Commodities | Oct 26 2020
Richard (Rick) Mills
Ahead of the Herd
As a general rule, the most successful man in life is the man who has the best information.
How the coronavirus is exacerbating global inequality, hunger
Autumn is harvest season in North America and many families gather on Canadian and American Thanksgiving to celebrate the good fortune bestowed upon them throughout the year – including the ability to put food on the table.
This year for millions of people, there is less to be thankful for, and very likely, reason to lament or mourn – a lost job, an eviction, hours cut back, a friend or relative getting sick, loneliness, boredom, depression – all due to the coronavirus which has up-ended life as we knew it.
Today’s article is inspired by CNN commentator Fareed Zakaria, who presented a well-researched, timely segment on how the pandemic, in a matter of months, has un-done years of progress in improving global inequality. Pandemics, says Zakaria, should be the great equalizer because they affect everyone, regardless of age, gender, race, income or status. Even presidents and prime ministers have contracted covid-19. However, indications are that the virus is ushering in the greatest rise in economic inequality in decades.
How can a health problem widen the gap between rich and poor, and how is it pushing millions in developing countries toward the brink of starvation? Moreover, why should we, in the developed West, care?
Before the coronavirus invaded our shores, global inequality was still an issue, but things were improving.
During the 19th and 20th centuries, the wealth gap between countries rose dramatically, as the world’s most advanced economies, fueled by industrialization and technology, pulled ahead of poorer nations.
Since the dawn of the 21st century, however, the balance has been redressed, reflecting strong growth in developing countries, particularly China and India. The number of people living in abject poverty, defined as less than $2 a day, is under a quarter what it was in 1990.
Those gains are now under threat, no thanks to the coronavirus, and the economic carnage it has unleashed.
This year, the World Bank estimates that 100m are falling back into extreme poverty. Even Sub-Saharan Africa, which for the past 25 years has enjoyed positive economic growth, will enter negative territory in 2020. The only economy expected to grow this year is China, which implemented harsh lockdown measures when Beijing realized the coronavirus was quickly spreading beyond Wuhan to neighbouring provinces.
The gap between rich and poor is growing too in the United States. Two new studies estimate that 6-8m people have been pushed into poverty over the last few months as federal funding relief dried up. Millions of Americans can’t afford to pay their electric bills or are skipping meals to save cash. 40% of those who lost work to covid-19 don’t even have a month worth of savings.
But here’s the thing.
Whereas previous recessions were fairly even in terms of who was affected, in this recession, the top 25% has bounced back completely, while the bottom 2% has been smacked hard. The reason is simple: working from home. Bankers, lawyers, accountants, academics, and scores of other white-collar workers, have been able to work remotely. The work environment may have changed, but they got to keep their jobs. Those employed in restaurants, hotels, shopping malls, etc. haven’t been so lucky. Their jobs have disappeared, and won’t be coming back anytime soon, especially now that we’re in the second wave.
That is what makes this pandemic so tragic – many have been badly affected, but depending on where you sit on the social spectrum, you may not have noticed. Zakaria makes a great point: “Has the relative normalcy of life for the elites prevented us from understanding the true severity of the problem? For tens of millions in America, and for hundreds of millions around the world, this is the Great Depression.”
How bad could it get for those worst off? We only need to check how inequality currently manifests, to get a sense of where things might be going. There are differences in wealth between nations, and there is inequality within nations.
The global average GDP per capita is $15,469, but in the Central African Republic, each person only brings in $661. The United States is considered a rich country, at $62,794 per person (2018), but not compared to Luxembourg, whose GDP per capita is a whopping $113,197.
Meanwhile, inequality in the West is widening. According to The Guardian, the rise of globalisation has fuelled a boom in inequality in advanced nations. The biggest winners have been the richest 1% of people on the planet.
As incomes fail to keep up with spending, the difference financed by credit, the middle class is eroding – made worse by a drop in the number of middle-income jobs, through off-shoring and automation.
The share of adults living in middle-income households declined from 61% in 1971 to just 50% in 2015. Two-thirds of the 11% that were no longer middle class, migrated to upper-income levels, while a third became poorer.
And that gap continues to widen. The richest 400 Americans now control more wealth than the bottom 60% – the greatest rich-poor divide since the 1920s.
A 2019 report by McKinsey Global Institute piles on more evidence of inequality getting worse. While the consulting firm notes the gap between developed and developing economies is shrinking, in many advanced economies, the trend is for the rich to pull away from the middling and the poor.
