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The world is heading for “food wars” as geopolitical tensions and climate change push countries into conflict over dwindling supplies, one of the world’s biggest agricultural commodities traders has said.
“We have fought many wars for oil. We will be fighting bigger wars for food and water,” said Sunny Verghese, CEO of Olam Agri, a Singapore-based agricultural trading house.
Speaking at the Redburn Atlantic and Rothschild consumer conference last week, Verghese warned that trade barriers imposed by governments trying to boost domestic food supplies have exacerbated food inflation.
Major agricultural commodity traders, who reaped record profits in 2022 after Russia’s all-out invasion of Ukraine sent food prices soaring, have been accused of fueling flood price inflation through profit-boosting markups.
However, Verghese argued that increased food price inflation was partly the result of government intervention. The proliferation of non-tariff trade barriers in 2022 in response to the war — 1,266 from 154 countries, according to his count — “created an exaggerated supply-demand imbalance,” he said.
Richer countries built up surpluses of strategic commodities, leading to excessive demand and consequently higher prices, Verghese said. “India, China, everybody has buffer stocks,” he said. “This only exacerbates the global problem.”
Food prices began rising in the wake of Covid-19 and spiked after Russia’s invasion of Ukraine as the conflict blocked some grain and fertilizer exports. This exacerbated food insecurity in poorer countries, and consumers worldwide faced a cost-of-living crisis.
With this rise and climate change limiting agricultural production worldwide, governments are increasingly turning to protectionist policies.
In 2022, Indonesia banned palm oil exports to protect the local market, while India last year imposed export restrictions on certain types of rice in a bid to curb rising domestic prices ahead of parliamentary elections after an erratic monsoon disrupted production and fueled supply concerns. lack.
“That was exactly the wrong thing,” Verghese said. “You’ll see more and more.
Olam Agri, which processes and supplies grains and oilseeds, edible oil, rice and cotton, is part of the wider Olam group. The food and agribusiness, which supplies raw materials, feed and fiber to global brands from Nestlé to Unilever, has had a tough year.
The businessman, who has a large footprint in Asia and Africa, was investigated by authorities in Nigeria last year after intelligence reports claimed he was involved in a multibillion-dollar fraud. The company’s stock jumped in February when it was cleared of wrongdoing.
Olam Group was also forced to issue a profit warning for the first half of 2023. Even after a better second half, it reported a 56 per cent drop in full-year profit to 278.7m interest rates and “extraordinary losses” due to low yields from almond orchards in Australia.
The group said the drop in profits was partly the result of a lower contribution from Olam Agri following the sale of a 35 percent stake in the business in 2022 to a subsidiary of Saudi Arabia’s Public Investment Fund for $1.24 billion. Olam Agri is 51 percent owned by Singapore state investment company Temasek Holdings.
Olam Group has long-term plans to launch Olam Agri in Saudi Arabia, but these plans have been repeatedly delayed since 2020 when the business arm was separated from its food ingredients business. London-based Olam Food Ingredients is one of the world’s largest food suppliers. cocoa, coffee, nuts and spices.
Addressing the impact of climate change on global yields, Verghese urged a gathering of consumer industry executives, including the heads of Coca-Cola and Associated British Foods, to “wake up” and take more action on climate change.
Governments should levy a tax on carbon, he argued. “Today, carbon is free, so we pollute indiscriminately,” he said.
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