Food security vs. recession

BREAKTHROUGH - Elfren S. Cruz - The Philippine Star

In the last few years, the world has suffered from an epidemic now often called the pandemic, considered as the worst in human history. It is now beginning to look like this pandemic is finally under control.

More and more, observers are saying that we are nearing a period of normalcy, which means going back to the conditions before the world was locked down. And yet, there is a continuing feeling of pessimism, especially for those in positions of authority and responsibility. The pandemic may be past its peak but there are other new events causing this pessimism.

The first is economic or the threat of a global recession. The second is, to my mind, the worse, since it would affect everyone except the very rich. This is the threat of a global shortage of food. But the food shortage is different.

The world has seen recessions come and go and has managed to survive. Media talk about it constantly, economists give endless seminars on this and academics have made this a favorite topic in economics class but also in business and political classes. So what exactly is a recession?

The most common technical or textbook definition of the recession is “two consecutive quarters of reduction of gross domestic product.” However, the Financial Times describes it as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The International Monetary Fund and the World Bank define a global recession as “a year where the average global citizen experiences a drop in real income.”

Countries and global financial institutions are beginning to do their best and try to combat this. However, their attempts are hampered by major obstacles. The world is now experiencing a terrible inflation which means an increase in prices of commodities ranging from petroleum products to infant formula to even mustard. This is, of course, aggravated by supply chain problems.

Globalization may have brought prosperity to certain sectors of society. However, it has also caused severe problems that cannot be solved by any one nation. For example, Ukraine and Russia supply a big percentage of grain exports to the world. These two countries may have gone to war against each other due to political reasons. But this same problem is now causing shortages of this vital product and is threatening to result in shortages in the staple food in many countries, rich or poor, in the world.

Since bread is not a staple food in our part of the world and especially in the Philippines, one is tempted to say this is not our concern. However, since we are now a globalized world, we are now interlinked. So, bread may not be a staple food in Asia where our staple food is rice. As the supply of bread is severely affected caused by declining exports of grain in Ukraine and Russia, countries consuming bread will begin to look for substitutes.

India, for example, has already banned the export of food commodities from its country. Countries in Africa, the Middle East, South Asia, will now look for substitutes. The more obvious is that they will now import rice as a substitute for grain.

When countries begin to import rice, this will cause a shortage in southeast Asian countries that depend on rice as a staple. This is one reason why food shortage is now a potential problem in countries all over the world, the Philippines included.

Food security is becoming a major threat to the stability of every country in the world.  This issue of choosing between food security and lower prices has become a threat for the past several decades.

In the Philippines, this has been debated even during the term of president Corazon Aquino. This same issue is now beginning to be a major debate topic in the incoming Marcos economic team. If we pursue efforts in ensuing that the prices of food will remain low, we will have to resort to importation of food and other basic commodities.  However, this solution will lead to an increase in our dependence on other countries to feed the people in our very own country. We will have no protection from shortages.

This will lead to either increases in prices of food or the government will have to resort to subsidizing the importation of food. Neither one of these options is an acceptable one from the view point of economics. If we accept importation, we will be causing inflation in our country. If we resort to subsidy, this could lead to budget deficits or worse, more borrowing and we already have a high level of debt. This is only one example.

This chain reaction of events happening in other continents which eventually affects the whole world is happening to other commodities like energy products and fertilizers. At the beginning of this column, I talked about the two problems of recession and food shortage that the world is facing.  However, as I have explained in a few paragraphs, there two are actually linked. As the problem of recession worsens, one of the consequences is definitely an increase in commodity prices and inflation, which is actually happening now.

The only way to control inflation is to dampen or reduce the demand for products.  Governments normally resort to increasing the interest rates to dampen consumer demand. Again, this is now beginning to happen even in the Philippines.

My economist friends will say I am too simplistic but I am trying to explain as simply as I can. This is a dilemma for our government economic team. Simply put, if they overdo their attempt to control inflation, this will lead to a recession. If they don’t control the situation, this will lead to runaway inflation. Either way, recession, food shortage, inflation will lead to suffering for the most vulnerable segment of the population.

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