon of their increase, which activates a spiral of negative behavior for all.