Triple Vulnerabilities: The Role of Sustainable Trade and Value Chains

In a world grappling with converging disruptions: effects of the pandemic, supply chain strains, and climate change; the conflict in Ukraine further risks pushing the world into a global crisis. UNCTAD’s analysis indicates a worsening outlook for the world’s economy, underpinned by rising food, fuel and fertilizer prices, heightened financial volatility, sustainable development divestment, complex global supply chain reconfigurations and mounting trade costs.

“Soaring food and fuel prices will affect the most vulnerable in developing countries, putting pressure on the poorest households which spend the highest share of their income on food, resulting in hardship and hunger”, Rebeca Grynspan, UNCTAD Secretary-General, in a recent statement. The post-pandemic plea for sustainable value chains is thus echoed even more strongly now, as firms across the globe seek new supply sources and new ways to source goods in volatile markets. This also calls for an ambitious outcome of the WTO Ministerial on agriculture to address the ongoing triple vulnerabilities.

Supply shocks: Focus on Food Supply Chains

The COVID-19 pandemic changed the interaction between people and the food system drastically. With border closures, quarantines and supply chains and trade disruptions, the global economy was challenged by many restrictions. Amidst the path to recovery from the pandemic and in general the challenges posed by climate change, the war in Ukraine poses severe threats to the food supply chains across the globe, the effects of which have already started to be visible with the likes of sunflower oil shortage in Germany.

With a total of 53% share of global trade in sunflower oil and seeds, and 27% of the share of international trade in wheat, the Russian Federation and Ukraine are global players in agri-food markets. This becomes problematic as some countries are hugely dependent on agri-food commodities from the Russian Federation and Ukraine (see figure 1). The situation is exacerbated by the fact that the lower-income countries are the most vulnerable. Africa, for example, imported $3.7 billion in wheat (32% of total African wheat imports) from the Russian Federation and another $1.4 billion from Ukraine (12% of total African wheat imports) between 2018-2020. Based on UNCTAD’s analysis, on average, more than 5% of the import basket of the poorest countries are products that are likely to face a price hike resulting from the ongoing war in Ukraine.

Figure 1: Dependence on agri-food commodities from the Russian Federation and Ukraine (percentage) Source: https://unctad.org/system/files/official-document/osginf2022d1_en.pdf
Figure 1: Dependence on agri-food commodities from the Russian Federation and Ukraine (percentage) Source: https://unctad.org/system/files/official-document/osginf2022d1_en.pdf

International commodity prices reached an all-time high in spring this year (Figure 2), and the World Bank predicts that a further sharp increase can be expected in food prices. This can be attributed to the low availability and the high price of fertilizers and other inputs, which, combined with high transport costs and trade disruptions due to the war in Ukraine, are expected to raise the import bills. It is predicted that shortages in inputs will disrupt food supplies for the ensuing year too, resulting in a continued price increase. The effects of this will hit the poor and developing countries hardest, as they depend on food imports the most.

For most countries, it is also tough to replace the imports from the Russian Federation and Ukraine due to challenges posed by inefficient transportation infrastructure, limited storage capacities and internal conflicts. Considering the country-specific shocks, climate change, export restrictions, stockpiling, and the rising prices of food commodities, there is a pertinent threat of food insecurity crises in some regions, especially if increased costs of fertilizers and other energy-intensive inputs negatively impact the next agricultural season.

Leveraging sustainable trade and value chains:

Given the multiple challenges that the world is facing, there was an already existing food security issue, well before the crisis in Ukraine began. The causes have only multiplied now. The world is already seeing the effects of climate change on food, for example, the disruption in the supply of durum caused by a combination of a Canadian summer drought and a very wet summer in France, last year. Thus, in combination with the cumulative effect of expensive inputs, climate change and other challenges, a very unfavourable and difficult food security situation has been created, starting well before the crisis in Ukraine began.

This has garnered response from policy makers and leaders across the globe. In response to this growing threat to food security, the European Union, the United States and more than two dozen countries pledged to support global food security, in a joint statement to the World Trade Organization. They vowed to work in unity and keep their food and agriculture markets “open, predictable and transparent by not imposing unjustified trade restrictive measures on agricultural and agri-food products or key agricultural production inputs.” Further, the G7 Development Ministers also agreed recently to launch a Global Alliance for Food Security in order to work together to combat the hunger crisis that is threatening the world.