Of course, inequality has been with us since well before the Industrial Revolution, and globalization. The Guardian reminds us that Wealth down the ages has tended to be concentrated in the hands of the few, from the Egyptian pharaohs to the Roman emperor Augustus Caesar and the Mongol warlord Genghis Khan.
But that doesn’t make it okay, nor desirable. What’s wrong with inequality? Taken to extremes, it tends to cause social upheaval, and often, violent revolution. China, Russia and France are among the countries that experienced bloody worker or peasant-led insurrections. The US Civil War was to some extent caused by inequality, with the Unionist north fighting the Confederate South which supported an economy based on the most unequal relationship between human beings known to man: slavery.
Back to the current situation, the UK ranks among the most unequal nations, but Britain is more equal than the United States, the most divided wealthy nation on the planet. According to the Gini coefficient, which measures inequality on a scale between 0 and 1, the 15 most unequal countries, ranked, are Latvia, New Zealand, United Kingdom, South Korea, Russia, Lithuania, United States, Turkey, Chile, Mexico, Brazil, Costa Rica, India, China and South Africa. Latvia, #15, has a Gini coefficient of 0.35, #1 South Africa is 0.62 (pre-pandemic stats).
Arguably the most visible manifestation of inequality in recent years is the polarization of politics and the rise of populism in the UK, the US, Europe and elsewhere. Populism was largely responsible for Brexit and the election of Donald Trump, while in Europe, there has been growing support for new political movements on both ends of the political spectrum.
‘Famines of biblical proportions’
A more direct, and disturbing, consequence of inequality is the capacity of people to feed themselves. According to the World Food Program, the recipient of this year’s Nobel Peace Prize, the number facing acute hunger this year will double to 265m.
The organization’s executive director, David Beasley, warns that in addition to the threat posed by covid-19, the world faces “multiple famines of biblical proportions” that could result in 300,000 deaths per day.
“If we don’t prepare and act now, to secure access, avoid funding shortfalls and disruptions to trade,” he said, the result could be a “humanitarian catastrophe … in a short few months,” Beasley told an online briefing broadcast by the UN, adding,
“Millions of civilians living in conflict-scarred nations, including many women and children, face being pushed to the brink of starvation, with the specter of famine a very real and dangerous possibility.”
The WFP’s recent ‘Global Report on Food Crises 2020’ highlights 55 countries where 135m people are facing crisis-level food insecurity, and that was before covid-19. Adding the pandemic to their problems accessing food and proper nutrition creates an “excruciating trade-off between saving lives or livelihoods or, in a worst-case scenario, saving people from the coronavirus to have them die from hunger.”
The report suggests that shutting down businesses and locking people in their homes to protect them from the virus, is expected to exacerbate poverty and hunger, thereby killing more people than the virus itself.
Another NGO, the Food and Agriculture Organization (FAO), says the number of people affected by global hunger has been on the rise since 2014, along with malnutrition. The latter shows up as low birth weights and children with stunted growth. FAO projections indicate that the world is not on track to reach Zero Hunger by 2030, nor will nutrition targets be met; the number of people affected by hunger is expected to surpass 840m by 2030.
But the problem isn’t in 10 years, it’s right now. Experts say the world has never faced a “hunger pandemic” like this.
Virus-related food shortages are becoming acute from Mexico City all the way down to the southern tip of South America, in Africa and India, with the poor being hit the hardest. When people are hungry, and they can’t feed themselves or their children, all they have left is to take to the streets.
According to a New York Times feature story on the subject,
In the largest slum in Kenya’s capital, people desperate to eat set off a stampede during a recent giveaway of flour and cooking oil, leaving scores injured and two people dead.
In India, thousands of workers are lining up twice a day for bread and fried vegetables to keep hunger at bay.
And across Colombia, poor households are hanging red clothing and flags from their windows and balconies as a sign that they are hungry.
It isn’t only food shortages in grocery stores that are causing people to go hungry:
The coronavirus pandemic has brought hunger to millions of people around the world. National lockdowns and social distancing measures are drying up work and incomes, and are likely to disrupt agricultural production and supply routes — leaving millions to worry how they will get enough to eat…
The world has experienced severe hunger crises before, but those were regional and caused by one factor or another — extreme weather, economic downturns, wars or political instability.
