The combined aftershocks of the most dangerous European conflict since 1945, climate change, a debt crisis, and a global pandemic now in its third year is proving catastrophic for the world’s most vulnerable countries.
All of this is having a devastating impact on hunger and food security. An estimated 828 million people go to bed hungry while there are 345 million people facing acute food insecurity across 79 countries this year. 1 in 2 children and 2 in 3 women worldwide face micronutrient deficiencies and over 3 billion people can’t afford a healthy diet.
But the crisis has also awakened government and business leaders to the importance and the potential of food systems transformation. Investing now could build the resilience that millions of people need and help transform the economies of vulnerable countries.
A Humanitarian, Stability and Security and Geo-Political case for action
Extreme weather events are bringing the urgency of climate change more prominently into the political debate in G20 countries but this is largely seen through a domestic lens rather than an imperative to multilateral action and international solidarity.
International food prices skyrocketed in the immediate aftermath of Putin’s invasion of Ukraine. While they have since subsided, they remain at levels similar to the 2008 and 2010/11 food price crises that contributed to widespread instability in the wake of the ‘Arab Spring’ protests. There is, therefore, a humanitarian impetus to respond, a stability and security argument for why this matters.
Leaders from the Global South rightly highlighted the hypocrisy of industrialised countries’ failure to deliver the promised $100bn in climate finance at COP26. The dramatically unequal access to COVID-19 vaccines was yet another clear example of advanced economies focusing at home and leaving the rest of the world to fend for themselves. And now efforts by the US Federal Reserve to curb domestic inflation are precipitating a debt crisis in vulnerable countries.
There is, therefore, a growing sentiment that Southern countries (particularly those in Africa) bear the brunt of crises created elsewhere (The Global Financial Crisis which started in the US housing market, COVID-19 which started in China, Russia’s invasion of Ukraine) and bear the brunt of the policy responses to these crisis with little or no agency over the response.
This dynamic has played out in a number of UN General Assembly Votes where many countries from the global south abstained from condemning Russia’s actions in Ukraine, in part a response to a sense that these countries can no longer depend on ‘Western’ countries for support during crises, and in part due to frustration with western hypocrisy.
Hunger is driven by a lack of economic resilience.
- At the household level, the poorest spend as much as 50% of their incomes on food. So increases in the price of basic staples lead to reductions in the quantity and quality of food intake with knock-on effects on health and nutrition. Past data indicates that food price increases as small as 5% over a period of three months, dramatically increasing the risk of children suffering from wasting by as much as 9%.
- At the country level, those dependent on imports for food are vulnerable to price increases on international markets and deplete precious foreign currency. They are vulnerable to local currency depreciation against the US dollar, which reduces their spending power.
But this is just one aspect of economic vulnerability. And 1.5 billion people, a fifth of the world’s population, live in countries among the 25 at the highest risk of debt default. 22 countries in Africa are in or are at high risk of debt distress. These countries are seeing their debt service payments increase. Because most of that debt is denominated in US dollars, increases in interest rates at the Federal Reserve increase the cost of debt service payments and strengthen the US dollar against local currency. A double whammy means that African countries now spend 9.9% of their budgets on debt service and have less money to spend on health (6% of government budgets), and education (15%). Should these countries default, a credit downgrade will further increase the cost of that debt and the cost of future lending.
This is before we consider the increased propensity to exogenous shocks. In 2020, the COVID-19 pandemic reduced tourism revenues dramatically; remittances fell by 21%; Kenya saw a plague of locusts which devastated crops in an economy that employs 40% of the population; Pakistan saw major floods which displaced 7.9m people and resulted in a $15.2bn in damages.
The need for food systems and economic transformation
The convergence of crises shows that this is not simply a ‘one-off’ event that requires a humanitarian response, but rather a step change in how we think about food systems transformation and resilience.
There is a political demand for this kind of transformation. In response to Putin’s invasion of Ukraine, African leaders convened a high-level Food Security conference focused not on the humanitarian response but on reducing Africa’s dependence on other countries and regions for its staples.
Yet, while ambition is high, the scale of investment is not commensurate. Estimates from the Global Centre of Adaptation and IFPRI suggest that $10-15bn a year is required for climate adaptation in the agricultural sector. But this does not take account of the investment potential when it comes to infrastructure, food processing, skills development and export promotion that could transform the food sector into a vibrant, job-creating part of the economy.
Public investment in the form of aid from DAC donors is $8.6 billion (Agriculture Forestry and Fisheries). When domestic resources are included, this still leaves a significant financing gap. In Ethiopia, for example, this amounts to $2.7bn.
This isn’t just about costs. It is also an opportunity for economic transformation through increasing value addition, improving economic security and providing a secure food supply. Global revenues from the food industry are projected to be $9.3 trillion in 2023 and could grow to $ 11 trillion by 2027. The World Bank estimates that Africa will have a $1 trillion food market by 2030, with consumption in cities driving the demand for more products.
This is something that has been recognised by Senegal’s President Macky Sall, who has put together a strategy for transforming Africa’s food industry which will seek investment from international private sector firms and donors. Other regions also have massive potential. Between 2000 and 2007, East Asia and the Pacific saw industry growth of 3.5%; Latin America grew at 2.6%; and South Asia at 3.0%.
Credit: World Vision
Mobilising finance at the scale needed for food systems transformation
Mobilising financing at a sufficient scale will require not just mobilising trillions for climate and development but also addressing the financing needs of smaller and larger economies; providing more affordable access to long-term financing, particularly in crisis contexts; and better leveraging non-official finance.
