Food Security: The global agricultural scenario, and food production in Brazil and the world

Global conflicts in recent years have intensified the food security agenda. How can the agribusiness chain, which is closely connected to this issue, participate in its solution?

January 13, 2023

hEDGEpoint Global Markets

Food security is the name given to a set of actions and programs that aim to guarantee the entire population access to adequate food, including providing access to water, the availability and distribution of food, adequate consumption according to nutritional need, and support for food production and transport processes.

Combating hunger has always been on the agendas of national and world governmental bodies, with more challenges found in developing countries. However, starting with the General Assembly of the United Nations (UN), which was held in New York in September 2015, the World Organization of the UN established “17 Sustainable Development Goals” (SDGs).

One of the missions of the so-called “2030 Agenda” is to put an end to all forms of hunger in the world by that same year, giving the project its name. But it was only after the establishment of the objectives that several global conflicts erupted, bringing catastrophic consequences. Is it possible to achieve the goal of bringing food security to the entire population of the world?

A vital point worth noting is that the issue of world hunger is not linked only to securing enough food, but also to its distribution. This is because production is concentrated in certain regions, while consumption takes place across the globe.

Global conflicts and their impacts on the agrobusiness chain

The term food security was coined during the First World War. In other words, it clarifies the direct relationship between the problem of hunger and the worst global tragedies.

In recent years, the world has faced a Covid-19 pandemic that has already led to the death of more than 6 million people, and resulted in various kinds of invaluable damage. More recently, it was the outbreak of war between Russia and Ukraine that has shaken both countries directly, but many others indirectly. In the latter, special attention has been focused on the supply of grains—the basis of human nutrition.

From 2015 to 2020, world hunger numbers were relatively unchanged. But in the year the pandemic began, they skyrocketed. In the 2022 edition of “The State of Food and Nutrition Security in the World” report developed by the UN, it states that in 2021, 828 million people went hungry—an increase of 46 million people compared to 2020, and 150 million compared to 2019.

In a disastrous situation, such as the coronavirus pandemic, the focus of world leaders is naturally to fight and prevent disease. However, several other factors are affected in parallel.

Throughout the agribusiness chain, there have been difficulties in relation to the production of inputs, lack of raw materials, difficulties in storage and transport, resulting in distribution problems, and inflation in food prices that reached the final consumer’s table.

With the war in Ukraine, Brazil has felt the effects of the low availability of fertilizers, 85% of which are imported. But there are other indirect impacts, such as the status of corn and wheat availability, as Ukraine is the fourth and fifth largest exporter of these commodities in the world, respectively.

The price of these commodities is set internationally due to supply and demand. When a large producer/exporter like Ukraine has a deficit in its production or faces restrictions making this supply available (as has happened during the war), the price goes up. If the price of corn rises, for example, it then impacts the prices of chicken, pork, milk, and so on, causing a domino effect.

Therefore, when major conflicts destabilize the world, and hence increase food insecurity, it means that they directly affect one or several parts of the agribusiness chain. This is because the losses of those who produce end up being reflected in the difficulties of accessing food, whether for economic, financial, or operational reasons.

How can agrobusiness contribute to food security?

Brazil is currently one of the largest food producers in the world. But even so, it’s estimated that more than 61 million Brazilians face a situation of food insecurity.

Of course, it’s not just the amount of food produced that contributes to establishing food security, but also its distribution, storage, and surely, affordable prices. Given all the recent events, inflation has reached high levels in most economies, making it impossible for a large part of the population to have adequate access to food.

Some specialists believe that it’s necessary to have two consecutive years of good harvests, not only in Brazil, but in the world, to bring inflation under control again. In Brazil is common to see food costs rising year after year. Yet in more developed countries, it’s a shock to see prices rise so much.

In the northern hemisphere, the harvesting of grain crops is practically completed, but in most cases, the results have been lower than those of past harvests. However, Brazil is preparing to reap good results this year, and there’s even the expectation of a possible record soybean harvest. (Link to post)

However, there’s the whole macroeconomic context in the background that makes the scenario still a challenge (an increase in interest rates which discourage investments, for example). On top of this, the issue of food security touches on a very important point: the population’s purchasing power—a question of income.

Given all the importance that agribusiness has in this area, and the diverse risks that it navigates daily, how should you position yourself?

 Bearing in mind that the price of commodities is formed by international supply and demand, the producer and the entire agribusiness chain are exposed to market risks. Yet there are ways to manage them and prevent losses.

Having a hedging strategy can be the key to protect your business from the instability in financial markets, both by avoiding unpleasant surprises in your financial planning, and by taking advantage of good opportunities to lock in your margins. But it’s not enough to just decide to use this form of protection without intensive study and prior knowledge.

The best option to enter this universe is to rely on a partner who has vast understanding of the agribusiness market, and at the same time, the financial markets. Only from a broad view of such a complex context and global markets is it possible to make the best decisions.

hEDGEpoint combines the knowledge of specialists in the agribusiness market with risk management solutions through technology, and customized consulting, to always offer you the best experience in derivatives operations.

We are globally present, and always ready to serve you—anytime, anywhere. Get in touch with a consultant now to find out more about how to use these instruments to favor your business.

Talk to a hEDGEpoint specialist.

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