Climate and Geopolitical Tensions Threaten Food Supplies

Key Points:

• Food supply crisis is predicted, necessitating international cooperation.
• Trade barriers worsen food inflation; stockpiling by wealthy countries intensifies global issues.
• Pandemic and geopolitical conflicts, like Russia’s invasion of Ukraine, have escalated food prices and insecurity.
• Nations like Indonesia and India restrict exports to protect local markets, worsening global supply challenges.

The geopolitical tensions and climate change nexus are pushing the world into an era where food supplies are becoming increasingly contested. Sunny Verghese, chief executive of Olam Agri, encapsulated the gravity of this situation during the Redburn Atlantic and Rothschild consumer conference, stating that, like oil, humans might have to fight over food and water. This ominous prediction underscores the urgent need for international cooperation and sustainable practices in agriculture and trade to avert future conflicts.

Government Intervention: A Double-Edged Sword

Government interventions, particularly through trade barriers, have significantly exacerbated food inflation. In 2022 alone, a staggering 1,266 non-tariff trade barriers were imposed by 154 countries, creating an exaggerated demand-supply imbalance. Sunny Verghese highlighted the detrimental impact of these policies, noting that wealthier countries were stockpiling strategic commodities. “India, China, everybody has got buffer stocks. That is only exacerbating the global problem,” he remarked. While intended to secure local supplies, these protectionist measures often increase prices and deepen the global food crisis.

The Impact of Rising Food Prices

Food prices have been on an upward trajectory since the COVID-19 pandemic, with a significant surge following Russia’s invasion of Ukraine. The conflict has disrupted the export of grain and fertilisers, deepening food insecurity in poorer nations and contributing to a global cost of living crisis. The blockage of these essential supplies has had a domino effect, driving up costs across the board and putting immense pressure on vulnerable populations. This situation underscores the interconnectedness of global food systems and the far-reaching consequences of geopolitical conflicts.

Protectionist Policies on the Rise Affecting Food Supplies

Increasingly, governments are adopting protectionist policies to safeguard their domestic markets. Indonesia, for instance, banned palm oil exports in 2022 to protect local consumers. India imposed export restrictions on certain types of rice last year to curb rising domestic prices ahead of parliamentary elections following a volatile monsoon. Such policies, though well-intentioned, often exacerbate global supply issues and contribute to higher prices, further straining international relations.

Olam Agri: Navigating a Challenging Landscape

Olam Agri, a key player in the global food supply chain, processes and supplies grains, oilseeds, edible oil, rice, and cotton. Despite the challenging environment, the company has navigated significant issues, including a major investigation in Nigeria last year. Accused of involvement in a multibillion-dollar fraud, Olam Agri was ultimately cleared of wrongdoing, leading to a surge in its stock prices in February. This outcome highlighted the company’s resilience and the importance of robust legal and ethical practices in maintaining investor confidence.

Olam Group: Strategic Moves and Financial Performance

Olam Group, the parent company of Olam Agri, has made strategic moves to strengthen its position in the market. In 2022, it sold a 35 per cent stake in Olam Agri to a subsidiary of Saudi Arabia’s Public Investment Fund for $1.24 billion. Singaporean state-owned investment company Temasek Holdings owns a 51 per cent stake. However, the group has faced financial challenges, issuing a profit warning for the first half of 2023 and reporting full-year profits of S$278.7 million (US$205 million), a 56 per cent drop. This decline was attributed to high interest rates and exceptional losses from low yields in its Australian almond orchards. These financial difficulties underscore the volatility of the agricultural sector and the importance of strategic planning and risk management.

Geopolitical tensions, government interventions, and climate change reshape the global food landscape. Companies like Olam Agri are at the forefront, navigating these challenges while adapting to an increasingly complex and volatile market. The need for international cooperation, sustainable agricultural practices, and strategic planning has never been more critical as the world braces for the potential conflicts over food and water predicted by industry leaders like Sunny Verghese.