It is clear that the focus needs to be shifted towards supporting and promoting ‘sustainable trade’- trade that generates social and environmental benefits; brings vulnerable groups into value chains; incorporates new digital technologies; strengthens regional ties; and makes countries resilient to the crisis that the world might face in the future. For furthering sustainable trade, non-trade issues, like child-labour and carbon emissions, have been rapidly included in order to improve the economic fundamentals by inclusion of social and environmental protection provisions.

A window of opportunity: Can VSS play their part?

This is where UNFSS plays a role. Supported by six UN agencies – FAO, UNIDO, UNCTAD, UNECE, ITC and UN Environment, UNFSS will continue to work towards the facilitation of sustainable trade by enabling developing countries to design policies that can help leverage these non-trade objectives. This, the UNFSS aims to foster by pursuing Sustainable Trade and Value Chains, through Voluntary Sustainability Standards (VSS). VSS aim to make global value chains, from producer to consumer, more sustainable by taking into account social and environmental requirements in the production process. VSS also often link developing countries (where many producers are based) to developed countries.

As a new regulatory form, VSS set social and environmental standards for transnational production, and they often operate certification programs to verify compliance in global value chains. VSS have thus become critical market-based tools to make international trade more sustainable. In the agri-food sector, their growing importance is highlighted by the global area of certified commodities. Currently, it is highest for coffee, between 26% to 45%, followed by cocoa (23%–38%), tea (13%–18%), oil palm (12%), cotton (10%–11%), and bananas (5%–9%). Research has indicated multiple benefits of VSS adoption in the agri-food sector, including increased crop productivity, increase in the number of permanent workers and longer-term contracts, ability to diversify by selling into new markets, and improved livelihood security.

The impacts of VSS on food security, however, are not yet fully understood but the extant state of research indicates that in the commodity-producing regions, VSS contribute to food security indirectly via their economic effects, land use and land rights effects, and gender effects. Nevertheless, the extent to which VSS can help to combat food insecurity demands more research, especially in terms of access to food, farming inputs and food stability.

The way forward

The crisis in Ukraine has started showing visible adverse impacts on food security. The ripple effects are huge and with large amounts of grain and other food products being stuck because of the war, there is a looming threat of global famine. While prices are rising across the globe, the world’s poorer countries are being hit much harder. It is thus pertinent to ensure that these countries build resilience, receive adequate financial aid, and are less dependent on grain and other imports.

While the war, like the other shocks across the globe, has brought to the front vulnerabilities in food, energy, and fertilizer supply, the role of sustainable international trade to address the problem cannot be undermined. It calls for solutions that are more partnership-based, sustainable and even digital. For that, VSS is most certainly one of the oldest tools available. The use of VSS is often meant to promote sustainable development and reduce the negative externalities of transnational production. In this time of crisis, there is a need to steer towards sustainable trade, leveraging trade that works for everyone, fostering equality, and allowing the vulnerable to have adequate and equitable access to resources. If VSS can be instrumentalized to achieve sustainable trade and value chains, especially in the agriculture sector where they are most prevalent, they can create a trajectory towards a sustainable global economic system and can be instrumental for local food security.

The United Nations Forum on Sustainability Standards (UNFSS) is a joint initiative of 5 UN Agencies (FAO, ITC, UNCTAD, UN Environment and UNIDO) that seeks to address these challenges. It is a demand-driven forum for intergovernmental actors to communicate among each other and engage with key target groups (producers, traders, consumers, standard-setters, certification-bodies, trade diplomats, relevant NGOs and researchers) to address their information needs and influence concerned stakeholders. It aims to provide impartial information, analysis, and discussions on VSS and their potential contribution to facilitate market access, strengthen public goods and achieve Sustainable Development Goals (SDGs). Most importantly, the UNFSS focuses on potential trade or development obstacles VSS may create, with particular emphasis on their impact on SMEs and less developed countries.

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