The Recent Global Food Supply Situation and Taiwan's Food Security Policy

The Recent Global Food Supply Situation and Taiwan's Food Security Policy

Published: 2023.11.13
Accepted: 2023.10.31
69
Senior Research Fellow
Agricultural Policy Research Center, Agricultural Technology Research Institute

ABSTRACT

Taiwan, being an island nation, heavily relies on imports of grains such as soybeans, wheat, and corn to meet its feed and food requirements. Although the total agricultural imports and exports between Taiwan and Russia and Ukraine are extremely low, these two countries are major global exporters of food, energy, fertilizers, and other essential commodities. Therefore, since the outbreak of the war, there has been tension in the international food supply and soaring prices, indirectly impacting Taiwan's food security. This article elaborates on the significant international food and raw material supply situations amid the Russia-Ukraine war and analyzes the coping strategies adopted by the United States, the European Union, Japan, and South Korea. These analyses serve as references for Taiwan's food security policies.

Keywords: The Russia-Ukraine War, Global Food Supply, Food Security Policies

INTRODUCTION

The global economy and trade have recently recovered from the impact of COVID-19. However, following the outbreak of the Russia-Ukraine war in February 2022, it dealt a heavy blow to the international supply of raw materials and food security. For Taiwan, Russia and Ukraine accounted for a very low proportion of Taiwan’s total import and export volume, comprising only about 0.8% in 2021. Therefore, the war has had no direct impact on Taiwan's stable food supply.

However, these two countries are major exporters of food, energy, chemical fertilizers, and other essential necessities. The supply squeeze caused by the conflict between Russia and Ukraine has driven up the prices of global bulk raw materials. Additionally, sanctions imposed by various countries and international organizations against Russia's invasion have affected material prices and financial markets. This situation has also increased Taiwan’s import costs for energy, fertilizers, soybeans, wheat, corn and other grains, leading to a rise in some agricultural grain and livestock product prices.

The paper first examines recent changes in the international situation against the backdrop of the Russian-Ukrainian war. It analyzes the shifts in supply and demand for crucial international raw materials and their prices, providing a comprehensive assessment of the potential impact on Taiwan within the global context. Finally, the paper offers suggestions for subsequent relevant measures, drawing from international coping practices.

THE RECENT INTERNATIONAL SITUATION

The conflict between Russia and Ukraine has escalated into a worldwide struggle, prompting extensive Western aid to Ukraine and eliciting threats of a counterattack from the Ukrainian side. Additionally, Russia has accused Ukraine of launching attacks on Russian forces through humanitarian aid corridors, violating the Black Sea Grain Initiative. In July 2023, Russia announced its withdrawal from the Black Sea Grain Initiative, potentially jeopardizing global food security (European Council, 2023).

On the other hand, Ukraine is exporting grains by land to other countries or through neighboring countries like Romania, leading to increased transportation costs and significantly reduced profits. This situation has affected farmers' willingness to cultivate crops. Due to disrupted logistics, a large quantity of grains has flooded the markets of transit countries, driving down prices. Consequently, some European countries, including Poland, have implemented bans on Ukrainian grain imports (Edit et al., 2023). Additionally, it is estimated that Ukraine's grain harvest will decrease by 50% this year, increasing the risk of rising global food prices (Handley Lucy, 2023).

The global supply chain is currently shifting its focus towards diversification and regionalization, given the significant easing of the COVID-19 pandemic in 2023. Disruptions resulting from the pandemic have underscored the risks associated with supply chain expansion and concentration. China is actively establishing supply chain partnerships with major feed crop producers in Latin America, including Brazil and Argentina. Simultaneously, Taiwan’s entrepreneurs and certain multinational corporations operating in China are redirecting their efforts towards Southeast Asian nations, restructuring their supply chains to reduce reliance on China’s suppliers (Agricultural Market Information System, 2023).

