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The relationship between economic growth or income and consumption is frequently discussed in the realm of economics and beyond. The economic crisis provides ‘laboratory’-like conditions in which to explore how stagnating or declining economies, falling incomes or decreased purchasing power affects what we buy and consume.

14698176_7c44839711Demand for fish, for example, has been argued by the Food and Agricultural Organisation (FAO) to be ‘sluggish’ in 2009 compared to 2008, which was a record year in fish production and consumption. According to the FAO ‘sales are sluggish in all major markets and prices and margins are under pressure for most seafood products’. Meat, dairy and fish have commonly been argued to be elastic products – that is, as incomes rise, consumption of these products also increases significantly. The crisis has demonstrated that the reverse is also true – as incomes fall, consumption decreases. However, the sheer variety of fish and seafood deems any generalised analysis of elasticity problematic. Cheaper, more ‘staple’ fish, for example, cod, may be inelastic and difficult to substitute, whereas more expensive fish, for example, tiger prawns, may be more elastic and can be replaced by other fish types or protein sources. For example, in the UK, some have claimed that fish and chips may be recession proof. More disaggregated data of fish consumption (by type or species) during the crisis is needed to draw any meaningful conclusions about elasticity, but we do at least know that consumption of fish overall has declined.  

For fish stocks the economic crisis may therefore come as a welcome break. Though a large proportion (approximately 45%) of our fish comes from farmed sources – aquaculture – the dominant proportion is still sourced from capture fisheries, i.e. the open sea. Concerns about the sustainability of fish stocks, particularly in regards to bluefin tuna, have dominated the media in recent months. A particularly controversial study carried out in 2006 argued that commercial fish stocks will have completely collapsed by 2046.

The New Scientist reports that there is some initial evidence that commercial fish stocks are recovering, although 63% of world fish stocks are still found to be at unsustainable levels, particularly in the developing world (which produces 80% of the world’s fish). Though the partial recovery in some stocks has been argued to be due to effective ‘conservation measures’ the economic crisis may well give these efforts an added boost.

The economic crisis may have momentarily achieved what many a public campaign could not and may signify a crucial turning point in the survival of some stocks. Ironically, the length of the recession may be a crucial determinant. However, there are equity issues involved, with the majority of people in the developed world eating fish in excess of their dietary needs whilst many in the developing world lack the purchasing power to consume enough fish to fulfil their basic nutritional needs. In the EU and US, people consume on average approximately 19kg per annum, whilst people in South America and Africa consume on average 8kg per person, per year.

For many the crisis will have a significant impact on total food consumption and may lead to far higher numbers of people who lack sufficient protein in their diets, are undernourished and go hungry.

Smallholder farmers are the mainstay of agricultural production in the developing world. It is estimated that over 2 billion people in the developing world depend on smallholder farms for their livelhoods.

However, smallholders face several barriers and challenges both for domestic production and production for export. Access to credit is just one of these and has long been a key barrier to production for smallholders, undermining smallholders’ abilities to invest in their farms and production, often leading to declining levels of productivity. In cocoa and coffee production – an important source of foreign exchange and income for many developing country governments and farmers –  a lack of access to credit (or at considerable expense) has meant that farmers have been unable to invest in new trees and have relied on older trees which have declining yields and, therefore, diminishing returns.

The UN has argued that access to credit and financial services is ever more important in the context of the financial crisis and declining levels of remittances, which serve as an important safety net for much of the world’s poor.

In April this year, the first ever meeting of G8 Agricultural Ministers took place. Kanayo Nwanze President of the International Fund for Agricultural Development (IFAD) said at the meeting that:

“Protecting and increasing the access of poor rural people to financial services is even more vital now…the well-being of 2 billion poor people who depend on smallholder farms in developing countries hinges on it…that is why we are encouraging ministers to return home and make sure that in all countries, rich and poor, we work together to keep agriculture at the top of their national agendas”.

IFAD argues that private sector involvement in agriculture is more important than ever, particularly with regard to the provision of services such as finance and marketing. 

