How the Energy Crisis Impacts Global Food Security
Food insecurity occurs when an individual does not have access to the adequate quantity or quality of food they require to meet their biological needs.
A disruption in supply chains, rising input costs, and inadequate weather can all have a direct impact on global food security, all of which have been in play in recent years.
Using the latest data from the Food and Agriculture Organization (FAO) 29% of the entire world population is believed to be moderately or severely food insecure, with 40% of this population experiencing severe food insecurity.
A moderately food insecure person experiences uncertainty about their ability to obtain food, unwillingly compromising the quantity and/or the quality of food they consume.
A severely food insecure person lacks access to food, enduring prolonged periods of time without eating
The African continent bears most of the burden when it comes to global food insecurity, with 14 out of the top 15 most food-insecure countries.
The data also paints a grim picture for Middle Eastern and South American countries, while North America and Western Europe have moderate or severe food insecurity below 10%.
To pinpoint the prevalence of African food insecurity to just one cause is not realistic.
Climate change, conflict in Africa, government debt, and Putin’s invasion of Ukraine have all contributed in different ways to worsening food security conditions across Africa.
Putin’s war led to European aid for African countries to drop substantially, while grain exports from both Ukraine and Russia fell as ports in the Black Sea experienced disruptions.
The war also caused a disruption in fertilizer supplies, with Russia being the top exporter of fertilizer, along with a substantial rise in farming input costs as energy prices soared in 2022.
Food prices have risen substantially in the last year due to surging energy prices and supply chain disruptions. The FAO food price index, which measures the change in international prices of a basket of food commodities, saw a 14% increase between 2021 and 2022.
Energy costs trickle down to food prices in a variety of ways. The simple correlation between historic oil and corn prices, seen below, paint a telling picture.
The International Monetary Fund (IMF) predicts that the effects of the 2022 energy cost crisis have not fully materialised as yet.
According to the IMF, a 1% increase in fertilizer prices can boost food commodity prices by 0.45% within four quarters.
With natural gas, a major input for nitrogen-based fertilizer, being 150% more expensive in 2022 than in 2021, this may be a cause for concern in the upcoming months.
Furthermore, a rise in fertilizer costs is also connected to harvest levels in upcoming seasons.
Reduced use of fertilizer – due to high costs – can lead to diminished crop yields, and the IMF predicts that a 1% drop in global harvests bumps food commodity prices by 8.5%, potentially indicating that the worst of it for food prices — and for global food security — is still yet to come.
Four key takeaways from the Global Trade Update 2022 Report
Global trade is set to reach a record level of about US$32 trillion for 2022, according to a United Nations Conference on Trade and Development (UNCTAD) report published in late 2022.
But deteriorating economic conditions and rising uncertainties have resulted in a trade slowdown during the second half of the year, and it is expected to worsen in 2023.
It has been a year of bad news for global trade with consumer price inflation touching a 40-year high, a crippling energy crisis, and a war wreaking havoc on supply chains worldwide.
Still, according to UNCTAD, trade soared in the first half of 2022 largely driven by sharp rises in energy prices.
UNCTAD expects it will hit a record high of US$32 trillion in 2022, but inflation, geopolitical unrest, and macroeconomic deterioration reversed some of the gains made in the first half.
This briefing explores four key takeaways from the report that reflect on the state of global trade in the past year and highlight trends to watch out for in the coming year.
1. Global trade had a record year
Trade in goods reached a total US$ 25 trillion, up by 10 percent from 2021, and trade in services totaled US$ 7 trillion, a 15 percent increase from 2021.
Strong growth in the first half of 2022 led to the increase, but this was largely driven by an increase in prices for energy products; trade volumes rose by a more modest three percent.
High demand for energy as the world opened up after pandemic lockdowns and tight oil supply due to the Ukraine war pushed energy prices up significantly.
However, the value of global trade for goods decreased in the second half of 2022, amid deteriorating economic conditions and rising uncertainties.
Trade in services has been more resilient.
2. Regional trade
Analysis of the trade activity of individual countries and regions found that all major economies except Russia performed better compared to a year ago.
