HUNGER IS NO JOKE

The pandemic-driven imbalance in the global economy, disconnection of logistic ties, growth of money emission in the US and the EU and the resulting inflation, etc. had a very detrimental effect on the food market. According to the UN Food and Agriculture Organisation (FAO), the unprecedented rise in the cost of the basic food products during the last year caused famine in the poorest and most underdeveloped regions of the world. Apparently, the deficit in the food market will last for more than one year. Under the current circumstances, Azerbaijan has set a number of steps to increase import substitution and expand agricultural production and processing.

Record price increase

With the outbreak of the coronavirus pandemic and the introduction of lockdown restrictions, which led to a decline in global trade and disrupted the logistics systems, the excess supply in the food market restrained inflation to some extent. The market remained relatively calm until the end of last autumn. Then, however, the US Federal Reserve, EU central banks, and regulators in a number of other developed countries injected several trillion dollars into their economies to overcome the crisis, support the corporate sector, and increase consumer activity. The cheap-money policy, which made it possible to revitalise the global economy in 1H2021 caused a number of side effects. For example, a rush demand on stock exchanges, which, given the speculative activity of traders, caused an imbalance in the food market. The multiple increase in artificially stimulated demand began to exceed the decreased supply level leading to a steady upward trend in prices on the food market since the beginning of this year.

The volume of global food imports will hit a record $1.75 trillion in 2021, up 14% from 2020, as ported by the recently published FAO Food Forecast. FAO explains this phenomenon not only by the global rise in prices for food products, but also by a threefold increase in transport costs.

According to FAO estimates, in January-October 2021, the global food price index rose by more than 30%. By the end of the year, this may become a record for the last 20 years.

Provoked by the mistaken steps taken by the world's leading central banks, natural disasters and crop failures in the US, Europe, Australia, and a number of other major producing countries has worsened the monetary crisis. As a result, in 2021, Russia repeatedly raised the export duties and introduced quotas for the export of wheat. Certain restrictions on the grain market were also observed in Kazakhstan. According to a recent FAO report, as a result of the ongoing global force majeure, the annual growth rate of the price of food wheat reached 43.5%.

Experts of Cargill, Cofco, Viterra, and Scoular believe that the increase in prices for corn, soybeans, and wheat will continue in the next two, and possibly four years mainly due to further demand for feed in 2021-2022, increased consumption and accumulation rates of food supplies from China, as well as a sharp increase in transportation costs.

Rising oil prices observed since March 2021 negatively contributes to the grain and oilseeds market as well. Rising costs of energy resources almost always increases the demand for cereals and oilseeds used for the production of biofuels (bioethanol and biodiesel). Apparently, this trend will continue in the coming year as well.

Respect for products

Apparently, the period of relatively cheap food, abundance of agricultural raw materials available on the global market is coming to an end. This mainly affects the poorest countries, which have failed to develop import substitution production programs and still depend on external supplies. The largest increase in prices in these countries affected basic food products such as cereals, animal fats, vegetable oil, oilseeds, meat, dairy products, sugar, etc.

According to FAO, 811 million people around the world critically suffer from hunger, 2 billion - from micronutrient deficiencies, including vitamins and proteins, while the millions of children suffer from the retarded growth and wasting, deadly forms of malnutrition. “Overall, almost 40% of the global population, 3 billion people, cannot afford healthy food. The coronavirus pandemic has only deepened this trend, having added another 140 million people to the pool of those who lost access to essential food products,” UN Secretary General Antonio Guterres stated.

The UN sees the solution to the problem of hunger and food shortage in the introduction of modern agricultural technologies and economical irrigation systems, increasing yields due to highly productive crops. In general, it is necessary to optimise agricultural production and processing to achieve the prudent use of agricultural raw materials, to reduce food waste. Indeed, about 14% of food is lost during harvesting and processing, another 17% of food products deteriorates or ends up in trash bins of consumers, including shops and public catering networks. Most importantly, it is necessary to diversify food markets, including through the development of import-substituting industries in developing countries. All this will make it possible to increase the volume of agricultural products and to reduce the cost of food products, by diminishing the stable dependence of many countries on imports.

