Sometimes a suspicion lurks in the back of your mind and you're unwilling to let it out, but a Flow correspondent's suggestion that Russia was weaponising food opened the floodgate of Russia-China food duopoly concerns.
Speaking with Flow for our weekly Friday farming-focused Country Viewpoint program, Market Check's Tess Walch said:
"Russia's almost turning food into a weapon at this point. Countries like ours (Australia) will be fine, we can afford to pay for high priced food - but its the countries that can't that the UN's becoming concerned for. Food prices where they are - the malnutrition line will be increasing."
Hear the full interview with Tess Walch here:
Across our farm commentary on Flow and weekly chats about farming markets, correspondents - in particular Andrew Whitelaw from Thomas Elder Markets - had flagged that China was stockpiling grain.
On Wednesday, the ANZ confirmed that China 'has been stockpiling soft commodities for the past few years - but even their leaders are urging local authorities to focus on maximising harvests to normalise prices'.
It begs the question how much notice China and Russia gave each other of their competing concerns in regions they believe to be their sovereign territory, within Taiwan and Ukraine respectively. Russia was restricting its grain exports in recent years in the belief a food shortage was imminent.
On Thursday, ratings agency Standard & Poors (S&P) said fertiliser shortages, export controls, disrupted global trade, and escalating fuel and transport costs will all exert upward pressure on the cost of food staples. Global Ratings credit analyst Samuel Tilleray said:
"Our analysis shows low and low- to middle-income countries in Central Asia, the Middle East, Africa, and the Caucasus could be worst hit by the first-round impact."
Their report 'The Global Food Shock will last years, not months' projected high pricing into 2024 and flagged that the Caucasus nations Tajikistan, Uzbekistan, and Armenia look particularly exposed through their heavy reliance on Russia for key food commodities, should sanctions or self-sanctioning complicate trade. Arab states Morocco, Lebanon, Egypt, and Jordan were also at risk due to their reliance on Ukraine for their food supply and were susceptible to war-induced disruption to ports and processing activities.
Mr. Tilleray said emerging economies would suffer most from the global food shock:
"We believe the shock to food supply will have negative implications for emerging market countries, affecting GDP growth, fiscal performance, and social stability."
According to S&P, Ukraine and Russia, both or individually, rank among the top three global exporters of wheat, maize, rapeseed, sunflower seeds, and sunflower oil. Together, they account for 12% of all food calories traded.
Russia and Belarus were also the first- and sixth-largest exporters of fertilisers globally in 2020. On fertilisers, China is a giant - as the ANZ attests:
China is the world’s largest producer of nitrogen fertiliser. Fertiliser prices in China have skyrocketed during the pandemic as the cost of natural gas has risen. Last year, China limited the amount of phosphate available for export, to ensure it has enough stockpiled to meet domestic demand.
Excessively high fertiliser prices mean farmers are limiting their use, reducing yields.
This is particularly the case in developing nations, where farmers simply don’t have the cash to buy fertiliser. This means crop production will be hit particularly hard in Africa, South America and parts of Asia.
The following graph demonstrates that the concerns about food shortages or famine ought to be far higher than they were when the 2007-8 food crisis was overshadowed by the Global Financial Crisis (GFC).
China's stockpiling of grain is nothing new, but still significant in this global context. The ANZ observes:
Global grain inventories have been shrinking since 2017. The US Department of Agriculture(USDA) estimates global grain stockpiles will fall a further 21m tonnes to 784mt in the 2022-23 marketing year.
The number looks more precarious if we exclude China’s inventories, which are in practice not available for the rest of the world. China imports have risen sharply since 2010 in an effort to ensure food security and contain food inflation. The country holds nearly 58 per cent of global grain stocks, exacerbating the grain supply shortage in the rest of the world. Global stocks excluding China stocks are estimated to fall this year to 328mt, the lowest since 2016.
Chinese stockpiling at this level occurred in the late 1990s, due in part to the very same thing China is asking its farmers to do right now - pump out as much food as possible. In their nationally managed economy, China may well also have been preparing for a period of significant urbanisation and growth over the top of farmland. Coincidentally, perhaps, the United Kingdom returned Hong Kong to China in 1997 - and the 25 years since have seen Hong Kong's western democratic traditions ripped away amid significant protests.
As the Australian Strategic Policy Institute's Steven Loosely said on Friday, China's aspirations to dominate the Indo-Pacific remain strong, merely checked by Russia's struggle after 100 days - at that point - of warfare in Ukraine (something most analysts did not expect on day 1).
The last imbalance of Chinese stockpiles vs world stocks in 1995 coincided with a poor year collectively for the world's farmers.
Perhaps there is nothing sinister in China's stockpiling in a militaristic sense, just a canny knack for predicting years in advance when world food stocks will be in trouble.
Equally canny, one might argue, are Australian farmers. Rural banking specialist Rabobank said in a recent report that farmers have been investing in on-farm storage off the back of recent good years on the land. Whilst in part attributable to 'once (or twice) bitten, twice (or thrice) shy' sentiment on Australia's logistical challenges, farmers' on-farm capacity to weather future storms - man made or natural - is growing. Whereas a managed economy like China sees public investment in storage, a free market economy like Australia's provides tax incentives for farmers to invest in their own storage - letting the market decide when those goods come onto the market. Profiteering will be limited by the perishable nature of the stored goods, should that seem a concern.
The extent to which Australian farmers are set to benefit looks immediate and significant, thanks to a continuing La Niña weather pattern and strong global prices due to supply concerns. One would think the UN's FAO would be also in the market seeking to alleviate food shortages, and the incoming Albanese Labor government might well feel compelled to assist poorer neighbours and nations struggling to feed their populations. The big question is the extent to which Australia drought-proofs itself (via infrastructure and/or research & development) now for the inevitable El Niño cycle that will follow, to keep meeting the food demands of a growing global population.
But I digress - it seems eerily coincidental that two global superpowers, China and Russia, are flush with food in the first instance, and in control of a global foodbowl in the second, as the military threat level regarding the two is at its highest since the Cold War. One does not mount an invasion or significant military deployment overnight and stockpiling in preparation for sanctions ought to be a warning sign.
Without being too melodramatic, the four horsemen of the apocalypse (from the 6th book of Revelation in the Bible) are conquest, the violence of warfare, famine, and widespread death.
You could interpose Ukraine, the current food shortage and COVID-19 in the last three instances. Query who is planning conquest to unleash the first.
Australians may have been shielded from all four, but beyond Australia's shores the steeds are nickering in the stables.