Russia has faced some of the most severe economic sanctions and trade restrictions in history, imposed by the US, the European Union, and other countries following its invasion of Ukraine, which significantly hurt its economy.
Trade in goods between developing countries (South-South trade) was about 13 percent higher compared with 2021.
While year-over-year growth rates remained generally strong across all geographic regions, trade value declined in the third quarter from the preceding three months in all but two geographic regions: East Asia, where it flatlined, and, surprisingly, Russia, where other reports suggest a recovering ruble and a tentative return of businesses helped boost imports in that period.
3. Sectoral trade
Increases in the value of the trade of energy products, driven by rising prices, led to substantial trade growth during 2022.
Trade in some sectors such as apparel, chemicals, and automotives increased from 2021 levels while the value of trade was lower for several sectors including pharmaceuticals, minerals, communication equipment, and transport equipment.
In comparison with the second quarter of 2022, the value of trade in the third quarter of 2022 was lower for most sectors though apparel, communication equipment, and office equipment remained largely resilient.
The overall trend underscores a slowdown in global trade in the second half of the year.
4. Negative factors outweigh positive trends in 2023
While the outlook for global trade remains uncertain, negative factors for now outweigh positive trends in the coming year.
Among negative trends for the coming year, UNCTAD lists low economic growth, high prices of traded goods, and debt unsustainability.
Economic growth forecasts for 2023 will see a downward revision due to rising interest rates, sustained global inflation, and negative economic spillovers from the war in Ukraine.
Consistently high energy and consumer goods prices will stifle global demand for imports and lead to a decline in the volume of international trade.
The increase in interest rates is expected to intensify pressure on highly indebted governments, increasing vulnerabilities and negatively affecting investments and international trade flows.
Among positive trends, are improvements in the logistics of global trade, as ports and shipping companies adjust to the challenges posed by Covid-19.
Recently signed trade agreements coming to fruition may also help boost trade.
This article first appeared here.
Visualizing China’s Dominance in Battery Manufacturing
With the world gearing up for the electric vehicle era, battery manufacturing has become a priority for some nations.
However, having entered the race for batteries early, China is far and away in the lead.
Using the data and projections behind BloombergNEF’s lithium-ion supply chain rankings, this infographic visualises battery manufacturing capacity by country in 2022 and 2027, highlighting the extent of China’s battery dominance.
With nearly 900 gigawatt-hours of manufacturing capacity or 77% of the global total, China is home to six of the world’s 10 biggest battery makers.
Behind China’s battery dominance is its vertical integration across the rest of the EV supply chain, from mining the metals to producing the EVs.
China is also the largest EV market, accounting for 52% of global sales in 2021.
Poland ranks second with less than one-tenth of China’s capacity. In addition, it hosts LG Energy Solution’s Wroclaw gigafactory, the largest of its kind in Europe and one of the largest in the world. Overall, European countries (including non-EU members) made up just 14% of global battery manufacturing capacity in 2022.
Although it lives in China’s shadow when it comes to batteries, the U.S. is also among the world’s lithium-ion powerhouses. As of 2022, it had eight major operational battery factories, concentrated in the Midwest and the South.
The U.S. is projected to increase its capacity by more than 10-fold in the next five years. EV tax credits in the Inflation Reduction Act are likely to incentivize battery manufacturing by rewarding EVs made with domestic materials. Alongside Ford and General Motors, Asian companies including Toyota, SK Innovation, and LG Energy Solution have all announced investments in U.S. battery manufacturing in recent months.
Europe will host six of the projected top 10 countries for battery production in 2027. Europe’s current and future battery plants come from a mix of domestic and foreign firms, including Germany’s Volkswagen, China’s CATL, and South Korea’s SK Innovation.
Regardless of the growth in North America and Europe, China’s dominance is unmatched.
Battery manufacturing is just one piece of the puzzle, albeit a major one. Most of the parts and metals that make up a battery — like battery-grade lithium, electrolytes, separators, cathodes, and anodes — are primarily made in China.
Therefore, combating China’s dominance will be expensive. According to Bloomberg, the U.S. and Europe will have to invest $87 billion and $102 billion, respectively, to meet domestic battery demand with fully local supply chains by 2030.