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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.

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Anecdotal evidence suggests that in some countries around the world the recession is having an impact on the levels of carbon dioxide – a gas that plays a key role in contributing to atmospheric warming – and other greenhouse gases being emitted into the atmosphere.

In the European Union (EU), for example, a 1.5% reduction in greenhouse gas emissions has been reported for 2008 (compared to the previous year) for all 27 members of the EU, by the European Environment Agency (EEA). In addition a 1.3% reduction in the EU 15 has been reported – the 15 wealthiest and oldest members of the EU. This reduction has been attributed to lower carbon dioxide emissions from fossil fuel combustion in the energy, industry and transport sectors which has occurred as a result of the economic recession.

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Similarly, a study in the UK has concluded that there has been a 31% decline in traffic on motorways over the past two years. This story is likely to be similar in other developed countries that have been affected by the recession and where car ownership and use is high. The fall in traffic in the UK is thought to be due to falling numbers of people travelling during morning and evening rush hours as unemployment rises. In addition people who have been fortunate enough to remain employed have made cost-savings by working at home, sharing lifts with other people and using public transport.

The United Nations Environment Programme also argued that 2008 was the first year when new investments in renewable energies were greater than investments in fossil-fuelled technologies.

Whilst these changes may bring some temporary respite for the environment, evidence suggests that as the economic crisis wanes old patterns will be re-established. However, if the recession has provided ample opportunity and motivation for investment in renewable energy in order to replace fossil-fuel based energy use then the recession may well have provided just one, although not insignificant, silver lining.

to letAs the recession appears to continue unabated, it becomes clear that in any given situation there will always be winners and losers. And the recession is no exception.

As new building developments stand empty and construction sites remain unfinished it becomes evident that the recession has paused the purchase and development of new residential and commercial space. In the U.S. some states are removing or reducing impact fees – charged by municipalities nationwide to pay for the additional services that come with increased development, such as schools, sewer lines and roads – to try and bolster development in these financial trying times (Boston.com).

Whilst the financial crisis has halted development and expansion for the vast majority, others are using this ‘construction pause’ as an opportunity. Some retailers have been able to benefit from falling land and property prices and the quicker processing of planning applications, to expand their operations into both new land and deserted ex-retail space.

Seemingly unaffected by decreased access to credit, large retailers are snapping up land and new developments. With retailers like Woolworths and Zavvi going bust, new sites are constantly emerging and this pattern is likely to continue as long as the recession does. For example, earlier this month Sainsbury’s announced that it would seek to raise additional capital worth £445m as a direct response to the opportunities currently available to develop new space. This investment will enable Sainsbury’s to open an additional 15% gross space, equating to 2.5m sq ft of additional selling area, over the next two years.

Morrisons also announced in March 2008 that it had identified up to 100 new locations which could accommodate one of its stores and would therefore add a further one million square feet on top of what was initially set out within its ‘Optimisation Plan’ (IDG).

Whilst on the surface this may seem like a simple trend of expansion, for supermarkets in particular, expanding retail space is an important factor in gaining market share and cornering markets, particularly to anticipate increased sales when the recession ends. This spatial expansion has ramifications for the smaller or independent stores who may no longer have the same options in terms of their own expansion into new retail space and may be crowded out by chains of supermarkets that come to dominate the high street.

The recession serves to amplify strengths and weaknesses – almost a process of natural selection – as the strongest and largest (in terms of size and financial strength) are better able to hold their position and even better it, whilst the smaller and weaker retailers are likely to struggle, at best maintaining their position, at worst, folding. To reiterate then, there are always winners and losers but closely monitoring this trend and what it may mean for suppliers and producers, particularly in the developing world, may reveal a great deal about supply chain dynamics and the impact these dynamics have on producers, either positive or negative. This could ultimately help better inform policy.

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.

Previous posts have discussed the importance of CSR and sustainable development for businesses through this period of financial turmoil. Whilst it has become clear amongst consumers that saving money and contributing to sustainable development need not be opposing aims, this has been less explored for the business realm.

Here are a just a handful of the ways in which the recession has affected businesses and sustainable development – both good and bad:

1) Travel

Travel, has been one of the first things to show shifts towards improved environmental sustainability as air and road traffic have fallen and train passengers have risen. Anecdotal trends also suggest that businesses are cutting costs by reducing travel and are replacing face-to-face meetings with virtual, online meetings. Accenture, a management consultancy, believes it has saved $8m in a year by using “telepresence” systems and has avoided journeys that would have generated 2,000 tonnes of carbon dioxide.

2) CSR Budgets

Cuts to CSR budgets have taken place – and this is perhaps unsurprising as companies work to minimise costs and maximise short-term survival and efficiency. A survey conducted late last year on behalf of Business for Social Responsibility, a global network of firms with an interest in CSR, showed that almost a third expected their spending on sustainability to fall as a result of the crisis. However, research also suggest that more ‘peripheral’ aspects of CSR i.e. those less diretly related to the business and its strategy were the aspects most likely to suffer, rather than there being a wholesale shift away from CSR spending.

3) Budgets for charity and philanthropy

Businesses are making cuts to their charitable giving as they grapple with rising costs and falling trade. Citigroup’s charitable foundation says it expects to make $63m of grants in 2009, down from $90m last year. Ford expects its philanthropic arm to shell out 40% less this year.

