The fight against food protectionism

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Chicken is the most widely consumed meat in Singapore. In 2020, each resident consumed 36kg of the white meat. Approximately a third of Singapore’s chicken imports in 2021 were from Malaysia, says the Singapore Food Agency (SFA) — shipments that totalled nearly 73,000 tonnes.

Brazil is another major source of chicken, supplying 49% of Singapore’s imports, and the US, 12%.

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Singapore importers are now forced to look elsewhere for fresh chickens, reads the SFA’s response that same day. “They will activate their supply chains to increase imports of chilled chicken from alternative sources, increase import of frozen chicken from existing non-Malaysia suppliers, or draw from their stocks of poultry.”

However, with just days before the ban takes effect, the impact will be felt first before any relief from alternatives. The export ban will likely further push up the price of chicken, which rose 5.7% in April, says Maybank economist Lee Ju Ye.

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Food inflation will remain elevated at between 4% and 6%, compared to an average increase of 1.5% over the past five years, says Lee to Bloomberg.

While there may be temporary disruptions to the supply of chilled chicken, SFA hopes Singaporeans can consider frozen chicken as an alternative. “We strongly encourage consumers to play their part by being open to switching choices within and across food groups (such as consuming frozen chicken instead of chilled) as well as other sources of meat products. We also advise consumers to buy only what they need.”

Growing insecurity

For a nation that proudly hoists the ubiquitous chicken rice as one of its iconic dishes, frozen chicken is almost certainly seen as a compromise.

Unfortunately, in these trying times, there is a bigger issue at stake: Food security. This term entered Singapore’s lexicon, joining the host of national priorities, right before the outbreak of Covid-19.

In 2019, the government launched the headline goal of “30 by 30” — to locally produce 30% of its nutritional needs by the year 2030. Ironically, this comes decades after most of our farmland was cleared to make way for industrial and housing estates, developments that add more economic value.

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To support local agriculture companies, SFA has introduced co-funding schemes, like the $60 million Agri-Food Cluster Transformation (ACT) Fund, to help farms build and expand their production.

The ACT Fund, which replaces the Agriculture Productivity Fund launched in 2014, is a five-year co-funding scheme. Lim Kok Thai, CEO of SFA, said in March 2021 that agricultural businesses typically require higher upfront costs. “This will further support our farms as they shift towards harnessing technology to overcome our land and resource constraints, bringing us closer to our ‘30 by 30’ goal. Not only will this contribute towards our food security, it will also create good jobs such as agriculture and aquaculture specialist roles for our people.”

State investment agency Temasek Holdings, with its own set of objectives, has invested more than US$8 billion ($11 billion) in agri-food over the past decade.

Just like investments in other sectors, which make up its total portfolio of $381 billion as at March 2021, there is a view to both generate returns and perhaps gain access to the products and technologies of the investee companies.

In an interview with The Edge Singapore on April 28, Anuj Maheshwari, managing director and head of agri-food at Temasek, alludes to the triple bottom line in Temasek’s agritech investments. “We look at the financial returns, but we also look at returns to the people, as well as the planet … It’s a very purpose-led investment strategy. The way we look at it, we need to create a better, more sustainable and equitable food system, which serves consumers — both in developed and developing markets — healthy food.”

His team faces three major challenges in this field that are not unique to Singapore. “We need more food to feed the growing population. We need better food because we’re given increasing lifespans. But more importantly, we need to produce food by using a smaller amount of natural resources, whether it’s water or greenhouse gases, or by reducing waste.”

Within agri-food investments, Singapore’s initial foray into this broader field began in alternative proteins. According to a report by Mordor Intelligence cited by Temasek, the plant-based meat market in Asia is forecast to reach US$1.12 billion by 2023, up from US$876 million in 2018.

Since then, Temasek’s portfolio has also broadened into fields like vertical farming, controlled environment agriculture and other parts of the food value chain.

“When I joined Temasek, Temasek was largely investing in Asia. We had just started offices in China and India,” says Maheshwari. “Today, we are a global investor, we have over 10 offices around the world. It has become a big force to be reckoned with among global investors. We might not be today the largest investor, but we certainly are a very prominent one.”

Of the US$8 billion in agri-food committed by Temasek, one notable investee company is the Singapore-based Next Gen Foods, creator of plant-based chicken alternative TiNDLE.

The company announced a US$100 million Series A round in February with new investors Alpha JWC, EDBI and MPL Ventures and Next Gen Foods says this is the largest Series A ever raised by a plantbased meat company. Temasek first funded the company in its US$10 million seed round in February 2021.

Now, three years into Singapore’s Green Plan 2030, however, the snappy catchphrase has also invited doubt.

One local researcher sang a different tune just this January. Dr Harvey Neo, a senior fellow at the Lee Kuan Yew Centre for Innovative Cities at the Singapore University of Technology and Design, described ideas mooted in the Singapore Green Plan 2030 as “fictional and almost fantastical and not realistic”.