On a global scale, most countries are still contending with inflation, and the world has entered a phase of "mild recession." Fluctuations in exchange rates are driven by transportation cost variations, further exacerbated by weak international demand. Supply chain and trade transportation continue to recover at a sluggish pace (Howard and Ghosh, 2023).

MAJOR INTERNATIONAL RAW MATERIAL SUPPLY AND DEMAND SITUATION

According to the August 2023 global grain supply and demand forecast by the USDA, both global grain production and consumption for the 2023/2024 fiscal year are on the rise compared to the previous year (USDA, 2023). Production has increased from 2.74 billion metric tons to 2.78 billion metric tons, while consumption has risen from 2.77 billion metric tons to 2.82 billion metric tons. However, the end-of-year inventory ratio has decreased from 27.6% to 27.5%. This decrease is primarily due to the slow progress in the harvest of major grains. With production declining more significantly than consumption, a reduction in inventory ratio is anticipated.

Severe droughts and abnormal rainfall caused by the El Niño phenomenon are the main factors affecting global food production. For example, northern India has experienced flash floods, and drought conditions in many regions which have led to reduced rice yields, with instances of widespread wildfires. Additionally, according to the Food Price Excessive Volatility Early Warning System published by IFPRI, after June 2023, prices of five major staple foods, including hard and soft wheat, corn, soybeans, and rice, as well as oilseed products, have all shown "red signals" indicating excessive price fluctuations. This highlights the impact of the El Niño phenomenon and extreme weather on agriculture and logistics, making them significant drivers of the food crisis, potentially surpassing even human-made factors such as wars (IFPRI, 2023).

Throughout the year 2022, global food prices remained high due to the impact of the pandemic, conflicts, and adverse weather conditions. The FAO Food Price Index for 2022 reached 143.7, surpassing historical peaks seen in 2008, 2011, and 2021. Since the beginning of 2023, various price indices have gradually moderated. In August, the FAO Food Price Index dropped to 123.9, still slightly higher than the 2021 levels. Looking at the World Bank's commodity price index, the energy index averaged 108.74 in August 2023, showing a 7.81% increase from previous periods. The non-energy index, however, decreased by 1.17% to 109.05 (The Food and Agriculture Organization of the United Nations, 2023).

Moreover, due to export restrictions on fertilizers by China and Russia, coupled with the non-restoration of the Black Sea Grain Export Agreement, fertilizer prices index surged significantly to 157.58 (an increase of 8.19%). In other categories, the overall food index was 126.69 (a decrease of 2.23%), while the oilseed and meal index were 115.98 (a decrease of 2.89%), the cereals index was 125.33 (a decrease of 4.31%), and the other food index was 142.02 (an increase of 0.25%).

MAIN IMPACTS OF THE INTERNATIONAL RAW MATERIAL ON TAIWAN AND TAIWAN’S MAIN RESPONSE MEASURES

Recently, there has been a rise in energy and fertilizer prices, and the soaring global rice prices, along with the chain reactions caused by the El Niño phenomenon, could potentially delay the recovery of international raw material and food prices to pre-pandemic levels until 2025. This places Taiwan at the risk of imported inflation in the medium to long term.

Based on data from 2022, the prices of internationally traded commodities like soybeans have surged, causing nearly a 30% increase in Taiwan's average import prices. Consequently, domestic spot prices of soybeans, soybean meal, as well as feed ingredients like corn, rice bran, wheat bran, and soybean meal, have sharply risen, fluctuating between 10% to 30%. As a result, Taiwan's food category CPI (Consumer Price Index) increased from 3.72% in January 2022 to a peak of 7.39% in May 2022. The rate gradually decreased from June onwards. However, in 2023, factors such as avian flu and typhoons have influenced the food category CPI, which stood at around 5.3% in September 2023 (The Directorate General of Budget, Accounting and Statistics, 2023).

Taiwan’s Ministry of Agriculture (MOA) has implemented multiple measures to stabilize food supplies in response to the COVID-19 pandemic and natural disasters. These measures include regular collection and inventory of important agricultural products and production materials, establishment of a digital information platform for food security, continuous assessment of supply and demand for the next year, and emergency imports and release of reserves if necessary, ensuring a six-month safe inventory of bulk agricultural raw materials and materials.

