Tag: Sri

Sri Lanka’s president finally resigned. Protesters celebrated, and they had reason to: Their mass demonstrations — including a takeover of the presidential mansion — drove President Gotabaya Rajapaksa from office.

Sri Lanka’s economy is in free fall. The country doesn’t have enough money to buy essentials: food, medicine, and especially fuel. Buses can’t run, schools can’t open. The economic crisis was years in the making because of mismanagement, but terror attacks in 2019, and later the Covid-19 pandemic, which shriveled Sri Lanka’s tourist economy, pushed it to the brink.

But the domestic political turmoil unfolding in Sri Lanka also links back to the instability across the globe, including the war in Ukraine and all of its consequences.

It may seem strange to link street protests against the Sri Lankan government to a war in Europe, but food and oil markets are global. A shock in one place ripples everywhere. The Ukraine war compounded supply chain pressure in the wake of Covid-19, and Moscow’s war in Ukraine and Western sanctions against Russia have squeezed agricultural exports — critical supplies like grain and sunflower oil — from the entire Black Sea region. These products can be replaced on the global market, but at a cost. Fuel prices are also up, and if it costs more to buy diesel for a tractor or to transport cargo, food becomes more expensive still. Food becomes all that much harder to afford for poor countries, and for poor people in rich countries.

The United States and Europe are seeing these price shocks. So are people in Ghana and Mozambique and Mexico and Ecuador and Uzbekistan and Afghanistan. Food, fuel, and other essentials are getting more expensive, everywhere. Many of these governments want to intervene, but their economies were already pummeled by the Covid-19 pandemic, and so they don’t have the funds to respond to these crises.

That means standards of living will fall in many countries, and that more people will slip into poverty. The United Nation’s World Food Program has warned that the number of food-insecure people has risen to 345 million; nearly 50 million people in more than 45 countries are at risk of falling into famine conditions.

But the global instability that causes prices to rise also creates more instability. Food prices, for example, are rarely the only reason that a government falls, but they can help crystallize simmering discontent in a country. “If you can point to rising food prices, it is a sign that something is failing in the implicit contract between the government and the governed,” said Cullen Hendrix, a nonresident senior fellow at the Peterson Institute for International Economics and professor at the Josef Korbel School of International Studies at the University of Denver.

Vox spoke to Hendrix about why food costs can coincide with political unrest, and where and when that happens — and why Sri Lanka likely represents just the beginning of the volatility about to envelop the globe.

This conversation has been edited and condensed for clarity.

Jen Kirby

This is a big question, but what is happening, broadly, around rising prices around food and fuel, and political unrest?

Cullen Hendrix

We need to decompose that into thinking about food prices and thinking about fuel prices.

Up until about 2000, the two of those weren’t really correlated. You had periods where you had very high food prices and very low oil prices, or very high oil prices coinciding with low food prices.

The 2000s are when those two things start to trend much more together. In some ways, the current crisis looks the most like the 2007-2008 food price crisis, because we have simultaneous crises in both food markets and oil markets in terms of elevated prices as a response to, in this case, instability caused by the Russian invasion of Ukraine. In 2007 and 2008, it had more to do with climatic shocks, and then the ways that many producer countries — countries that normally export food — decided to institute export bans.

So, having kind of decomposed those two things, we probably need to take food and fuel prices separately.

Jen Kirby

Okay, so how do they work?

Cullen Hendrix

Generally speaking, there is a positive relationship between higher prices for food in international markets and protest activity. This relationship is particularly evident in democratic and semi-democratic countries. Protest dynamics tend to be less responsive to global food prices in more authoritarian countries.

With respect to oil prices as separate from food prices, the research on this topic is a bit more mixed. It’s certainly the case that higher fuel prices can erode real incomes. They can eat into purchasing power, and they can generate significant grievances with incumbent regimes, who are being asked to do something about these higher prices. But it turns out that these higher oil prices are also a source of revenue that many governments that export oil can capture, and they can use that to reinvest back into price supports and mechanisms of ensuring social stability.

A good way of thinking about this is to look back at the Arab Spring, and the places where the Arab Spring protests got the most traction, like Tunisia and Egypt, are small oil exporters, if they export oil at all. Whereas countries like Kuwait were able to weather the storm because although they were paying a higher bill for their food imports, they were also reaping these windfall profits associated with higher commodity prices for their main export, being oil. They were able to invest in lavish public spending at a time when, in the wider region, many governments were having to go on austerity diets and slash social spending at precisely the time when doing so was most likely to enrage the populace.