4) Changing priorities

A survey of 329 corporate-travel managers and business travellers published in February by the Association of Corporate Travel Executives found that only 17% of them now ranked environmental sustainability as a high priority, compared with 29% a year ago. Although on the surface this might imply a shift away from any consideration of sustainable development, it is hardly surprising that as businesses around us flounder and many ‘go under’ that environmental sustainability has not remained as high a priority as a year ago. Businesses, after all, have a duty to their shareholders to protect their bottom line. This survey does not prove that businesses have deserted their environmental ethics completely or indefinitely, or that those who have survived the worst of the recession, won’t use sustainable development as a core platform on which to build their future success.

5) Energy use

Reducing energy use and saving money is being increasingly regarded as a relatively painless way of achieving win-wins for business costs and sustainable development. Intel, the world’s largest chipmaker, says it plans to increase investment in energy efficiency this year because the $23m it has poured into green energy since 2001 cut its fuel bills by $50m over the same period.

6) Sustainable sourcing

Mars, due apparently to concerns over the future of its supply, has plans to ensure all of its Galaxy chocolate bars are Rainforest Alliance certified by 2010. Similarly, Cadbury’s Dairy Milk is set to become Fairtrade certified. This recognises the importance of ensuring that production mitigates against negative environmental externalities.

The slump – a second chance for sustainable development?

Many are regarding this ‘slump’ as a second chance to make real progress towards sustainable development. It is also seen as an opportunity to restores customers’ faith in businesses, which has taken a serious hammering in the light of recent financial events.

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.

Although no-one would want to suggest that a lengthy recession is a positive thing, research-wise, it has allowed us to see what kind of things happen in an economic downturn and in particular, when consumers start to either feel or perceive their disposable income dropping.

For example, a recent article by the BBC discusses how consumers in the UK shopped in April 2009, as compared to April 2008. The results are pretty startling – sales of baked beans are up by 21.6%, budget lines by almost 23% and there is a depressing story for organic produce – as sales have decreased by 10.6% when compared to the previous year. The story is even worse for March 2009, when there was a 21.6% drop in organic sales.

The most obvious trends of customers replacing a higher-end product, with a similar but less expensive substitution is Champagne and sparkling wine – sparkling wine sales were up 9.9%, whilst sales of Champagne were down 9.0%.

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Falls in organic sales and increases in budget lines may bode poorly for the environment, but other trends may work in its favour. For example, unit sales of low-energy light bulbs have grown by 38.8% (although value has fallen due to price drops for the bulbs – from £1.25 to 87p). Interestingly, but perhaps not surprisingly, air traffic at Heathrow, Gatwick, Stansted, Glasgow, Edinburgh, Aberdeen and Southampton airports has fallen as passenger numbers decreased 2.3% in April compared with the same month in 2008.

And people are driving less –  London’s congestion charge was paid just under 9.5 million times in the first four months of the year, which was down 9.8% on the same period last year. Similarly the number of people crossing the Severn bridge was also down, whilst railway passengers grew slightly.

Unfortunately the overall impact of these trends (both the positive and negative, for the environment) won’t emerge until the recession has ceased, but let’s hope the positives will be permanent lifestyle changes.

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.

An article by the Guardian recently revealed plans for increased numbers of armed guards and miles of electric fencing to be erected around its key national parks in order to ‘protect water sources and stop impoverished people felling trees’. Kenya’s five national parks are thought to provide almost 80% of the country’s drinking water and hyrdroelectric power, but in one park in particular – Mau, 15,000 people now live ‘illegally’ and are believed to have cut down 104,00o hectares of trees in the past 15 years. Other parks – including the Mara, mentioned in an earlier post – have suffered from excessive livestock grazing and from deforestation for charcoal.

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The increased use of natural resources in national parks is believed to be a result of drought triggered by changing weather patterns associated with climate change and is being futher exacerbated by population growth.

The head of the government run Kenya Wildlife Service states that “the long rains have failed for the first time. The implications for food security and water scarcity and energy are profound. Kenya will face these three crises in the next 10 years without a doubt. If we carry on the way we are going, in 20 years the consequences will be horrific”.

The recession is undoubtedly a double blow to the communities involved in conservation and tourism in areas surrounding national parks, as they begin to suffer from falling tourist revenues and as food prices and inflation rises.

Whilst the article highlights a very serious and significant issue, its stance is very much one of a concerned conservationist or environmentalist with local populations regarded as the core problem. What it fails to consider is the wide responsibility we all have in facing and dealing with the global impacts of climate change and above all, worsening poverty, on people.

Many have argued that ‘conservation’ has long been a powerful political tool to justify the control and subordination of marginalised people, and whilst this fence may not be a direct means of subordinating the local population it does not deal with the root cause of the issue – that of profound poverty and the exacerbation of this poverty caused by anthropogenic climate change and the financial crisis.

Fences, after all, can be climbed and when your family’s life depends  on it, no wall is insurmountable.

Does Kenya, therefore, provide a small glimpse of the future for many communities in the developing world as the recession and climate change take their hefty toll? Surely a more long-term, meaningful solution than an electric fence is needed? Now, more than ever, can we ill-afford to solve only one, very small part of the problem.