Azerbaijan: how to avoid inflation?

The problem of global deficit and the rising prices of imported food is very relevant for Azerbaijan. Despite the relatively high (about 80%) level of import substitution, a significant rise in food prices has been observed during the passing year. “2021 saw a record rise in food price indices globally over the past 12 years. Azerbaijan also feels the rise in the price of imported food products,” Minister of Economy of Azerbaijan, Mikayil Jabbarov, said.

Minister also noted that the imported inflation factor negatively contributes to the cost of products manufactured in Azerbaijan too. Domestic goods produced from the imported raw materials, components, containers, and packaging become more expensive. This is especially evident in sectors of poultry, livestock, and meat processing, which heavily use imported feed and food additives, vitamins, and medicines. A significant increase in prices has also been recorded in the production of pasta, confectionery, sausages, dairy products, vegetable oil, chocolates, sugar with a large share of the imported raw materials and ingredients.

Recently, the chairman of the Central Bank of Azerbaijan (CBA), Elman Rustamov, also noted a noticeably accelerated rise in prices for vegetable oil and sugar. He explained this with the increase in global demand, increased costs for fuel, fertilisers, and logistics. Mr. Rustamov believes that it is necessary to increase the level of food security in Azerbaijan and to ensure free competition, which is the most important condition for this. “Natural factors also affect the rise in prices. But there is an artificial increase in prices due to problems existing in the competitive regime. We must ensure free competition in this area," Mr. Rustamov said.

A member of the parliamentary Committee on Economic Policy, Industry, and Entrepreneurship, MP Vugar Bayramov, believes that it is highly likely that the world will continue to experience a shortage of some types of products, while the global inflation rate will remain high from 2022 onward. He noted that the share of food imports is still high in Azerbaijan. But to ensure food security, it is necessary to further increase the domestic production of food products, implement new programs to expand import substitution. It is therefore necessary to use the natural potential of territories liberated from the occupation, to expand state support to farmers through subsidy programs. It is also necessary to increase the purchase of some food products for state reserves and improve the possibilities of seasonal food storage.

Warn and secure

In fact, Azerbaijan has recently adopted a number of stimulating measures to expand the manufacturing of agricultural products, including new programs for financial support to farmers, insurance mechanisms, and fundamental reforms in the subsidy-provision programs. Thus, about 450,000 agricultural producers have been registered in the Electronic Agriculture database  system developed by the Ministry of Agriculture. In line with the subsidy rules adopted two years ago, the a transparent and effective mechanism of financial support to farmers has been introduced.

At the same time, the number of agricultural parks and large grain-growing farms is increasing. Such clusters have demonstrated the greatest efficiency in the crop production sector, since it is easier and cheaper to process large land plots with agricultural machinery, apply fertilisers, and introduce economical irrigation techniques. Introduction of large processing companies coupled with agricultural parks makes it possible to provide plants with cheap raw materials, hence reducing production costs. By increasing the yield and reducing the cost of production, local agricultural parks can launch the production of more competitive products.

As of now, the volume of private investments in the development of 43 large agricultural facilities exceeds ₼1.2 billion introduced in 32 districts of Azerbaijan, while it is planned to create more than 50 agricultural parks on a total area of 240,000 hectares.

The Ministry of Economy and the Ministry of Agriculture are developing plans for the new agricultural parks and large livestock facilities in the Garabagh and East Zangezur economic regions. Among other things, these projects will support the development of ‘smart agriculture’ systems, introduction of computerised irrigation technologies, automation of livestock farms and processing plants, control and pollination using drones, etc.

Azerbaijan is supported by external partners, including the UN FAO. One of the most important components of this cooperation is focused on the implementation of the State Program for Ensuring Food Security in Azerbaijan in 2019-2025 approved by the government in April 2019. Thus, FAO provides the necessary support to Azerbaijan to develop seven projects in the country. Almost all recent joint ventures established with the FAO support are mainly focused on increasing productivity and reducing costs in the agricultural sector. According to international experts, this should encourage manufacturers to introduce new equipment and innovations and increase the competitiveness of agricultural production in Azerbaijan.