Jen Kirby

So people are frustrated with inflation in places like the United States and Europe, but as yet, we haven’t seen a mass wave of protests over, say, gas prices. That may happen, but I’m also wondering if this is more likely to happen in countries with less-developed economies, and where the government may have limited ability or capacity to respond.

Cullen Hendrix

We know less about the ability of the government to respond, but your point about average incomes is definitely well taken. If you’re in a developing country, and you’re spending 50 percent of your take-home income on food, and much of that food is unprocessed — you’re actually buying bulk wheat, or maybe wheat flour — the increase in food prices hits you much harder than it does, say, for you and me, where we spend a much smaller proportion of our income on food. It’s not as significant a source of hardship. And a lot more of the money that we spend on food, actually, is money spent on packaging and marketing and the like, as opposed to people who are living maybe half a step removed from the underlying bulk commodity.

So higher-income countries see less of this kind of protest. We have seen things like the antecedents of what you’re talking about. If you remember back to the yellow vest protests in France and Belgium, those were protests in response to reductions in the subsidies for diesel fuel.

Jen Kirby

One of the things I sometimes struggle with in covering protests is that food and fuel prices can factor among them, or be the “spark,” but they ultimately lead to a longer list of grievances against a government. It can be hard to disentangle, and I am wondering, how do you make sense of exactly what role food and fuel prices play in protest movements?

Cullen Hendrix

At any sufficiently large protest, people are going to be there for a variety of reasons. Food and fuel prices may be significant for some participants, but they may not be particularly significant for others.

It’s not typically the most food-insecure people that wind up participating in these protests. It’s not the truly hungry. It’s that if you can point to rising food prices, it is a sign that something is failing in the implicit contract between the government and the governed, in terms of being able to secure people’s ability to have plentiful and appropriate food at a bearable price. If you think about that as being the bedrock of the social contract in these regimes going all the way back to Roman times — that’s where the concept of “bread and circuses” comes in — then, yes, they’re kind of a canary in the coal mine for the broader inability of the government to address the grievances and the needs of the populace.

Jen Kirby

And so I think part of the challenge now, and correct me if I’m wrong, but for countries like Sri Lanka, where you have that fundamental breakdown of the contract, because of what’s happening around the globe — specifically, the war in Ukraine — it is much harder for those countries to figure out an adequate response because they have less tools at their disposal?

Cullen Hendrix

One hundred percent. The issue in a place like Sri Lanka — and if you look through the list of other places that are experiencing these kinds of inflation protests, like Albania, Argentina, Panama, Kenya, Ghana — these are not places with a ton of what economists would call fiscal space. They do not have the ability to offset these price increases with ramped-up government spending and targeted transfers and subsidies to offset the pain. These are cash-strapped governments; they went into the crisis cash-strapped, many of them because of the ongoing effects of the Covid pandemic.

Jen Kirby

You mentioned the food crisis in 2007 and 2008. But what are some historical precedents for when higher global food prices created political instability?

Cullen Hendrix

I was getting ready to say — I hate to bang on Russia, but I don’t hate to bang on Russia, as this has been their fault before. If you go back to 2010-2011 and the Arab uprisings, the food price spike occurred because Russia decided unilaterally to impose an export ban on wheat, barley, a bunch of other kinds of grains, in response to heat waves and wildfires that were projected to decimate their harvest. In order to maintain domestic food supplies and lower prices, they decided to not export.

The problem was that many of the countries that were counting on those exports — the same way as it is now, the countries that are counting on Black Sea exports, both from Russia and Ukraine — were the countries in the Middle East and North Africa, which are deeply food import-dependent. Then, as now, they’re basically thrust back into international markets at much higher prices to try and satisfy their need for food imports.

There were obviously elements to the Arab uprisings that had nothing to do with food prices, but it is important to understand the contributing factor that food prices can play.

The Arab Spring protests were largely coordinated and organized by people who had lots of anti-regime sentiment and had been organizing around it. But what brings otherwise apolitical people out into the streets to participate in these mass movements often are these kinds of political issues that are much more picayune, as opposed to the broader dissatisfaction with the regime, or indeed, the regime type.

