Why are food prices soaring? #Wheat prices are up 37% from their low and #corn prices are up 61%. Both are at the highest levels in years ..
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This matters for emerging markets (EM) more than developed markets, because lower incomes in EM means a higher proportion of spending goes on food. There's enough famous Marie Antoinette "let them eat cake" examples to justify concern about unrest when food prices go up in EM
The last time we sustained big rises in food prices was the 2000s when global stock levels fell due to poor harvests, the Chinese middle class were eating more meat and high oil prices encouraged bio-fuel usage - but stock levels are much higher now than in the 2000s
It looks like the global agricultural surplus has been bought up by China. Together with India (but India has bought much less and has far lower stocks per capita), China appears to have bought up the entire global wheat surplus
My guess is that China is taking advantage of CNY appreciation to buy up stocks of wheat, corn .. and probably copper and iron too .. at prices that look relatively OK to them. The implication is China's surge in demand for these products will end when CNY appreciation stops
This means that agriculture exporters like Canada, US, Australia, Argentina, Russia (*), Ukraine and Kazakhstan should have an export boost while food importers like Egypt (the world's biggest wheat importer) and countries like Turkey face more challenges
* Russia domestic grain prices are closely linked to the world price (Russian traders are smart and arbitrage between them) so we'll see export restrictions to crash the local price in Feb.
In the medium-term, good global stocks suggests upward price pressures won't last
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Macron's call for the private sector to accept losses on their lending to Africa might be a short-sighted mistake. There is undoubtedly a moral (and selfish) case for public sector support by the G7/G20 to support less wealthy nations in this global health outbreak ...
But the private sector will already be paying for that via future higher taxation in their home countries. What Macron is suggesting those few private sector lenders who have lent to the poorest countries, should pay twice, now by taking a loss and in the future via domestic tax
For years, the call has gone out to the private sector to fund an estimated $100bn or more in unmet infrastructure needs across Africa. Few have stepped up. Funding this in the decade ahead will be more expensive if Macron wins this debate.
Some in the markets are looking at Korea which, like China before it, seems to be controlling the #coronavirus spread. Don't. East Asians are not seeing the active case infection rate double every 3 days but Europe (even Italy still) and the US are. See next tweet
East Asia has had school shut downs for weeks which has helped. Europe/US have not which means they are following the Italy playbook. The active #coronavirus case number per 100k in Switzerland is 6 days behind Italy. All schools were closed in Italy 5 days ago ...meanwhile ..
France and Germany are about 8-9 days behind Italy. Expect the Bundesliga to be suspended in 8 days and German schools needing to be closed in 5 days (it is a big debate in Germany already). The UK is probably 13-14 days behind Italy with implications for schools/football etc..
Firstly, it is conceptually wrong to assume that a larger currency area will make west Africa richer. If this was right, Nigerians would be the richest in EcoWas, but instead the smallest member, Cape Verde, is the richest. This implies there should be more currencies, not less
Secondly, the CFA countries have interest rates that are half that of Nigeria or Ghana, and their (eg Senegal, Cote D'Ivoire) investment rates are much higher. Merging currencies with Ghana and Nigeria would mean slower growth, less investment, higher inflation and fewer jobs
#Nigeria’s GDP slowly picking up since the oil price crash of 2014-16 - up 1.9% in 2018 (0.8% the year before). And last quarter of 2018 was best in years at 2.4% - but not fast enough to deal with Unemployment
If we look at Nigeria's economy and compare it to other oil exporters - it's better than some (Eq Guinea in Africa, Venezuela in Latam), and worse than others. But none have done great since the oil price fall began in 2014
We think Nigeria will do better in the next four years - as we said in this thread
- because oil prices won't repeat the fall of 2014-16 (nominally they can't fall $80 from peak to trough). But policy choices will determine *how* much better Nigeria does
Nigeria's biggest unions are on strike calling for a big rise in the minimum wage, from around $50 (NGN18k) to $140-180 a month (NGN50-65k). This could make Nigerians more expensive to employ than the Vietnamese ($145) or Russians ($163) based on rough figures we compiled below
There is a case to be made for a higher minimum wage. The NLC points out the currency has halved in value, and petrol prices are up 80% since the last wage change. Ivory Coast and Kenya have min wages around roughly $100.
However, when wages are too high and un-competitive, currency devaluation often becomes the market led response to address the problem. Turkey hiked the minimum wage by 60% over 2015-18 - the currency has halved in value since 2015. Argentina too hiked wages too much