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The world is heading towards “food wars” as geopolitical tensions and climate change push countries into conflict over dwindling supplies, one of the world’s largest agricultural commodity traders said.
“We have fought many wars over oil. We will fight bigger wars over food and water,” says 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 seeking to shore up domestic food supplies had worsened food inflation.
Major agricultural commodity traders, who posted record profits in 2022 after Russia’s massive invasion of Ukraine sent food prices soaring, are accused of exacerbating flood price inflation through profit-boosting markups.
But Verghese argued that high food price inflation was partly the result of government intervention. A proliferation of non-tariff trade barriers in 2022 in response to the war – 1,266 from 154 countries by his count – had “created an exaggerated imbalance between supply and demand,” he said.
Richer countries built up surpluses of strategic raw materials, leading to excessive demand and in turn higher prices, Verghese said. “India, China, everyone has buffer stocks,” he said. “That only worsens the global problem.”
Food prices started to rise in the wake of Covid-19 and soared after Russia’s invasion of Ukraine as some grain and fertilizer exports were blocked by the conflict. This increased food insecurity in poorer countries and left consumers around the world facing a cost-of-living crisis.
As this increase and climate change hamper 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 an effort to curb rising domestic prices ahead of parliamentary elections, after a volatile monsoon disrupted production and sparked fears of an offer. shortage.
“That was exactly the wrong thing,” Verghese said. “You’re going to see that 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 ingredients, animal feed and fibers to global brands from Nestlé to Unilever, has had a difficult year.
The trader, who has a large footprint in Asia and Africa, was investigated by authorities in Nigeria last year after news reports alleged he was involved in a multi-billion dollar fraud. The company’s shares rose 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, the group reported a 56 percent decline in full-year profit to S$278.7 million (US$205 million), blaming this on high figures. interest rates and “exceptional losses” caused by low yields from Australia’s almond orchards.
The group said the profit decline was partly due to a lower contribution from Olam Agri, following the sale of a 35 percent stake in the company in 2022 to an affiliate of Saudi Arabia’s Public Investment Fund for $1.24 billion. Olam Agri is 51 percent owned by Singaporean state investment company Temasek Holdings.
Olam Group has long-standing plans to launch Olam Agri in Saudi Arabia, but these have been repeatedly postponed since the trading arm was spun off from its food ingredients business in 2020. Olam Food Ingredients, headquartered in London, is one of the world’s largest suppliers of cocoa, coffee, nuts and spices.
To tackle the impact of climate change on global returns, Verghese urged the gathering of consumer industry executives, including the bosses of Coca-Cola and Associated British Foods, to “wake up” and take greater action on climate change.
Governments should tax carbon, he argued. “Carbon is free these days, so we pollute indiscriminately,” he said.
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