Tackling Food Insecurity
Please consider these snips from Yellen's Call to Action on Tackling Food Insecurity
I wish we were meeting under different circumstances. But the reality is that we are facing rising global food insecurity .Even before the war, over 800 million people were suffering from chronic food insecurity. That’s 10 percent of global population, and more than the populations of our panelists’ five home countries combined.
The war has made an already dire situation worse. Price and supply shocks are already materializing, adding to global inflationary pressures, creating risks to external balances, and undermining the recovery from the pandemic.
I want to be clear: Russia’s actions are responsible for this. But the United States is urgently working with our partners and allies to help mitigate the effects of Russia’s reckless war on the world’s most vulnerable.
Let there be no doubt – even as we continue escalating our sanctions and other economic measures against Russia, we reiterate our commitment to authorizing essential humanitarian and related activities that benefit people around the world – ensuring the availability of basic foodstuffs and agricultural commodities.
Today, Russia’s destruction of the Ukrainian economy and its infrastructure is a key factor affecting global commodity prices. The war further exacerbates pre-existing price and food supply pressures. Some countries and regions, which were already food insecure and facing emergencies, are now confronting additional price increases and supply disruptions for imported food, fuel, and fertilizers. Early estimates suggest that at least 10 million more people could be pushed into poverty in Sub-Saharan Africa due to higher food prices alone.
Second, we should focus on how we can apply valuable lessons learned from past global food price crises to the current context. We know that we must avoid export restrictions that could further increase prices. We must quickly support the most vulnerable populations with social safety nets and provide targeted support for smallholder farmers so they can continue to produce.
And finally, let’s get concrete about the actions the international financial institutions can take to deliver an effective response.
Neither the Fed nor Treasury Grows Food
Yellen's rah rah speech sounds nice but realistically will not do a damn thing. Neither the Fed nor the Treasury department grows food or makes fertilizer.
The harsh reality that Yellen did not disclose is that giving away free food and fertilizer to prevent starvation in Africa will raise prices everywhere else.
Sanctions on Russian energy raises the cost of producing fertilizer.
"Targeted support for smallholder farmers so they can continue to produce," means free fertilizer for small farmers to plant.
Cost of Fertilizer
- On March 28, Bloomberg reported Fertilizer Price Surges 43% to Fresh Record as Supplies Tighten
- On April 22, Bloomberg reported Ammonia Fertilizer Prices Fall From Record as Demand Eases
"A gauge of prices for the nitrogen fertilizer ammonia in Tampa fell more than 12% Friday, the most since 2019," commented Bloomberg.
After rising from $200 in 2020 to $1600 in 2022, I question labeling a pullback to $1425 as faltering.
Farmers Struggle to Keep Up With the Rising Costs of Fertilizer
Modern Farmer reports Farmers Struggle to Keep Up With the Rising Costs of Fertilizer
Arkansas farmer Matt Miles knows his way around pastures—and he has the records to prove it. In 2013, he harvested a 107.63-bushel soybean field, smashing the state yield record. Six years later, in 2019, he surpassed his own record, producing a whopping 120.53 bushels per acre. And while reaching these milestones has not always been a seamless journey, the farmer says the past few months have brought an unprecedented set of economic blunders.
The fourth-generation farmer, who also grows corn, rice, cotton and wheat, has watched as the cost and availability of everything from nitrogen and phosphorus inputs to Roundup have been disrupted. On average, he says, fertilizer is currently about 35 percent more expensive than it was in the fall, with Roundup up nearly 90 percent. On top of that, Miles, who orders his product up to a year in advance, has encountered problems trying to source all the products he needs. Last month, one retailer told him he could only fulfill 30 percent of his order for the upcoming season. There simply wasn’t enough supply available.
“I had to go to a different supplier and pay today’s prices for the same product, which costs me $40,000 or $50,000 on that one input,” he says. “It’s not a good feeling. I feel like somebody owes me $40,000 or $50,000 because they didn’t have the product that I locked in.”
After Pestilence and War Comes Famine
Eurointelligence comments After Pestilence and War Comes Famine emphasis mine
Russia, Ukraine and Belarus together are absolutely critical for the global food supply chains. The focus so far has been on wheat exports. In 2020, Russia was the world’s largest wheat exporter. Ukraine was the fifth largest. But wheat is the not the catastrophic bit. It is fertilisers.
The price of nitrogen-based fertilisers has gone up from $200-300 per tonne to $1700. They constitute the largest product group. Their production is based on mixing nitrogen from the air with hydrogen from natural gas to create ammonia. The next stages are the production of nitric acid and ammonium nitrate: the fertiliser.
Belarus and Russia are the world’s second and third largest exporters, respectively, of potash, or potassium chloride, which constitute another group of fertiliser. Potassium-based fertilisers have risen in price from a previous $300 to $1000.
Russia is the world’s fourth largest producer of phosphate, the raw material of the third group of fertilisers, behind China, Morocco and the US.
The massive price explosion of fertilisers means that many farmers cannot afford them, and will cease to farm certain crops. The consequence will be a significant fall in crop yields, and a massive increase in food prices. It will also be the next price shock. Central bank economists who believe that the current price shocks will fall out of the index are delusional. De-globalisation is a structural shift.
Die Welt cites a former German consumer affairs minister as saying that Russia accounts for a third of the global production of synthetic fertilisers. He estimates that 3.2bn people are dependent on their nutrition from the use of synthetic fertilisers. He is warning that the world will see the biggest famine in history. But unlike the war and pandemic, this shortage of fertilisers will not hit us with a bang. It constitutes a creeping catastrophe. Existing reserves are sufficient for this year’s crops.
As we keep saying, we are not sure that western governments have thought this through. Hyper-globalisation has made us so interdependent that we have become limited in our ability to slap sanctions on any country that forms a critical part of global supply chains.
The blind macro-economists who only see the dollar-equivalent of Russia’s GDP may well conclude that Russia is a small country. But what they do not see is that the world food supply is dependent on it.
Related Post Synopsis
- April 4: De-Globalization: New Supply Chains Are Inefficient and Will Drive Up Inflation
- April 6: Fed Now Says Reducing Elevated Inflation Is of Paramount Importance
- April 8: Global Food Price Index Makes a Giant Leap to New Record High in March
- April 9: There's Looting in Shanghai, Sri Lanka, and Peru Over Food Shortages, What Country is Next?
- April 18: Forget About a Soft Landing, What's the Shape of the Hard Landing?
Dear Janet Yellen
- Have you thought through your call to action on food?
- Have you thought through sanctions?
- Do you have any idea what prolonging the war for another year means?
- What will free fertilizer and free food to Africa mean to fertilizer prices here?
- What about energy policy, natural gas used in fertilizers, and minerals (from Russia and China) needed to decarbonize?
- What about de-globalization and USA first (every country for itself first)?
- Is more "free money" really the solution to anything?
- Soft Landing? Really?
By the way, the Biden administration wants to blend in more ethanol (from corn) to ease gas prices. Does that make any sense?
This post originated at MishTalk.Com.
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