For many large businesses who source from smallholders in the developing world, sustainability concerns (related in particular to climate change) are driving projects to ensure that smallholder production is economically, socially and environmentally sustainable. An example of this growing trend is the shift of two major confectionery brands – Mars and Cadbury’s – to using certification (in these cases, Rainforest Alliance and Fairtrade) as a means to bring about sustainable production. As part of these transformations, support services are also provided to the smallholders involved, a gap that developing world governments have often been unable to fill. For example Cadbury’s is implementing farmer education programmes that explore best cocoa management practices leading to improved quality cocoa and increased yields and offering enterprise loans to start up farming or small businesses. Several examples  have shown that investing in services for smallholders can be a win-win for businesses.

Let’s hope these trends continue and the recession provides ample evidence of the importance of private sector investment in agriculture.

Whilst researching the impacts of the recession on the demand for crocodile leather and stumbling over some tales of recession-induced woes, it seems Hermes, an internationally renowned luxury fashion brand, is the shining star – bucking all trends, and potentially single-handedly fuelling demand for exotic skins, like crocodile leather.

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Hermes sales rose by 3.2% at current exchange rates to €428.4 million over the first 3 months of 2009, despite the wider market context of a floundering global economy. Much of that growth is attributed to sales of leather goods, which rose 21.7% to €206 million and has been driven by ‘robust’ expansion in China and Korea (Hermes 2009).

Hermes’ Birkin bags fanatics, including celebrities like Victoria Beckham, are paying up to $US50,000 (with bags made from exotic skins hitting the 6-digit mark) for a single bag with a waiting list of 2-3 years. Beckham reportedly owns $US2 million worth of Hermes Birkin bags (Murray and Williams 2009). Three thousand coveted Saltwater crocodile skin bags will be made this year, and limiting them in number maintains the exclusivity, luxury image and mystique surrounding them. No doubt it helps that Hermes’ key clientele are unlikely to be affected by the recession and are seemingly “recession proof”, but Hermes ability to conjure such furore over a handbag can only be admired. The exclusivity of its brand is partly reflected in its differing sales results for own stores versus distribution networks, with a 16% growth in sales (at current exchange rates) in the former and a decline in the latter. Clearly stepping into Hermes’ own stores is a far more compelling shopping experience than that found in its distribution stores.

Experts argue that “the people who can afford these goods are not affected by the recession. Even if they lost millions of dollars in the market, they are still worth hundreds of millions of dollars. If you want something super special, if you want a handmade crocodile bag and you can afford it, Hermes is the only place you’ll go”.

Hermes, usually very closed-book about its activities, has claimed that “we cannot meet demand. We are facing massive over-demand. We are limited by our ability to train new craftsmen” [Patrick Thomas, CEO, cited in Goldman (2009)]. Craftsmen in a small French town of Pantin, spend up to 2 weeks preparing each bag. In order to guarantee supply Hermes is vertically integrating its supply chain, establishing new farms in Australia: “It can take three to four crocodiles to make one of our bags so we are now breeding our own crocodiles on our own farms, mainly in Australia,” and it is looking to add to its existing number of 1400 craftsmen to alleviate the bottleneck it currently faces in turning the leather into the exclusive Hermes handbag.

Whilst Hermes success might not be replicable in any market other than the ‘luxury’ fashion market, its role in fuelling demand for crocodile skin, and in driving the demand for 8 high quality skin and skilled, highly trained craftsmen can not be ignored.

This article is cited in the Crocodile Specialist Group Newsletter. See: http://iucncsg.org/.

Whilst the ‘Dairy Milk goes Fairtrade’ story has been around since early this year, it has now become a reality, despite a wider context of financial crises and a stagnation and decline in sales of some certified produce such as Organic.

On Monday the Bournville factory in the West Midlands, churned out its first line of Fairtrade Dairy Milk bars. A first in the world of ‘mainstream’ chocolate. Fairtrade has existed on the ‘fringes’ of most commodity sales (1-20% of all commodity sales in Europe and the US, Fairtrade’s biggest markets), albeit with growing sales, with most Fairtrade cocoa traditionally associated with niche or gourmet chocolate. It has now been propelled firmly into the mainstream. 