Speaking at the Institute of Policy Studies’ (IPS) Singapore Perspectives conference on Jan 17, Neo pointed to shrinking land leases in Singapore, which disrupts farming operations. “Do you want to provide an environment of stability that really convinces people that you truly want this and you are committed to providing the resources available necessary for people to actualise this vision, this aspiration?”

Protectionist responses

Singapore’s vision for self-sustenance hit roadblocks almost immediately, starting with Covid-19. The pandemic caused persistent kinks in global supply chains, driving up costs and triggering inflationary pressures.

When Russia invaded Ukraine in February, worries over rising costs shot up further.

Reactionary policies may hasten inflation among food items, with a similar effect on materials, minerals and energy, say analysts.

In a sense, Malaysia’s curb on chicken exports is by no means the only protectionist measure. According to the International Monetary Fund on May 23, since the war in Ukraine started, around 30 countries have restricted trade in food, energy, and other key commodities.

The following day, reports emerged that India could be mulling sugar export caps at 10 million tonnes until September to ensure adequate supply before the next sugar season starts in October.

As the world’s second-largest exporter of sugar, analysts had expected exports of between 9 million and 11 million tons from India this season. This follows a surprise ban on wheat sales last week as India battles a heatwave that has felled both people and crops.

Indonesia, meanwhile, announced a surprise month-long export ban on coal on Jan 1. The world’s biggest thermal coal exporter later eased this suspension in late January, after exporters met local markets sales requirements and averted a nationwide supply crunch.

Indonesia also announced in April a similar ban on palm oil exports, after months of cooking oil shortage saw prices surge by more than 70%, which also raised food prices. The ban was lifted on May 23.

Such protectionist measures on food trade may proliferate, writes Hasnain Malik, head of equity research at Tellimer Research in a May 18 report.

“If so, it will compound the existing inflationary pressure that has been evident since May 2020, which has been driven by under-investment in global agriculture relative to demand growth, and, more recently, the supply-side shock of the Russia-Ukraine war,” adds Malik.

Food stress is already exacerbating political stress faced by governments across emerging markets. Now, Malik thinks this is likely to intensify in vulnerable countries with weak food supply chains and low incomes, as a greater proportion of household income is spent on food.

Roughly half of Ukraine’s corn, wheat, and barley exports go to Africa, the Middle East, and Asia (excluding China), notes Bank of America (BofA) Global Research. In addition, more than 80% of Ukraine’s wheat exports go to these countries, creating the risk of food supply shortages.

The percentage of spending that goes towards food is substantially higher in a country like India or Thailand, where food comprises more than 40% of the consumer price index (CPI) basket, compared to the US or Korea, where the food component of the CPI basket is less than 15%.

In Singapore, food comprises 21% of the CPI, with meat accounting for just 0.1%, says Selena Ling, head of Treasury Research & Strategy at Oversea-Chinese Banking Corp (OCBC).

“Because food comprises a much larger portion of the overall spending basket in emerging economies, consumers there are likely to be much more exposed to the rise in agricultural commodity prices than wealthier countries,” reads a May 10 report by BofA.

Looking at the big picture, consultants from McKinsey warn of converging crises and the possibility of a global food emergency.

Previous supply-demand scenarios mostly involved weather and other supply-related events, though the supply chain has proven resilient amid the disruptions caused by the pandemic, points out Daniel Aminetzah, leader of McKinsey’s chemicals and agriculture practices.

Aminetzah adds: “But now, we are in an unimaginable situation: a war of this scale in Europe, in such a critical food supply hub… This instability starts to create a whiplash effect in the food supply chain. It’s hard to fully project the implications, but this crisis will have clear secondary effects on other breadbaskets, like Brazil. Russia and Belarus are critical for the export of fertiliser, which is the most important yield driver for farmers globally.”

McKinsey partner Nicolas Denis says the consulting firm ran some scenarios on the outcome of today’s soaring prices. The picture is not pretty: between 19 million and 34 million tons of export production could disappear this year. Come 2023, the figure could be between 10 million and 43 million tons.

For scale, that represents the caloric intake of 60 million to 150 million people. Even an optimistic, limited-disruption scenario would leave an impact until 2024, says Denis. “We potentially miss a few of the planting seasons but we manage to resume the season after. We would see limited sanctions, at least related to agricultural commodities and fertiliser, and relatively open use of commodities — countries not closing their borders and continuing to export to other countries.”

He adds: “In combination with more expensive raw materials, such as fertiliser, a very tight food security situation has been created, starting well before this crisis began. The Ukraine-Russia conflict is hitting another level in the complexity of this food system.”

Crop in crisis

Meanwhile, food prices continue to rise. Chicken prices have been a cause for concern from as early as last September.

