We live in a world where enough food is produced to feed the whole population. Surprisingly, one in nine people, and in third world countries and one in three children still experience hunger or malnutrition. With an increasing global population and wealth, we can only expect the demand for food to increase. This calls for action to prevent food crisis which is likely to worsen.
Climate change is putting more pressure on the food production. So what can we do to provide enough nutritious food for everyone in a sustainable, inclusive and environmentally friendly way? SDG zero hunger pledges to end hunger, achieve food security and promote sustainable agriculture.
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All stakeholders in the food and agricultural system should step up and work together towards zero hunger. These include the governments, research, business, individual consumers and financial markets and institutions.
Financial economics explains how finance contributes to solving this problem of hunger. Thinking like a financial economist; there seems to be a puzzle. There is enough foods, but still people are hungry. Perhaps, something goes wrong on the kind of markets on which foods are traded. These are agricultural commodity markets. Trading foods, or more broadly agricultural commodities, plays a key role in providing food to the population and constitutes a major source of income for many developing countries and individuals around the world.
Agriculture is arguably the single largest employer in the world. It supports close to three billion people or 40 percent of global population to cater for food and other basic needs. Majority of the world's hungry people live in developing agricultural economies, where poverty is prevalent among food crop farmers. The situation is getting worse day by day in South America, South Asia and most countries in Africa. So what does go wrong on agricultural commodity markets? People do not only starve because food is too expensive. Rather, it is the volatility of prices that hit food producers the hardest. This causes a chain reaction that affects the markets and the consumers as well, the group that suffers the most.
This volatility in commodity price has been increasing over time. Increased volatility means more unstable income for food producers. But also, more problems arise due to poor planning of food production processes leading to periods of food shortages or excessive production that is at risk of being wasted or more severely to cause damage to the environment.
Such causes fluctuating revenues making fiscal planning extremely difficult, and as a consequence, investment in infrastructure, healthcare and education suffer. Drastic increase in price of food commodities can also have disastrous consequences as farmers and agricultural countries can be tempted to engage in straightforward exploitations and focus on the current extensive consumption with no regard for long-term planning or environmental concerns which are critical to growing food crops.
Volatility is something that financial economists talk about. Another question is, what can be done about those price swings? Well, economic tools can be provided by financial markets. These are needed to stabilize commodity producers' income. Commodity features or option exchanges allows commodity producers to use financial products to transfer their price risks to outside investors who are willing to take on those risks. This makes their income from food sales more stable and predictable. The challenge here is to create accessibility to well-functioning commodity exchanges for farmers in third world agricultural economies especially in Africa. The biggest commodity exchanges are only available in the developed countries mostly in Asia, Europe and America. Recognizing the challenge to access international exchanges, national and local exchanges have begun to develop in these countries.
Successful local commodity exchanges exists in Brazil and Asia and they are growing really fast. To facilitate access to international and national commodity exchanges, financial markets and institutions are expected to play a vital role. Financial institutions such as banks and insurance agencies can also make a difference by providing farmers with access to finance, insurance and other risk management tools. This will go a long way to ensure the incomes from agricultural practices become steady and sustainable. Also, to support the production process, they can focus investments in expansion of rural infrastructure and agricultural research in third world countries to support the production process.
Through the support we give local farmers, we can bring change, hence sustainable food choices and reducing food wastage. We can also make use of our power as voters to demand businesses and governments to make the choice to promote zero hunger. Together we can work towards achieving a sustainable, healthier and more inclusive future free without hunger.
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