To address the surge in global fertilizer prices since September 2021, the MOA has assisted in stabilizing fertilizer prices. Starting from January 2022, for fertilizers purchased through real-name registration, the ministry subsidizes 50% of the increase in raw material prices based on July 2021 prices, helping stabilize the production of concentrated products. Additionally, following the outbreak of the Russia-Ukraine conflict, the prices of feed grains like corn soared. To stabilize the supply of feed grains, the Ministry of Agriculture has worked with feed industry players to advance the purchase of domestic corn for the next six months. In the medium to long term, efforts include planning to increase rolling storage space for corn and guiding farmers to expand the cultivation area of feed corn to increase the domestic self-sufficiency rate of corn.

POSSIBLE IMPROVEMENTS IN THE FUTURE

Facing the current wave of rising food prices, Taiwan aims to enhance its food security strategies by referencing relevant policies implemented in the United States, Europe, Japan, and South Korea. Table 1 provides a comprehensive comparison of key countries' approaches to addressing bottlenecks in food supply and coping with price increases. It is observed that the policies in the United States, Europe, Japan, and South Korea are generally like Taiwan's approach. These countries emphasize strengthening support for producers, encouraging consumption, and reducing import tariffs or business taxes on raw materials.

Table 1. Analysis of responses to food supply bottlenecks and price increases in major countries

 

Bottleneck of grain supply chain

Supply chain vulnerability assessment

Action plan/emergency response measures

Established mechanism

America

  1. Sea imports delayed and blocked
  2. Transportation equipment is in short supply
  3. Labor shortage
  4. Land transport logistics is blocked

1. Present risks

  • Lack of work force reduces port efficiency
  • Wood pallets, wooden cases, and containers in short supply, delaying domestic grain transport

2. Potential risks

  • A high proportion of imported vegetables and fruits
  • Some agricultural products and raw materials have a single import source and unstable supply
  • Many raw materials for food processing, such as minerals and stabilizers, depend on imports

USDA action plan:

  • Integration of public and private sector project teams, provide key material supply situation of strategy advice
  • Prevent disruptions of future supply chain
  • Expand domestic sources of independent supply of important materials
  • A strategic reserve of important materials: wooden pallets, Marine wooden cases
  • Ensure transportation of agricultural food and raw materials
  • Stabilize domestic food supply
  • Key material supply project team
  • Strategic reserve plan for logistics materials

European Union

  1. High production costs
  2. The interruption of export market and the decrease of farmers' income

1. Present risks

  • Agricultural food or agricultural materials do not face significant supply cuts during the pandemic and war crisis
  • The main crisis is the high cost of agricultural production caused by high raw material prices, which puts a heavy burden on farmers

2. Potential risk

  • High production costs affect farmers' willingness to produce and reduce grain output

The European Commission ensures food supply and food security policy:

  • Producer support and subsidies
  • Subsidies and expanded financing for production costs and export market losses
  • Relax feed import regulations
  • Includes agriculture, fisheries, feed manufacturers and other food related producers
  • Monitor agricultural commodities inventory
  • Countries collect inventories of cereals, oilseeds and seeds and report them to the European Commission, which publishes monthly real-time data to ensure transparency of food market information
  • In response to the impact of the war between Russia and Ukraine, a dynamic information system was established to monitor the impact of agricultural prices and economic fluctuations on producers and consumers
  • Special producer support measures - Grants from the Agricultural Fund to subsidize the production costs of feed and fertilizer for farmers and agricultural enterprises
  • Dynamic information system of agricultural bulk materials(Agri-food Data Portal) Russia-Ukraine war zone
  • Release key material market information every month

Japan

  1. Import cost increases and production cost rises
  2. High dependence on grain imports and fluctuating prices of agricultural food
  • Bulk raw materials rely on imports and the supply chain is inflexible
  • Underproduction and utilization of domestic food substitutes (mainly wheat)