This hunger crisis, experts say, is global and caused by a multitude of factors linked to the coronavirus pandemic and the ensuing interruption of the economic order: the sudden loss in income for countless millions who were already living hand-to-mouth; the collapse in oil prices; widespread shortages of hard currency from tourism drying up; overseas workers not having earnings to send home; and ongoing problems like climate change, violence, population dislocations and humanitarian disasters.
Already, from Honduras to South Africa to India, protests and looting have broken out amid frustrations from lockdowns and worries about hunger. With classes shut down, over 368 million children have lost the nutritious meals and snacks they normally receive in school.
There is no shortage of food globally, or mass starvation from the pandemic — yet. But logistical problems in planting, harvesting and transporting food will leave poor countries exposed in the coming months, especially those reliant on imports, said Johan Swinnen, director general of the International Food Policy Research Institute in Washington.
While the system of food distribution and retailing in rich nations is organized and automated, he said, systems in developing countries are “labor intensive,” making “these supply chains much more vulnerable to Covid-19 and social distancing regulations.”
Many readers will remember the drought-caused famine in Ethiopia that sparked ‘Live Aid’ in 1985. The twin benefit concerts, held simultaneously at Wembley Stadium in London and John F. Kennedy Stadium in Philadelphia, raised $127m for African famine relief.
East Africa has faced on and off food crises since 2011. In 2019-20, the region experienced a major drought due to below-average rainfall during wet seasons. Cyclones in the southern Indian Ocean stopped rains moving north, followed by an unusually hot January to March. Families were forced to leave their homes in search of food and water.
The situation was made worse by Kenya, Somalia and Ethiopia facing an outbreak of desert locusts. The migratory pests destroyed crops and vegetation, resulting in loss of food and income.
According to Action Aid, the current locust invasion is the worst Ethiopia and Somalia have experienced in 25 years, and the greatest pest crisis Kenya has seen in over 70 years.
Southern Africa this year has been hit with similar challenges, along with flooding and an infestation of armyworms. The region reportedly suffered its worst drought in 35 years, putting 9 million lives at risk in Malawi, Mozambique, Zambia and Zimbabwe.
Whether or not droughts, flooding and pests are caused by global warming, or can be explained as aberrations to normal weather patterns, we know that climate change places a disproportionate burden on the poor.
According to the report ‘Poverty and Climate Change: Reducing the Vulnerability of the Poor Through Adaptation’,
[G]enerally, climate change is superimposed on existing vulnerabilities. Climate change will further reduce access to drinking water, negatively affect the health of poor people, and will pose a real threat to food security in many countries in Africa, Asia, and Latin America. In some areas where livelihood choices are limited, decreasing crop yields threaten famines, or where loss of landmass in coastal areas is anticipated, migration might be the only solution. The macroeconomic costs of the impacts of climate change are highly uncertain, but very likely have the potential to threaten development in many countries.
This includes the United States. Two years ago a federal report found that low-income communities in both urban and rural areas will be disproportionately affected by climate change. According to CNBC, that is because those communities already have higher rates of many adverse health conditions, are more exposed to environmental hazards and take longer to bounce back from natural disasters.
In cities, the poor “live in neighbourhoods with the greatest exposure to climate and extreme weather events,” the report says (like living near pollution sites). Rural areas often have agriculture-dependent communities that are vulnerable to crop failures or suffer from “energy poverty” meaning they may not be able to afford electricity to heat their homes.
Another important point is how global food supplies are under stress.
Even before covid-19, a “perfect storm” of circumstances was brewing for massive food price increases, food riots, supply chain disruptions, country versus country water disputes and increasing numbers of hungry people.
– Record-setting droughts and worldwide abnormal weather
– Exploding populations and eastern diets shifting to a western-style one
– Worldwide crop failures
– Diminishing world food stocks
– Income deflation
– Freak cold snaps
– Aquifers are being depleted faster than natural refreshment rates
– Relocation of produce for energy production – eg. corn for ethanol
– Desertification – new deserts are growing at a rate of 51,800 square kilometres per year. As an example, Nigeria (Africa’s most populous country) is losing almost 900,000 acres of cropland per year to desertification because of increased livestock foraging and human needs.
Harvests around the world are going to be smaller, the world’s food inventories are going to be lower while at the same time global demand for basic food staples – and simultaneously a richer diet containing more meat – is at an all-time high and growing.