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The Fairtrade certification of Dairy Milk is expected to increase UK Fairtrade sales by 25%, after they reached £712.6m last year. Cadbury’s adoption of Fairtrade for its largest brand, Dairy Milk, is the sign of a big commitment. Cadbury’s claims that other varieties such as Fruit & Nut and Wholenut will follow once Fairtrade sources for ingredients such as hazelnuts and raisins are established (The Guardian).

And despite now being a time of financial difficulties for many companies, for Dairy Milk the transition to Fairtrade in the midst of a recession, should not be too finanically taxing. Cocoa is currently trading at $2,000 on the open market — well above the  minimum floor price of $1,750 a tonne for cocoa set by Fairtrade. This will mean no impact on purchase prices in the short term. However, the Fairtrade commitment does means the company is now locked in to paying higher prices than that on the open market if prices fall. Cadbury’s biggest driver for certification is thought to be that of securing supply and guaranteeing the sustainability of supply. This they regard as a necessary investment, rather than a cost.  

Cadbury’s may well be on to something here, as prices for cocoa rise due to shortages in supply, and as they have the added benefit of reduced reputational risk and increased shareholder value. This can only be a positive thing as the recession has severely undermined our faith in big businesses. Undoubtedly the commitment of a brand like Cadbury’s will only encourage others to follow suit and this trend is already emerging. Mars has pledged to buy 100% of its cocoa from sustainable sources by 2020,  working with the Rainforest Alliance. Nestlé, meanwhile, is working with the International and World Cocoa foundations.

Meat eating and its connection to climate change has suddenly come to dominate the media, with the likes of celebrities Paul McCartney, Kevin Spacey and Chris Martin (Coldplay) urging people to have one meat free day a week (Reuters, Bloomberg). As mentioned in a previous post, animal protein production (particularly large-scale) is a bigger contributor to greenhouse gas emissions globally than the transport sector – it is responsible for 18% of greenhouse gases (this includes both gases emitted from livestock and land use change). Greenpeace estimates every kilo (2.2 pounds) of beef eaten represents about the same greenhouse-gas emissions as flying 100 kilometers (62 miles).

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Unfortunately the types of gases livestock release (Methane, Nitrous Oxide) have far more powerful global warming power and potential than the typically demonised CO2 (nitrous oxide, for example, has 296 the global warming potential of CO2). This direct impact on climate change is exacerbated by the loss of forests to accommodate this growing industry, particularly in tropical zones such as Brazil and South America, that have significant potential to store carbon and help slow the current alarming rate of climate change. To add to the severity of the situation, production of meat is estimated to double from 2006 to 2050 (FAO, 2006), driven by growing demand in low and middle income countries as incomes rise.

Whilst climate change is evidently a serious issue, its consequences for society, particularly in the developing world, is of particular concern. Research suggests that the developing world is most vulnerable to climate change and its effects will be most strongly felt in the developing world. For example, whilst changes in the climate may be positive for agriculture in the developed world, the developing world is likely to see significant reductions in yields, due to decreases in rainfall and increases in temperature: ‘Results from a case study in Mali ..indicate that climate change could reduce forage yields by as much as 16 to 25% by 2050 and crop yields with a reduction from 9% to 17% for sorghum. In contrast pastures in cold areas are expected to benefit from rising temperatures’ (FAO, 2006).

I previously asked how the recession might impact demand for meat – suggesting that the recession could both reduce the amount of meat being bought (as a relatively expensive protein source and consumption being strongly correlated with income) and reduce the quality and types of meat being purchased. Some anecdotal trends suggest that this has been happening, particularly in the US. One industry expert argues that people are eating less beef, pork and poultry and that per capita consumption in the US is the lowest its been since 1982. In addition, people have been buying cheaper cuts of meat. This fall in consumption may give sustainable development a temporary reprieve from the negative impacts of animal protein production, but there are equity issues to bear in mind.