The Ministry of Agriculture, Forestry and Fisheries Emergency measures taken in response to crude oil prices and rising prices:

  • Subsidies to the cost of production:
  • Emergency feed subsidies:
  • Imported feed at Yen6,750 per metric ton
  • Domestic feed (Yen10,000 per cow for governor county; Yen7,200 per cow for Hokkaido)
  • Emergency fertilizer subsidies (for farmers who reduce fertilizer use by 20 percent): Subsidy increase by 70%
  • Restrain food price:
  • Frozen wheat prices (until 2022)
  • Reduce grain loss and waste
  • Improve raw material utilization efficiency
  • Improve warehousing and logistics efficiency
  • Extend the shelf life of food
  • Strengthen logistics facilities between merchants and food banks
  • Increase consumer advocacy to reduce food waste
  • Stabilize the consultation platform for imported wheat prices
  • Financing consulting platform for farmers and agricultural enterprises
  • Feed grain reserve mechanism

 

(Before the epidemic, there were existing mechanisms for subsidizing domestic feed, improving fertilization efficiency, switching to domestic food raw materials, promoting high-value added products, expanding domestic wheat production, assisting seafood processors in purchasing raw materials and processing equipment, and providing financial support for agriculture, forestry, fishery and animal husbandry, etc.)

South Korea

  1. Import cost increases and production cost rises
  2. High dependence on grain imports and fluctuating prices of agricultural food
  • High dependence on imports and vulnerable to international fluctuations in prices of key food items: soybean oil, sunflower oil, pork (using imported feed), wheat, wheat flour, processed egg products, feed grains, coffee and cocoa beans
  • The shortage of wheat, maize and soybeans affects the domestic production of food: feed, livestock, vegetable oil, food processing

South Korean Ministry of Finance Emergency Livelihood Stabilization Plan - Stabilization of livelihood and food prices

  • Raw material price subsidy
  • Flour: 70% increase in subsidized price
  • Increase the limit on tax-free agricultural products (food manufacturing, catering)
  • Tax cuts for imported food processing materials:
  • Soybean oil (5%à0%), sunflower oil (5%à0%), pork (22.5~25%à0%), wheat (1.8%à0%), wheat flour (3%à0%), egg processing products (maintain 0%), feed grains (increase quota by 300,000 metric tons), coffee and cocoa beans (exempt from VAT, reduce import cost by about 9%)
  • Cut taxes and expand imports: processed foods such as beef, pork, chicken and eggs
  • Consumption subsidy:
  • 10% VAT exemption for simple processed foods: soy sauce, chilli, pickles, pickled vegetables, boiled vegetables
  • Coupons for agriculture, forestry, fishing and animal husbandry (10,000 won per person and up to 20 percent discount for pork and egg price hikes)
  • Production subsidy
  • Increased planting of important agricultural products: cabbage, potatoes,
  • Provide livestock owners with low-rate feed purchase loans (reduced from 2-2.5% to 1.5-2%)
  • Nonghyup's inorganic fertilizer subsidy (80% price increase)
  • Expand loans for purchasing food raw materials and reduce interest rates (catering and food processing industries)
  • Diesel fuel subsidy (fishery): 50 percent per litre for the portion exceeding the standard unit price between May and October
  • Set up (Ministry of Agricultural Food and Rural Affairs), hold the "Agricultural Food supply and demand inspection meeting", daily inventory of agricultural food supply and demand: according to the five major items of vegetables, fruits, livestock products, international grains, foreign food, at any time to check the supply of bulk commodities, weekly one to two meetings, by the agricultural administration units and agricultural cooperatives, agricultural fisheries and food companies, wholesale, etc. Establish a public-private partnership mechanism.

