World faces food and energy crisis
It is wrong for any nation to focus its crisis management on COVID containment alone because high energy costs (leading to inflation and high prices) and food shortages could threaten the world just as badly.
Last May, inflation in the US hit 8.6 percent, a 40-year high, while the Philippines posted a three-year high of 4.9 percent. Prices of goods and services are soaring—affecting all sectors, including the stock market.
All of these stemmed primarily from the Russia-Ukraine war. While we may not hear bullets whizzing by or mortars roaring, millions elsewhere in the world could still die of starvation. An even bigger number will be considered “poorly nourished” and, therefore, vulnerable to existing and impending diseases.
World Bank executive David Malpass has warned that the global economy is “in danger”—caused by above-average inflation growth and below-average economic growth—resulting in stagflation, which will destabilize less wealthy nations.
Stagflation may have been stalled momentarily by steady manufacturing and services indices in the US, European Union, and China in May, but it will be affected severely depending on the length and the intensity of the war conflict. Worldwide, company losses due to the war had already reached $59 billion.
World energy supply has been severely affected by the Russian embargo since 43 percent of the total Russian exports are mineral fuels in the amount of $211 billion; food-related items like fertilizer ($12.5 billion or 2.5 percent of total exports) and cereals ($9.1 billion or 1.5 percent of total exports) have also been impacted.
Russia is the world’s largest exporter of wheat, a basic component of flour needed for bread and pastries. According to the Food and Drug Organization, bread wheat accounts for 20 percent of the calories consumed globally, containing essential protein, minerals, and vitamins.
One bushel of wheat yields 42 pounds of white flour or the equivalent of 90 pounds of loaves of bread. Imagine that. Prices of the local “pandesal” and other pastries are beginning to rise.
Ukraine, on the other hand, is a major exporter of corn (feedstock and food), barley, sunflower, and rapeseed oil. Russia and its ally Belarus provide 40 percent of the world’s potash, an important crop nutrient.
A silver lining in the disruption of the supply chain of grain-related exports to the world is in the making, however, with the United Nations working out a “protected corridor for the cereal shipments” to the world. There is a late softening of position on the side of Turkey and Russia, which is currently imposing a naval blockade of goods out of Ukraine in the Black Sea—the seas being the only exit out of Ukraine. The land and air routes would be impassable due to the current firefighting.
When will this “mercy” corridor ever be implemented, if at all?
Just months ago, crude oil cost below $50 per barrel. Goldman Sachs says oil prices are now at $120/barrel, and if the war continues, could go up to $150/barrel by fall. Since the Ukraine war began, it has gone up by $1.40 per gallon, hovering now at $48.7/gallon, and going for $50/gallon in the US.
The latest Manila reading we had was P86.50 per liter of gasoline and P79/liter for diesel in commercial gas stations. As a result, consumers are postponing long trips and vacations, while jeepneys have stopped plying their route as they now operate below cost.
High prices of gas affect almost everything as goods and services use transportation. This explains the high inflation rate everywhere. Grocery money now buys less than it did three months ago.
The world had been smarting from dealing with a COVID-19 malady that, according to World Health Organization estimates, has killed 15 million people. However, economies are still staggering from pandemic woes, and now the world is facing food shortages and high fuel costs.
The agony in the garden continues long past the Holy Week.
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Bingo P. Dejaresco III, a former banker, is a financial consultant and a media practitioner.