The UN calls the global food crisis a "silent tsunami.” According to a 2018 article in Time,
By 2050, with the global population expected to reach 9.8 billion, our food supplies will be under far greater stress. Demand will be 60% higher than it is today, but climate change, urbanization, and soil degradation will have shrunk the availability of arable land, according to the World Economic Forum. Add water shortages, pollution, and worsening inequality into the mix and the implications are stark.
Finally, there is health inequality. If the poor aren’t killed by covid-19, hunger, climate change, droughts or flooding, many will fall victim to a host of nasty diseases including HIV, malaria and tuberculosis – the “big three” of developing nations. People in developed nations have vaccines that can be readily and affordably accessed. Currently with the coronavirus, the Gates Foundation estimates that vaccination rates for children are as low as they were two decades ago. Hidden within these statistics are individual human beings, children who are starving or sick, wasting away.
Food insecurity in the US
All that has been written so far on inequality and world hunger is easily dismissed as “Third World problems”. Covid-19 still rages in many developed countries, but nobody is going to starve to death, right?
Probably not, but that doesn’t mean we should be complacent about access to food and maintenance of a balanced diet. There are two aspects to this: first is being able to get the foods you want when you want; second is the ability to afford them.
The latter has raised some startling statistics of late. As millions of Americans lost their jobs during the outbreak, food stamp enrolment soared. According to Feeding America, a network of food banks, pantries and meal programs, between March and June 1.9 billion meals were distributed. A Census Bureau survey from September showed that 10% of adult Americans live in households where there was either sometimes, or often not enough to eat in the last seven days.
Sadly, the Trump administration tried, unsuccessfully, to cut food stamps for nearly 700,000 unemployed. Earlier this month a federal judge struck down a new rule that would have required more food stamp recipients to work, in order to receive benefits.
Another kick to the poor is likely to happen in November when the Supreme Court hears a challenge to Obamacare. If the high court, which is currently stacked with conservative judges by a 5-3 margin (the 9th judge, Amy Coney Barrett, is the third Trump appointee), decides to do away with the Affordable Care Act, the implications could be dire for America’s most vulnerable citizens. At stake is the coverage not only of roughly 20 million who gained health coverage, through the expansion of Medicaid to low-income earners but the nearly 54 million Americans (27% of non-elderly adults) with pre-existing conditions, who will become uninsurable if the law is scrapped.
Regarding food availability, the large grocery chains appear to have learnt their lessons from the beginning of the pandemic. The Wall Street Journal reports that some chains are putting together “pandemic pallets” filled with household products like paper towels and Clorox wipes, in anticipation of more shortages.
Of course, some grocery items can’t be stockpiled; they are dependent on crops. The safety of the US (and Canadian) food supply is dependent to some extent on the ability of local farmers to meet expected yields. However, the news from the American farm belt has not been good. Last year US farm bankruptcies hit an eight-year high, due largely to countervailing duties imposed by China. This year they are expected to soar even higher.
During a period when the nation's ability to stockpile food is at an all-time high, due to virus-related uncertainty, this is concerning.
As is the US government’s nonchalance at helping small farmers most vulnerable to swings in commodity prices and sudden fall-offs in demand, like happened when virus lockdowns meant food shipments demanded by restaurants dried up.
An NBC News analysis of the first 700,000 payments of federal aid showed corporate farms and foreign-owned corporations received over $1.2 billion in coronavirus relief (about 20% of the money), with average payments of almost $90,000, versus smaller farms who only received an average payment of $300. Like unemployment figures, those numbers did not account for struggling farmers who were ineligible for assistance.
Along with production shortfalls owing to coronavirus social distancing protocols, and some large food processing facilities temporarily shut down due to localized outbreaks, global food production this year has also been pummeled by natural disasters, disease and pests. China is poised to lose $1.7 billion in agricultural production, due to historic flooding, including a region in Jiangxi province that accounts for 70% of the country’s rice crop. We have already mentioned the locust infestation in East Africa.
Earlier this month, the UN’s Food and Agriculture Organization (FAO) reported global food prices rose for the third straight month, in August hitting their highest levels since February. The FAO says the increases are due to firmer demand and a weaker dollar – when the US dollar falls, commodity prices in USD generally go up. And while there have not been any pressing food shortages, farms have been hit hard, with the pandemic upending supply chains and curbing labor movements, in particular migrant workers needed to work the fields.