Over time, a lot of those protests that were related to food and fuel prices metastasize into protest movements around the form of government, like, “Why don’t we get to elect our government? Why are we run by these corrupt authoritarians?” But there was a significant part of it that began with the food and fuel price spikes.

Jen Kirby

Is there something of a tipping point when it comes to food price spikes — like when they reach certain levels, the likelihood of instability increases?

Cullen Hendrix

I’m hesitant to say that there is a tipping point where I can say, “Once food gets above X price, then it’s on.” I don’t think there’s sufficient evidence for that.

I will say that the prices we’re currently seeing are, if not historic, near historic. The last time we saw food prices this high in international markets was in 1974. Back then, global food trade was a much smaller share of actual food consumption. Higher global prices mattered less for people’s ability the world over to feed their families.

Jen Kirby

What are the places you’re paying attention to when it comes to political unrest as a result of rising food prices?

Cullen Hendrix

I would keep an eye on West Africa, particularly Ghana and Nigeria. I think that there is potential for maybe Pakistan. The non-oil-rich Middle East and North African countries, and maybe Central America. I think that’s a significant issue, because it’s co-occurring with droughts. But it’s also the case that these countries, because of rapid rates of urbanization, are becoming increasingly dependent on global markets, and these are countries with fragile governance systems to begin with.

Jen Kirby

Basically sounds like the whole world.

Cullen Hendrix

I mean, the outlook isn’t great. These markets are being reined in a little bit. The higher oil prices that are a function of these kinds of political instability tend to be relatively short-lived. They’re persisting longer now, just because of how large an exporter Russia is and the scale of instability. Typically, in the past, other big exporters have increased exports to offset the effects of this kind of destabilization. But I wish I had better news for you.

Jen Kirby

What are some possible interventions that the United States or other wealthier governments might be able to do to ameliorate some of these brewing crises in poorer parts of the world?

Cullen Hendrix

The G-7 and then the G-20 both attempted to push through agreements not to use export bans. India gets a carve-out because India is, you know, a developing country, and I think it’s more political theater than it is actual constraint on food supply and food exports.

In terms of longer-term — and this is where we get really speculative — ultimately, we need to reform the global food producing system in ways that increase resilience, not just to climate change, but also to these kinds of geopolitical shocks, because I don’t think this is going anywhere. If you look at the projections of the kinds of countries that are going to be seeing increasing yields and potentially larger harvests moving forward, it is places like Russia, Kazakhstan, the United States, and Canada.

That said — and this is the thing that I think is potentially more controversial — I’m of the opinion that we probably need to see more subsidization of agriculture in developed countries, as opposed to less. I wish it were the case that we could convince voters in Iowa to subsidize food production in places like Thailand or Kenya; unfortunately, electoral politics don’t work that way. But the subsidies that are paid by taxpayers in developed countries are actually subsidizing consumption at the global level.

That’s not necessarily a super popular opinion, especially among folks who are fairly wedded to agricultural development in developing countries as a mechanism for growth. But I do think that’s something we need to be getting serious about, because I don’t think, in the near term, we’re going to be able to offset these kinds of volatility that can be created by these countries with very large market shares having their supply just go offline. There’s not enough slack in the global food system to make up for that.

If I’m understanding you correctly, the global food market basically works the way it works. But having a place like the United States or Canada, which does have the capacity to supply more people, they could make up for some of the pressure when Russia or another major area is taken offline or creates major disruptions?

Cullen Hendrix

I tend to believe in markets, but I will say that markets for basic necessities like food, these are not markets you want to operate according to cold economic logic. The market for food is not a market where you want to wind up at the end of the sale with no available supply. We can’t have that because we need to have buffers in the system precisely because of events like the ones we’ve seen. And so if that’s physical grain reserves, [or] if it’s governments willing to use what they call virtual reserves, which are basically governments, in a coordinated fashion, intervening in markets to short these futures contracts to drive prices back down.

There are things that can be done. It’s just going to take an investment of resources and, I think, broader awareness of the enlightened self-interest that it does not make the United States any safer and more prosperous to exist in the world where many of our trading partners and many of our strategic partners around the world are facing instability because they can’t feed their populations.