Eco-tech the answer to global volatility

Customers, companies, and governments are now realising that food price volatility may be here to stay, Le Toan

Around Southeast Asia, consumers and companies are feeling the brunt of rising prices across a whole range of products and services. In the city-state of Singapore, bakery items have ballooned by up to 17 per cent in the past month, and electricity and gas prices have skyrocketed by nearly 17 per cent. The consumer price index (CPI) there rose by 4.3 per cent on-year in February, its fastest pace in almost a decade.

“We were hopeful for a steady recovery this year. Until only recently, the region had indeed shown promising signs of recovery,” Indranee Rajah, a minister in the Singaporean Prime Minister’s Office, said in mid-March. “However, the downside risks are now all too real due to fracturing of supply chains, rising oil and other prices, and geopolitical instability,” she said.

The CPI has also risen in Thailand by 5.38 per cent, the highest in 13 years. Costlier meat, fish, and other foods have hit households. “Life was already hard because of the pandemic, so the rise in prices really hurts,” one Bangkok resident told Nikkei Asia last week. “To save, we’re going out and eating less, and stretching takeaway meals into two.”

Over in Malaysia, lockdowns and port closures have led to “congestion, lengthy delays, and sky-high shipping costs,” according to Steve Soh, a marketing manager at a Malaysian pet supply wholesaler. Soh said container rates for pet supplies from China had jumped 6.5 times, and his company recently raised wholesale prices by about 20 per cent.

Even Southeast Asia’s largest economy, Indonesia, is preparing for tough times. Inflation hit a 20-month high in January, and although high global commodity prices have helped the country maintain a strong fiscal position, its budget will face pressure from inflationary shocks in the coming months, according to Finance Minister Sri Mulyani Indrawati.

Indonesia, a net oil importer, has ensured that state energy firm Pertamina keeps prices of its most widely-used fuels unchanged. The country has also left unchanged electricity tariffs and liquefied petroleum prices for households, but leaders admit it will have to work even harder to maintain the status quo.

More recent gains in crude oil, natural gas, grains, nonferrous metals and other commodities are expected to contribute to inflation in Southeast Asia in April and perhaps beyond. Consumer prices are still not rising as quickly in Southeast Asia as they are in the US, where inflation reached 7.9 per cent in February – but the gap is narrowing quickly.

Preparing for everything

Nowhere can the pressures be more felt by global citizens than in the increasingly scarce access to some foodstuffs, or the spiralling prices of popular items. Basics such as bread, meat, and cooking oil have jumped in price around the world, damaging the global food system. The Ukraine situation has also further hindered crop trading and sent the costs of the two most common oils, palm and soya bean, to record highs. The conflict is also exacerbating a surge in fertiliser prices, which will make food only more expensive.

Climate change has been making food more expensive across vulnerable Southeast Asia, with UK-based think tank Oxford Economics last week urging more support for agricultural production in the region.

“Our estimates indicate periods of extreme weather have been responsible for major food price spikes across the region,” Oxford Economics said in a report on the issue. “Climate change impacts food production costs, especially through agricultural yields, where the consensus is that climate change will ultimately lower crop yields.”

The think tank estimated that extreme weather conditions have been jacking up food costs by 6 per cent. Such price hikes “can be expected to occur more frequently,” it added.

The organisation also said the shift to clean and green energy would hike food production costs by as much as 80 per cent by 2050. “Governments, therefore, need to think about how to both protect consumers from price spikes that will occur more frequently regardless of what action is taken now.”

It added, “If Malaysia, the Philippines, Thailand, and Vietnam are to continue to enjoy the benefits of economic development, they will need to do so in less carbon-intensive ways than countries which moved up the income ladder before them.”

Lotanna Emediegwu, economics lecturer at Manchester Metropolitan University (MMU), said that in many parts of the world, rising food prices reduce the real incomes of households, pushing more people into the food poverty trap.

Writing for British academic research site Economics Observatory last week, Emediegwu added that the movements in fuel and food prices are closely linked. “Even countries that are self-sufficient in grain production, such as the UK, could be affected by the knock-on effect of rising fertiliser and fuel prices,” he said. “Eventually, the burden of a higher cost of food production, storage, and transport is passed on to the consumers through higher food prices.”

Green for growth

To not only rebound from the pandemic but attempt to tackle future crises, financial institutions are urging Southeast Asian nations to invest in stronger digitalisation and greener infrastructure in order to boost trade.

A new report released last month by the Asian Development Bank (ADB) emphasised that the region requires climate-friendly tourism and more digital businesses to bolster its economy. The ADB aims to deliver $100 billion in financing from 2019 to 2030 to ensure “a clean economy that works for everyone,” according to president Masatsugu Asakawa.

“We need to invigorate value chains and trading systems in ways that improve the lives of millions,” he said at an online symposium to launch the report, adding that “countries face enormous tasks in financing the recovery”.

Various countries in Southeast Asia are already being advised of new strategies to suit their needs, with the report adding that the Philippines should use apprenticeships and job matching to strengthen the workforce, while Indonesia, which is poised to have the region’s biggest internet economy, should speed up connections across the archipelago and push tech transfers.

The Ukraine conflict and surging energy prices would lead to increased inflation in the region, as well as have a potential impact on global demand and investment, the report admitted, while the ADB will revise its economic projections this month.

“The agenda for shifting to a greener economy will contribute to more economic growth in the region because it is now more affordable because of high energy prices,” said James Villafuerte, senior economist and main author of the ADB report.

Social protection measures, meanwhile, which the ADB has been working on in Southeast Asia for the past 10 years, have become very critical. The ADB is set to expand programmes such as JobStart, which helps young people find employment in the Philippines, to other countries in the region.

When it comes to social measures, Oxford Economics noted that Indonesia, Malaysia, and the Philippines spend only half as much of their GDP on social assistance for the poor as other middle-income economies. “Raising the share of national income spent on social assistance to levels comparable to other emerging economies would open a valuable source of funding to help the poorest households during periods of extreme weather and price volatility,” it said.

And on climate change, to protect the likes of farmers and consumers from volatility, the think tank suggested that regional governments could redirect budgets to support agriculture in a more pointed fashion. “In Indonesia and the Philippines, the government spends around 2.5 per cent of GDP on support for the sector, substantially more than other countries in the region. But there is scope to reorient this towards areas which will help farms become more resilient to physical climate risk.”

While the Philippines, Thailand, and Vietnam already have crop insurance schemes, Oxford Economics pointed out that participation was only voluntary. “Expanding the coverage of farm insurance, as well as potentially linking coverage to investment in climate-resilient tech, could provide a guard against physical risk to food prices,” it said.

Along the same lines, Emediegwu from MMU insisted that there is an urgent need for aggressive external intervention to avert a food crisis. “Information sharing among countries about their food status, as well as keeping borders open for agricultural exports, as proposed by the top agriculture ministers, are important responses to the brewing food crisis,” he wrote.