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One of the world's largest agricultural traders has said the world is heading for a “food war” as geopolitical tensions and climate change push countries into conflict over dwindling food supplies.
“We have fought many wars over oil, and now we will fight even bigger wars over food and water,” said Sunny Varghese, CEO of Singapore-based agricultural trading company Olam Agri.
Speaking at the Redburn Atlantic/Rothschild consumer conference last week, Verghese warned that trade barriers imposed by governments trying to shore up domestic food reserves are exacerbating food inflation.
Big agricultural traders, who made record profits in 2022 after Russia's invasion of Ukraine sent food prices soaring, are being accused of exacerbating flood-induced price inflation by hiking prices to boost profits.
But Verghese argued that rising food prices were also the result of government interference. The proliferation of non-tariff trade barriers in 2022 in response to the war – 1,266 in total from 154 countries – “created excessive demand and supply imbalances,” he said.
Wealthy countries have built up surpluses of strategic materials, which creates excess demand and leads to higher prices, Varghese said. “India, China, they all have buffer stocks,” he said. “That's just exacerbating the global problem.”
Food prices began rising as a result of COVID-19 and then soared after Russia's invasion of Ukraine as conflict blocked some grain and fertilizer exports, exacerbating food insecurity in poorer countries and creating a cost-of-living crisis for consumers around the world.
As this rise and climate change hinder agricultural production worldwide, governments are increasingly turning to protectionist policies.
Indonesia banned palm oil exports in 2022 to protect its domestic market, while India imposed export restrictions on certain varieties of rice last year to curb rising domestic prices ahead of parliamentary elections after erratic monsoons disrupted production and raised concerns about supply shortages.
“That was just wrong,” Verghese said. “We're going to see more and more of this.”
Olam Agri, which processes and supplies grains, oilseeds, edible oils, rice and cotton, is part of the Olam Group. The food and agriculture company, which supplies ingredients, feed and fibre to global brands from Nestlé to Unilever, has had a tough year.
The trader, which has a large footprint in Asia and Africa, was investigated by Nigerian authorities last year after reports it was involved in a multibillion-dollar fraud. Its shares soared after the wrongdoing was revealed in February.
Olam Group was also forced to issue a profit warning for the first half of 2023. Despite a strong second half, it reported a 56% drop in full-year profit to S$278.7 million (US$205.8 million), blaming “extraordinary losses” on high interest rates and lower yields at its Australian almond orchards.
The group said the fall in profit was partly due to a decline in the company's contribution following its sale of a 35% stake in Olam Agri to a subsidiary of Saudi Arabia's Public Investment Fund for $1.24 billion in 2022. Olam Agri is 51% owned by Singapore state investment firm Temasek Holdings.
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Olam Group has been planning for years to list Olam Agri in Saudi Arabia, but the plans have been repeatedly postponed since the trading unit was separated from its food ingredients business in 2020. London-headquartered Olam Food Ingredients is one of the world's largest suppliers of cocoa, coffee, nuts and spices.
Citing the impact of climate change on global harvests, Verghese called on the meeting of consumer goods executives, including Coca-Cola and Associated British Foods, to “wake up” and take more action on climate change.
The government should impose a carbon tax, he argued. “Because carbon is currently free, we pollute indiscriminately,” he said.