There are important differences in regards to global patterns of meat consumption. Whilst 100 million people go hungry and could benefit vastly (both in regards to physical and mental capacity, particularly children) from an introduction of more meat and dairy products into their diets, 1 billion people are either overweight or clinically obese and are far more prone to suffering from cardio-vascular disease, diabetes mellitus and some cancers because of excessive meat consumption. In India people consume 5kg per year of meat on average whilst in the US people consume 123 kg of meat, on average, per year.

The recession is likely to undo some of the economic growth and associated income gains in the developing world, potentially reducing any increases in animal protein consumption that are much needed. Meanwhile, for a vast majority in the developed world, the recession and any reductions in consumption may bring much needed health advantages and be benefical for the environment and society. Let’s hope the recession instills deep-seated changes in regard to how much animal protein consumption is necessary and ethical in the developed world. Maybe, just maybe, the recession has added fuel to Paul McCartney’s fire.

The UN approximates that an additional 100 million people will now go hungry as a result of the recession, as total numbers of those suffering from hunger hit 1 billion – a 6th of the world’s population. Many experts predicted that the recession would impact poverty levels, despite the recession’s origins in the West, and that through rising unemployment and food prices and falling incomes, hunger would be ever more pervasive. Despite these predictions they had not been quantified, until now. And what a depressing figure it is, demonstrating how something so seemingly detached (sub-prime mortgages) has led to the undoing of significant progress made to date. This number has fed fuel to the debate of just how globalised the economy has become.

In Asia and the Pacific, an estimated 642 million people are suffering from chronic hunger; in Sub-Saharan Africa 265 million; in Latin America and the Caribbean 53 million; in the Near East and North Africa 42 million; and in developed countries 15 million in total (FAO).

Whilst the crisis appears to have been indiscriminate for the poor, it is thought to have affected urban populations more severely than rural areas, due to the stronger connection between jobs in urban areas and falling export demand and foreign direct investment. However, rural areas have been by no means immune and migration from urban to rural areas has become a phenomenon. Remittances have also thought to have declined this year as a result of the recession, delivering another blow to the poor, whilst more recent falls in food prices have yet to benefit the developing world:

“While food prices in world markets declined over the past months, domestic prices in developing countries came down more slowly. They remained on average 24 percent higher in real terms by the end of 2008 compared to 2006. For poor consumers, who spend up to 60 percent of their incomes on staple foods, this means a strong reduction in their effective purchasing power.” (FAO).

The FAO Director-General, Jacques Diou, has argued that investment in agriculture is vital as a solid basis for further development and economic growth and because of the dominance of agriculture as the mainstay for a significant proportion of the developing world.

Whilst a clear solution may not be obvious, what is clear, is that this is a global recession, with global ramifications and one that makes us all responsible for its solutions. Even though the ethical and moral grounds for eradicating hunger are powerfully clear, the threat posed to global peace and security makes finding a solution a global imperative.

I recently posted a piece, admittedly riddled mainly with questions, about how the recession would impact wildlife trade, land use, conservation and the balance between legal and illegal trade. Although a relatively small case-study in the global scheme of things, Argyll in Scotland, has demonstrated just what could happen as the economic going gets tough:

One unexpected consequence of the recession is that the needs for cheap meat and money-making are combining to bring DIY wildlife crime gangs to Scotland to poach Roe, Red, Fallow and Sika deer. There is already a lively black market for cuts of meat from these animals (Strathclyde Police).

Other anecdotal trends do suggests that this rise in poaching is not necessarily confined to Argyll and may be having more serious effects in terms of undermining sustainability, elsewhere. The Born Free Foundation has argued that ‘rising food prices, another rash of crop failures, wide-ranging impacts of the global recession, will lead to a rise in the ‘bushmeat’ trade in Kenya’. This is thought to be detrimental to conservation because a portion of the bush meat contains endangered species. A survey in 2004 revealed that 40% of meat being sold as beef or goat in certain Nairobi butcheries was either wholly or partially bushmeat – it would be useful to update this research and understand the extent to which the recession is impacting illegal wildlife trade.

