The price of food has increased everywhere, reaching historic levels in 2022, which poses a big challenge for food importing developing countries as they face a double burden of not only paying higher prices but also exacerbated by the depreciation of their currency vis-à-vis the US dollar.
In a new report, the UNCTAD said that this erodes the fiscal space that many developing countries need to face the concomitant challenges of recovering from the COVID-19 pandemic, the cost-of-living crisis, and the climate emergency.
EMERGENCE OF DOUBLE BURDEN
Noting that the world witnessed three major food price spikes in the present century (2007–2008 and 2010–2012 and the present one), the UNCTAD report said during the first two spikes the value of the US dollar, the main currency used in international trade transactions, went down. And the depreciation of the US dollar and the consequent appreciation of other currencies made imports cheaper and provided some ease to import bills for many developing countries, the UNCTAD said.
In the present crisis, the Federal Reserve in an attempt to combat high inflation in the United States, increased its interest rates causing the US dollar to appreciate some 24 per cent between May 2021 and October 2022. This made the US dollar and the fooditems that developing countries buy with it more expensive. For net food-importing developing countries, the international market for fooditem is a lifeline. And as it becomes more expensive to buy US dollars, it also becomes harder for these countries to prevent millions of people from going hungry. These countries face a double burden of high food prices and a depreciation of their local currency against the US dollar.
IMPACT OF HIGH FOOD PRICES AND CURRENCY DEPRECIATIONS
The UNCTAD said that since 2020 wheat prices increased substantially. As of October 2022, the average price was 89 per cent higher than the average in 2020. During the same period, the average US dollar exchange rate vis-à-vis the respective national currencies rose between 10 and 46 per cent. Even when international prices are the same, the exchange rate effect makes a difference, the report said.
It also mentioned that to import the same volume of wheat as in 2020, import bills in 2022 would rise sharply. For example, the case of Egypt, the world’s largest importer of wheat in 2020, with a total of 13.2 million tons. This accounted for nearly one-fifth of Egypt’s food import bill. To import the same amount in 2022, they would have to pay an additional US$ 3 billion. This increase is equivalent to 20 per cent of Egypt’s food import bill in 2020.
WHAT TO BE DONE
EASING FINANCIAL CONSTRAINTS
Providing targeted and sustained social protection programmes to shield vulnerable households in developing countries.
Supporting multilateral emergency solutions to provide liquidity to developing countries.
Relieving developing countries from their financial burden to avoid a widespread debt crisis.
ENSURING OPEN TRADE AND ACCESS TO STAPLE FOODS
Maintaining open international markets can help to facilitate a stable and secure supply of food around the world.
Accelerating transport and trade facilitation initiatives can help to improve delivery of staple food items in domestic markets
INCREASING FOOD AVAILABILITY NATIONALLY AND INTERNATIONALLY
Strengthening domestic food production in net food-importing developing countries can help reduce the heavy reliance on food imports.
Reintegrating Ukrainian and Russian food and fertilizer to global markets can help to increase the availability and affordability of food worldwide.