That month, live chicken prices in Malaysia surged about 30% in just a few weeks. The Malaysian government has fixed a retail ceiling price of RM8.90 ($2.79) per kg of chicken.

But that price is much higher for customers in Singapore, and even across the world in the UK. As of May, the UK’s Office for National Statistics data shows the average retail price of chicken has increased by GBP0.31, or nearly 12%, to GBP2.98 ($5.15) per kg over the last 12 months.

In 2020, Malaysia exported poultry meat worth US$18.9 million, making it the 49th largest exporter of the product in the world. Now, bigger problems are coming home to roost for the nearly 50 exporters ahead of it.

For starters, suppliers cite soaring costs of raw materials, namely corn and soybean, which form the main ingredients in poultry feed. Russia and Ukraine supply 28% of globally traded wheat and 15% of the world’s maize.

Damaged grain elevators and fertiliser plants — not to mention the ongoing war — have slowed the sowing of new crops, while 25 million tonnes of grain — mostly maize — remain stuck in the Ukrainian port of Odessa.

Before the war, the major seaport located southwest in the besieged country facilitated 98% of Ukraine’s grain exports. Minister for Agriculture Mykola Solskiy says grain exports fell to 1.1 million tonnes in April, just a fifth of the 5 million tonnes exported monthly before the war.

Russia is also the largest exporter of fertilisers, including 23% of global ammonia exports, 14% of urea and 10% of processed phosphorus and 21% of potash exports. Major buyers include Brazil, China, the US and India.

“Global food systems were challenged during the pandemic in 2020-2021, but the war in Ukraine will likely create additional wide-ranging effects,” says BofA.

Rising fertiliser costs also present a feedback loop in the food crisis, contributing to lower crop yields and higher food costs. The United States Department of Agriculture (USDA) expects fertiliser bills to jump 12% this year after rising 17% in 2021. This could cause growers to plant fewer acres or switch to less fertiliser-intensive crops, say BofA analysts.

One such option is soybeans. A USDA survey in March found that American growers may move from maize to soybeans this season.

Producers surveyed intend to plant a record-high 91.0 million acres of the legume in 2022, up 4% from last year.

Widening the gap

Food inflation could headline hyper-inflation fears this year.

Ronald Kers, CEO of the UK’s largest poultry manufacturing company 2 Sisters Food Group, says food inflation could rocket to 15% in the UK by the middle of this year.

Speaking in the BBC’s “Today in March” programme, Kers claims his company had paid 50% more y-o-y for farm chickens, significantly higher than the 12% increase in retail prices from official data.

2 Sisters employs more than 14,000 people in the UK. “[The Russia-Ukraine] conflict brings a major threat to food security in the UK and there is no doubt the outcome of this is that consumers will suffer as a result. War disrupts the free flow of trade and the impacts for us are severe. For example, the input costs of producing chicken — with feed being the biggest component — have rocketed,” says Kers.

He adds: “Before this war began, 4%-5% food inflation was being forecast by mid-2022. But we could now see a hyper-inflationary environment closer to 10%-15% if this conflict isn’t resolved quickly.”

On May 18, the UK reported inflation of 9% for April — its highest level in four decades. The US, meanwhile, reported a corresponding figure of 8.3% — slightly easing off March’s 8.5%. Naturally, with wages yet to catch up, the squeeze is keenly felt.

At home, Singapore’s April core inflation hit 3.3% — the highest in more than a decade and probably higher, if not for pre-emptive adjustments by the Monetary Authority of Singapore (MAS) to make the Singdollar stronger.

While this may ease off towards the end of the year, “there remain upside risks to inflation from geopolitical and pandemic-related shocks,” according to the MAS and the Ministry of Trade and Industry on May 23.

“We think monetary policy may not be sufficient to contain the intensifying inflationary pressures, nor ease the tightness in the labour market,” state Maybank economists Chua Hak Bin and Lee Ju Ye, who expect MAS to maintain its current tightening stance at the next policy review in October.

“The government may have to provide a supplementary budget to ease the burden from the rising costs of living (especially food and utilities costs),” they add.

Unfortunately, the inflationary pressures — including the looming chicken shortage — are something that will widen the income and wealth divide, already accentuated further during the pandemic.

Some countries are better equipped to deal with this problem than others. BofA warns that food price shocks hit lower-income countries the hardest and that the “lack of food security can lead to higher prices, acute shortages, and ultimately social unrest”.

Renowned hedge fund manager Ray Dalio has a similar perspective. In a Facebook post on May 24, he observes how the “problem of inflation” is one articulated by people complaining they have to pay more.

They do not realise how lucky they are, says Dalio, because “they are still getting what they want by bidding it away from those who can’t get it, which is a much worse problem”.

Photos: Bloomberg, Temasek, Next Gen Foods