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Source: Wildlife Works Ltd

Whilst on the surface it may seem that trade in illegal bushmeat is only damaging to the wildlife it affects, Born Free’s Senior Wildlife Consultant argues that “this is not just about saving individual animals, important as that is.  It is about preserving functioning eco-systems that bring benefits to every person on the planet.  The ecosystem services provided by Africa’s forests and savannahs include rainfall, carbon storage and stabilizing the global climate, so we all have an interest in preventing a few profiteers from destroying these globally important ecosystems for personal gain.”

Illegal hunting and trade of wildlife, removes the economic connection between habitat (or land) and wildlife, undermining economic incentives to conserve habitats and, as a result, environmental sustainability – not just in the specific country concerned, but globally.

Africa’s deforestation rate is four times faster than the world average and is of particular concern for climate change because of its important role as a carbon sink.

Though the relationship between the economic crisis and deforestation isn’t on the surface an obvious one, the drivers of deforestation in Africa are only likely to become more pressing as the recession sends global shockwaves – affecting the cost of living for those who can least afford to spend more of their income on feeding themselves and their families. This is likely to exacerbate deforestation and the use of other natural resources as people seek to increase their income.

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Land tenure is thought to be a massive hurdle for conservation and particularly in the prevention of deforestation, with less than 2% of Africa’s forests under community control. The Guardian argues that in order for the currently negotiated Reduced Emissions from Deforestation and Degradation (REDD) credits to be effective  secure property rights are essential (REDD put simply is where you get paid for not destroying an ecosystem, providing financial incentives for conservation):

“Land tenure and forest governance are also key factors that will determine the success or failure of any REDD initiative, and the mechanisms by which payments and benefits are shared will be critical” (IIED).

The Economist argues that ‘The obvious economic explanation is that the over-exploitation of animals and plants is an example of the “tragedy of the commons”. If no one owns the wildlife or the land on which it lives, the behaviour that is individually rational—poaching, clearing land and so forth—may be collective folly. Trade ban or no trade ban, without enforceable property rights, the underlying tragedy remains’.

The logic is that, if communities have direct ownership of the land that are taking timber (or, indeed, any wildlife from) there is greater financial incentive for conservation: “Africa’s forest communities already generate millions of jobs and dollars in domestic and regional trade, and in indigenous livelihoods, but current laws keep some of these activities illegal and also undermine opportunities to improve forest management” (Rights and Resources Initiative). Resolving property rights, because of its direct link to resource use and deforestation is argued to be a first key step to addressing the causes of climate change.

However, some argue that deforestation is less an issue of property rights and more about the lack of governments’ control of access to wildlife and the land it occupies, through both social structures and formal rules. Land reforms alone are unlikely to be a panacea for deforestation – governments need to support local management and enterprises so that people have direct control over the resource and more financial incentive to ensure the sustainability of it.

The recession has only served to bring the debate over conservation, deforestation and effective government solutions into even sharper focus.

Research exploring the link between the credit crunch, trade credit and export horticulture in previous financial crises, shows that sharp falls in the availability of trade finance did cause problems for exporters – for example, Indonesia during the East Asian financial crisis of 1997, as international lenders withdrew from markets perceived as risky, to reduce their exposure.

However, in today’s economic climate, research is ‘lacking hard evidence‘ to confirm that declines in world trade are linked to trade financing.

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In recent research carried out by John Humphrey, where he surveyed 30 African export firms, none reported trade finance problems, despite the WTO warning of ‘substantial falls in trade credit, increasing lending costs and credit rationing’ in the context of today’s financial climate:

‘As of February/March 2009, very few of these firms faced any problems with respect to the availability of trade finance. What explains this finding? One factor was the resilience of the domestic banking system. Firms reported that credit in general is available from domestic banks as long as firms showed themselves to be creditworthy. Horticulture firms are considered good risks by local banks, so they did not have problems accessing finance.’

In addition to being regarded as ‘good risks’ by domestic banks, many horticultural firms benefit from inter-company credit, between exporters and producers for example and this lessens their direct reliance on the domestic banking system.

Nevertheless, these conclusions cannot be applied to the whole of the developing world, or indeed blanketedly to Africa. In South Africa, for example, it is thought that some exporters and producers of citrus fruits have been hard hit by ‘bad debtors’. Humphrey also argues that anecdotal trends in Latin America and the Caribbean, show that exporters are suffering as banks withdraw their credit.  In addition the recession is thought to be having an impact on small-traders and co-operatives who don’t necessarily have the trade ties to access inter-company credit.

