Fear or Pragmatism: How Will Global Commodity Markets Respond?

The 6th IPCC report shows that while financial flows are not enough to limit warming to below 2°C (3.6°F) by 2030, there is sufficient global capital and liquidity to close investment gaps. However, it relies on clear signalling from governments and the international community, including a stronger alignment of public sector finance and policy. Greenhouse gas emissions will have to peak by 2025 at the latest: we have no time to lose.

We are facing crisis upon crisis. The suffering and loss of life in Ukraine is hard to comprehend and wholly unacceptable. Ripples from the attack have spread across the globe with severe disruptions to commodity exports.

Though we have achieved strong progress on the Sustainable Development Goals, the multi-dimensional implications of this crisis could undermine the fight against poverty and hunger. It threatens our progress on climate action and gender equality, and undermines global trade and international cooperation.

The world is in need of a hefty antidote to the poison of the current conflict, not to mention the other conflicts around the world that are no less serious yet receive less media attention. As we formulate our response, we must begin from a place of pragmatism as opposed to fear.

With that in mind, we see a few trends emerging:

1.     Soaring energy prices – Every one of us is affected: rapidly increasing inflation is eating into household budgets, affecting companies’ operating costs and shipping. And the impact is most acute among the large population of vulnerable communities for whom energy costs are a huge portion of their expendable income.

2.     Food system disruptions – Examples of the conflict’s effect on food prices are pouring in and putting household budgets under pressure (with the most vulnerable again bearing the brunt of the impact). Food is an intractable part of societies and cultures. It is not for nothing that governments spend significant amounts on subsidizing food and food production.

3.     A return to outdated ‘solutions’ – In light of the above trends, we can already hear the call for supposedly well-known solutions that ‘helped’ in the past:

a. More food requires more land, hence nature needs to go. This thinking has the potential to not only increase deforestation and ecosystem conversion but also release a significant volume of carbon into the atmosphere.

b. Energy demands require an increase in coal, gas and oil from known/new sources. This short-term, short-sighted thinking will only exacerbate climate change (and its knock-on effects) further and distracts from the critical investment needed for renewable energy.

c. Investments in productivity and yield are the only way to meet demand. The availability and cost of fertilizer are projected to go down and up, respectively, which will make it difficult to maintain current yields. In our desire for quick short-term volume increases, long-term solutions like regenerative agriculture may become less attractive, but no less necessary.

4.     Tight margins for companies and reduced government budgets. The potential impact could lead to less capital (economic, financial and human) being available to meet current needs and the transition to a more sustainable society.

5.     A return to outdated gender roles. It was only two weeks ago, that we celebrated International Women’s Day with a focus on breaking biases. But in times of crisis, there is often a resurgence of old, familiar ways of working, no matter how wrong-headed. Ultimately, women remain the most affected by the issues mentioned above. We must continue to push for equality for all.

6.     The critical importance of trust. The world hungers for trust and confidence, but the current crisis fuels enmity. We see a breakdown of good faith dialogue; our institutions are cracking under the weight (like the UN Security Council). No matter where we live and work, there is no escaping the dearth of trust. Solutions require unprecedented solidarity, especially towards the most vulnerable.

This moment shows yet again how interconnected our world is. Occurrences anywhere, negative or positive, have a knock-on effect everywhere. The imbalance in current logistical systems require us to adapt or improve our systems to create a more equal type of distribution of resources and capabilities.

Throughout this crisis, one thing is clear: insecurity and challenge are opportunities for growth. We cannot stand by as the current crisis pushes people (back) into poverty, reverses progress on climate change and gender equality, and threatens the value of trust, trade and international cooperation.

We cannot afford to make the same mistakes again by backing into our corners. We have a choice. Will we be dragged into the old ways of responding to fear with division and destruction? Or will we make the conscious choice to work together with open minds committed to understanding, committed to creating? It all depends on our ability to respond.

Our proposal: Embrace the resistance.

Let us come together and shape a way forward together built on trust. Our response to this challenge requires holistic thinking that integrates solutions on income, climate, gender and the food system. It is difficult, yes, but there is no other option.

The pandemic taught us that households with diversified farms were more resilient to the effects of COVID. Diversified landscapes are also more resilient to climate change. The key is how we engineer resilience into our solutions: we need to design food/farming/conservation systems so that they are able to withstand shocks and adapt to changing realities. At IDH we stand ready to sit with current and new partners to work together on this challenge.

The question is how we respond to the situation this time. What is the ‘response-ability’ that we can take upon ourselves? Are we able to respond differently and with courage?

We must all hope and pray that we can overcome these global crises and that we have the energy to rise to the task of rebuilding trust and connection.

Daan Wensing

CEO, IDH – The Sustainable Trade Initiative