Taiwan

  1. Import cost increases and production cost rises
  2. High dependence on grain import and fluctuating prices of agricultural food

1. Present risk

  • Bulk raw materials rely on imports, crude oil, grains, livestock products, fertilizers, materials, consumables, packaging and other prices rise, affecting farmers' production costs and consumer spending on food

2. Potential risks

  • Concentrated import sources, a high risk of chain break
  • Grain imports are small and import demand is inelastic
  • The domestic grain production and marketing chain is not mature, and the substitution of import volume is limited
  • Measures taken by the Ministry of Agriculture to stabilize the supply of important domestic agricultural products and materials:
  • Real-time inventory of important agricultural products and materials
  • Domestic agricultural products replace imported grains as feed
  • Coordinate soybean, wheat and corn importers to purchase in advance; Imports are exempt from 5% business tax
  • Expand domestic corn production
  • 50% increase in fertilizer subsidies
  • Promote domestic rice consumption and local production
 

Source: compiled by this study.

For instance, the United States has established special task forces to address potential shortages in certain agricultural products and logistics equipment, developing strategic reserve plans to enhance supply chain management. The European Union tackles rising agricultural material prices by promptly releasing market price information online, facilitating effective monitoring. Japan, apart from its ongoing domestic grain strategy, emphasizes reducing food losses during this period of rising raw material costs. Japan collaborates with private organizations to increase food utilization rates. South Korea focuses on providing cost subsidies and consumption subsidies for essential imported food items that impact people's daily lives. Notably, South Korea's "Agricultural and Food Supply and Demand Situation Inspection Meeting" is led by the agricultural government departments, inviting private sector participation, facilitating information exchange, and policy discussions.

 

Overall, these countries combine policies with existing agricultural budgets to ensure the continuous implementation of policies, thereby reducing external threats to the food supply chain. As it heavily relies on imported staple grains, Taiwan has already implemented various measures to grasp domestic and international food production situations and risks since global food prices started to rise. However, considering the ongoing risk of rising international food prices, especially due to global climate and production condition changes, Taiwan should continue to monitor the agricultural production situations, supply chain dynamics, and actions of key grain suppliers. Continuous communication with industry stakeholders and efforts to diversify import sources are essential. Integrating private resources and strengthening the secure inventory mechanism will further reduce the risk of import supply interruptions.

REFERENCES

Agricultural Market Information System (AMIS). (2023). Market Monitor (Jan.-Sep.). Available at: https://www.amis-outlook.org/resources-list/amis-market-monitor-archive/en/.

European Council. (2023). Infographic-Ukrainian grain exports explained. Available at: https://www.consilium.europa.eu/en/infographics/ukrainian-grain-exports-....

Handley Lucy. (2023). Ukraine’s corn and wheat exports are set to plummet. Here’s what that means for the world’s food supply. CNBC News. April 20, 2023. Available at: https://www.cnbc.com/2023/04/20/what-ukraines-declining-grain-production....

Inotai Edit, Claudia Ciobanu and Svetoslav Todorov. (2023). Hungary and Poland vow to introduce Ukraine grain ban as EU-brokered deal expires. BIRN News. September 15, 2023. Available at: https://balkaninsight.com/2023/09/15/hungary-and-poland-vow-to-introduce....

Schneider Howard and Indradip Ghosh. (2023). Fed, economists make course correction on US recession predictions. Reuter News. August 17, 2023. Available at: https://www.reuters.com/markets/us/with-gallic-shrug-fed-bids-adieu-rece....

USDA. (2023). The World Agricultural Supply and Demand Estimates.” (Jan.-Aug.). Available at: https://www.usda.gov/oce/commodity/wasde.

IFPRI. (2023). T Excessive Food Price Variability Early Warning System. Available at: https://www.foodsecurityportal.org/tools/excessive-food-price-variabilit....

FAO. (2023). FAO Food Price Index (Jan.-Sep.). Available at: https://www.fao.org/worldfoodsituation/foodpricesindex/en/.

The Directorate General of Budget, Accounting and Statistics (DGBAS) of Executive Yuan. (2023). The Price Indices for September 2023 (Jan.-Sep.). Available at: https://eng.dgbas.gov.tw/News_Content.aspx?n=4438&s=232228.

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