Private investment is critical. Yet, Low and Middle-Income countries pay higher rates to borrow money on international capital markets than rich countries (3% vs 7-10% or more) and frequently don’t have access to the kinds of long-term loans required for these kinds of infrastructure investment. Despite many countries facing debt distress, the challenge lies in the fact that they have the wrong kinds of debt (too expensive, too short term) and need more debt of the right kind.
Since COVID-19. successful campaigns have effectively mobilised roughly $100bn through innovative finance tools such as Special Drawing Rights (a reserve asset that can be ‘recycled’ to vulnerable countries to provide low-cost, long-term loans and leveraged by Multilateral Development Banks). Yet roughly $60 billion of these commitments are yet to be drawn down by countries, and those that have applied are largely focused on climate change. A further $400bn SDRs sit unused in rich countries.
Proposals for reform of the Multilateral Development Banks through better leveraging their balance sheets could yield hundreds of billions in low-cost, long-term loans for middle-income countries. The argument for this financing is largely driven by the need for financing the energy transition.
The Bridgetown Initiative, supported by the governments of Barbados and France and many civil society and philanthropic organisations, has also proposed state-contingent debt instruments. These debt contracts would include pandemic and climate shock clauses that enable automatic debt service suspension when external events hit a certain threshold (e.g. 5% of GDP), freeing up fiscal space to respond to the crisis.
A five-point transformation plan for Hungry for Action
Hungry for Action has a unique role to play in the ecosystem. Not only are the needs on a scale not seen in a generation. Everyone on the planet has a relationship with food, everyone understands hunger, and the injustice of hunger is a powerful entry point that is universal and evergreen.
Yet, campaigners on hunger and food security have long focused on short- to medium-term humanitarian responses or on making the case for ODA for agricultural investments.
Given the challenges we face are of a different order, and there are windows of opportunity for structural reform and a transformation agenda, there are five areas where Hungry for Action could focus attention:
1. Fight for more humanitarian aid using a security and geopolitical argument: It is now widely recognised that the West is losing influence and credibility in the Global South. Solidarity and support for Ukraine (and funding in country refugee costs) is a zero-sum game with ODA. In addition, there is a credible case that food riots could create instability in countries that are strategically important, as occurred during the Arab Spring. Using these arguments could take the case for ODA out of the ‘charitable’ frame and into a ‘national security’ frame which may yield more impact.
2. Make the case for Food and Nutrition Security as a Global Public Good that is key to Building Resilience: Increasing attention on Global Public Goods is often read as a euphemism for climate investments. But given the justice, stability and security arguments for Food Security, it should be a Global Public Good too. A first step could involve making the case that the IMF’s Resiliency and Sustainability Trust (currently largely focused on climate and pandemic preparedness) should also focus explicitly on food and nutrition security.
3. Make the case for SDRs for Food Security and Longer-Term Food Systems Reform and sustainability: A proportion of the $60bn of committed Special Drawing Rights will be channelled through the Resilience and Sustainability trust. The coalition could then work with countries on their Food System transformation plans – including their transition to more sustainable and resilient food systems for the long term – and make the case that these are financed by SDRs. Doing this successfully could open the door for recycling of the $400bn SDRs sitting unused in rich countries. A proposal from the African Development Bank Doing so could also help unlock fiscal space in vulnerable countries (allowing them to use low-cost SDRs to refinance more expensive debt and hedging them against currency risk).
5. Make the case for Multilateral Development Bank Reform: In response to Russia’s invasion of Ukraine, the World Bank committed $30bn to help vulnerable countries respond. But major MDBs which collectively hold over $1.5 trillion in assets and have been a critical part of the financing landscape since their inception 75 years ago, could be financing the food system transformation at a completely different scale. An ambitious but achievable reform to MDBs’ Capital Adequacy Framework (CAF) could unleash up to $1 trillion in new lending equivalent to all of the lending the World Bank has issued since its founding in 1944 (approximately $800 billion to $900 billion).
In 2021, the G20 commissioned an independent review of MDBs’ CAF), which came out with five reforms to enable MDBs to increase their lending to developing countries without requiring additional capital or triggering downgrades to their credit ratings. While the G20, governments and MDBs have broadly welcomed the report in public – some with more enthusiasm than others – an ambitious plan for implementation will be key. Resistance to these reforms broadly comes from fiscal conservatives and traditionalists working at the development banks — both from staff and management — as well as several specific shareholder groups (currently, the German, Japanese and Russian governments) who prioritise preserving MDBs’ status as near risk-free asset classes for the institutional investors.
5. Tackle the debt crisis: For those countries facing default, the G20’s Common Framework has failed to deliver. Tackling the debt crisis will require urgent action from all stakeholders – first and foremost, providing some emergency relief. All countries should receive an immediate debt standstill upon application to the Common Framework from all creditors, and middle-income countries should also be eligible. The Common Framework process needs to be more transparent and include a clear time-bound process with clear roles for all stakeholders. All creditors, including the private sector, should be brought into discussions at the beginning to agree on the terms and ensure better comparability of treatment. And finally, G20 governments should agree to review legislative options in countries where debt contracts are signed to encourage private creditors to participate in debt restructurings sooner and discourage holdout creditors.
There are a number of significant moments throughout 2023 to make progress on the ‘supply-side’ financing issues. The Spring Meetings of the IMF and World Bank should signal support for significantly expanding the lending capacity of the World Bank and other MDBs. A summit co-hosted by France and India in June should deliver the $100bn commitment on SDR recycling and commit to championing a specific number of additional World Bank financing as well as reforms in the quality and speed of lending. And the G20 Summit should deliver a new deal on debt that brings all creditors to the table and supports those countries requiring restructuring their debt.
On the demand side, countries seeking to transform their food systems should champion these financing reforms at the Spring Meetings and work to access these forms of concessional and low-cost financing.