China’s food prices in August jumped 11.2% compared to August 2019, on the back of high pork prices. An outbreak of African swine fever has decimated the country’s hog herds. Vegetable prices rose 6.4% compared to July, as a result of hot and rainy weather, and eggs were 11.3% more expensive due to demand outpacing low inventories.
Canadian food inflation is currently 3.4% and could reach 4% by the end of the year – close to double the normal 1.5-2%.
In the United States, the price of groceries shot up 2.6% in April – the largest one-month pop since February 1974, according to a Labor Department report quoted by CNBC.
Among the grocery store items with the biggest price increases, beef and veal were up 25.1%, eggs gained 12.1%, the price of pork rose 11.8% and poultry was up 8.7%. In general, US vegetable prices were less affected, apart from potatoes which soared 13.3% and tomatoes which climbed 8.4%.
Moody’s Analytics cites three main reasons for the rise in US food prices: rising demand, with people stocking up on food because they want to limit trips to the store; a shift from eating at restaurants/ schools, to cooking and dining at home/ bringing packed lunches; and the closure of several meat processing facilities this year due to covid-19 outbreaks.
According to a May 26 column in Vancouver’s The Georgia Straight, the cost of food is increasing almost four times faster than any other durable goods in the Canadian economy, and higher grocery prices are likely here to stay:
Covid-19 is making everything more expensive to produce, process, distribute, and sell, with producers having to implement things like new cleaning protocols, higher wages in some cases, and e-commerce infrastructure.
Ditto for the US, where the cost of groceries has skyrocketed the most in 46 years. According to ABC News, analysts caution that meat prices in particular could remain high as slaughterhouses struggle to maintain production levels while implementing procedures intended to keep workers healthy.
Socio-economic turmoil – lawlessness, poverty, lack of adequate medical facilities/attention, unemployment, low wages, disease, no clean drinking water or water for irrigation, and shortages of food or unaffordable food – can all cause socio-economic pressure to build in many countries that were once stable environments for investment.
The real cause of angst is the rising cost of living being felt in developing and developed countries. Many people already living in poverty are far less capable of bearing the increased costs of what is really just basic survival for themselves and their families. Yet this is the first group of people who will be impacted by the coming unstoppable waves of inflation and food shortages – because of supply chain breakages due to covid, or poor harvests.
One of the most depressing effects of the pandemic is the fact that global inequality has been set back decades. An estimated 100 million this year will be thrown back into extreme poverty, defined as living on less than $2 a day.
The gap between rich and poor is growing too in the United States. White collar workers get to keep their jobs and work from home, while minimum wage workers get the sack. Around 800,000 people continue to file for unemployment benefits every week! Six to 8 million people have been pushed into poverty over the last few months as federal funding relief dried up.
In April, the UN Human Rights Commission issued a news release stating that The poor in the United States are being hit hardest by the COVID-19 pandemic and the Government must urgently take additional steps to prevent tens of millions of middle-class Americans from being plunged into poverty.
“Low-income and poor people face far higher risks from the coronavirus due to chronic neglect and discrimination, and a muddled, corporate-driven, federal response has failed them,” said Philip Alston, the UN Special Rapporteur on extreme poverty and human rights.
We know that around 130 million people this year will be added to the world’s hungry, doubling the total to 265 million. In 10 years, the number of people going hungry is expected to surpass 840 million. This is not progress.
Virus-related food shortages are happening in Latin America, Africa and India. When people are hungry, and they can’t feed themselves or their children, they take to the streets.
Piled on top of their most basic needs for survival, for food, fresh water and shelter, the poor in many countries are being hit by other elements beyond their control. Droughts, floods, pests, and animal-borne diseases are among the “black swan” events that have impacted global food production this year, making food more expensive to those least able to afford it.
A lot of people are getting desperate. Storm clouds are on the horizon.
Richard (Rick) Mills
Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. His articles have been published on over 400 websites, including:
WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews, SGTReport, Vantagewire, Indiatimes, ninemsn, ibtimes and the Association of Mining Analysts.
If you're interested in learning more about the junior resource and bio-med sectors, and quality individual company’s within these sectors, please come and visit us at www.aheadoftheherd.com
Content included in this article is not by association necessarily the view of FNArena (see our disclaimer).
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified.
Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.
Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
FNArena is proud about its track record and past achievements: Ten Years On