Despite the incomplete conclusions about trade finance and its impact on trade, initial results for the first quarter of 2009 show that the recession is taking its toll on exports, as trade falls. Results recently published by USAID and the HCDA in Kenya, report a 17% decrease in horticulture export quantities in January, a 16% decrease in February and a 10% decrease in March. This translates to even stronger figures in terms of value, with a 32% decrease in $US earned through horticultural exports in January, a 26% decrease in February and a 16% decrease in March. This undoubtedly is having an effect on employment. One Kenyan source suggests that two major flower companies have laid off over 800 people between them, with more job losses to follow. In addition some Asian vegetable exporters have ceased to operate, and so called ‘briefcase’ exporter have stopped trading – this is regarded as a sign in the industry that the market is suffering.

As the horticultural sector starts to feel the pinch, suppliers are also affected in terms of the costs of seeds, fertilisers, protective clothing, transport, irrigation, and other inputs. Also, because cash flow on farms is tight, suppliers often receive late payments, exacerbating the situation.

The loss of earnings from horticulture will have nationwide repurcussions for many countries- in Kenya, for example, 80% of the population is reliant on horticulture for their livelihoods and as jobs are lost and incomes fall, so will the purchasing power fuelled by export horticulture, creating a ‘ripple’ effect throughout the entire economy. In some ways the recession is highlighting more than ever, the benefits of sustainable trading relationships between retailers in the developed world, importers, exporters, and producers in the developing world.

The recession has drawn the aid debate into even sharper focus as ‘cash strapped’ governments in the West pledged to continue giving aid – G20 leaders agreed at last month’s summit London that an extra $50bn would be needed to assist the developing world through the global economic crisis.

Today’s global financial pressures place ever-heavier emphasis on the need for Aid to work, and the rising popularity of Zambian economist Dambisa Moyo has giving fuel to the debate of whether Aid should exist at all – the debate has raged between Moyo and Jeffry Sachs in particular. Moyo argues that Aid achieves the opposite of its desired effect, encouraging dependency, corruption and stifling enterprise and innovation:

“With aid’s help corruption fosters corruption, nations quickly descend into a vicious cycle of aid. Foreign aid props up corrupt governments – providing them with freely usable cash. These corrupt governments interfere with the rule of law, the establishment of transparent civil institutions and the protection of civil liberties, making both domestic and foreign investment in poor countries unattractive.”

She argues that the success stories used to support those who are pro aid-giving vary hugely from the African countries still receiving aid today – notably the aid the ‘success stories’ received was smaller in amount and shorter in duration – they then moved on to adopt market-based, job-creation strategies. Holman, former Africa editor of the Financial Times argues that aid diminishes the role and responsibility of the State to its citizens – the basic contract between a citizen and the State breaks down as the State fails to deliver basic services – roads, water, schools and clinics – within the context of an aid-dependent state, these services are better delivered by a third party, such as an NGO.

Moyo and Holman make some very valid points and for countries who rely heavily on aid, adopting new financing and development strategies and ‘weening’ themselves off aid in the long-term can only be a good thing. However, Moyo’s argument can also be taken at face-value and very simplistically and misused, without more detailed understanding of the nuances of her argument and of the different forms of aid and the circumstances in which it is needed and can work. We can ill-afford to desert the poorest who can only be worse-off as a result of the financial crisis and who are in need of basic social protection.

Steve Radelet, senior fellow at the Center for Global development in Washington, poses some solutions in ensuring aid is used in the right way:

  1. Be more selective. Africa is not a monolithic entity. More aid should go to countries that can use it well, especially the emerging democracies that are implementing sensible economic policies.
  2. Set clear goals, set them publicly, and measure results with independent monitors.
  3. Streamline bureaucracies and make sure a larger share of funds gets to those that need it most.
  4. Listen more. Ask Africans – government officials and ordinary citizens – what they need most and how programs can best be implemented both to achieve immediate goals and build capacity over time.