Can Turkey save the global food supply chain?

EURASIA

Earlier this week, Turkey’s President Recep Tayyip Erdogan sought to persuade Russian President Vladimir Putin to revive the Black Sea agreement. Despite the war with Russia, this agreement allowed Ukraine to export grain and other commodities from three Black Sea ports.

This agreement, which Putin refused to extend, is vital for global food supplies, especially in developing regions like Africa, the Middle East, and Asia. Ukraine and Russia are significant suppliers of wheat, barley, sunflower oil, and other goods that these nations rely on.

The outcome of these talks is crucial for the global food supply chain. If the grain deal is revived, it could stabilize food prices and prevent potential shortages in vulnerable regions. However, if the negotiations fail, it could disrupt the supply of essential commodities, affecting food security worldwide.

This shift in Ukraine’s strategy, influenced by US advice, could have significant implications for the global supply chain

Erdogan’s repeated pledges to renew the agreement highlight the importance of this issue for Turkey and its role in global food security. Turkey’s position as a primary trading partner and logistical hub for Russia’s overseas trade gives it leverage in these negotiations. The outcome of these talks will significantly impact the global food supply chain, affecting the availability and affordability of essential food commodities in many countries, particularly in Africa and Asia.

Ukrainian strategy changes signal a new approach to the Russia-Ukraine conflict.

Ukraine’s President Volodymyr Zelenskyy has replaced his defence minister, signalling a shift in the country’s strategy in the ongoing conflict with Russia. The change comes as Ukraine reaches a critical phase in the war, prompting a group of senior US generals to meet with Ukrainian generals on the Polish border to discuss the need for a new strategy.

The earlier strategy involved distributing its forces into small, independent units, making it difficult for Russia to destroy the Ukrainian army quickly. This strategy played to Ukraine’s strengths in guerrilla warfare and knowledge of the terrain. However, it also allowed the Russian military to capture cities slowly.

The new Russian strategy, devised by the General Staff, involves massing forces to engage and defeat the Ukrainian army. The US generals believe that Ukraine’s current strategy is unsustainable and are advocating for a more concentrated and powerful force to counter the Russian offensive effectively.

This shift in Ukraine’s strategy, influenced by US advice, could have significant implications for the global supply chain. Ukraine is a major agricultural exporter, particularly of wheat and corn. Any disruption in its ability to produce and export these goods could impact global food supplies and prices. Additionally, the conflict could disrupt key transportation routes, affecting the flow of goods through the region.

Europe

The UK is set to leave the Energy Charter Treaty along with other EU countries. The UK is considering quitting the International Energy Charter Treaty (ECT) if reforms to the treaty don’t materialize by November. The ECT allows companies to sue governments over policies that could affect their future profits.

Many companies have used this to seek compensation for actions such as phasing out coal-fired power stations or banning fracking. Critics, including the European Union (EU), argue that staying in the treaty undermines climate targets, and several countries, including France, Germany, and Spain, have announced their intentions to leave.

If the UK withdraws from the ECT, it could have significant implications for the global supply chain, particularly in the energy sector. Fossil fuel and renewable energy companies have used the ECT to protect their investments and seek compensation for policy changes that impact their operations.

If more countries, including major economies like the UK, exit the treaty, it could limit the ability of energy companies to use legal means to protect their interests, potentially affecting their willingness to invest in countries with evolving energy policies.

Also, if the UK exits the treaty due to concerns about its impact on climate goals, it could set a precedent for other countries to reconsider their participation in agreements that conflict with their environmental commitments, potentially reshaping the global regulatory landscape for energy and climate-related industries.

UK delays post-Brexit fresh food checks from EU for fifth time.

The UK has again delayed introducing post-Brexit checks on food, plant, and animal produce from the EU. This marks the fifth delay, with checks now set to begin at the end of January next year, extending the phased introduction by three more months.

The delay is attributed to concerns over the impact of checks on food price inflation during a cost-of-living crisis. While the government estimates the effect on inflation to be less than 0.2 percent across three years, it aims to give businesses more time to prepare and adapt to the new rules.

This delay affects the global supply chain in several ways. First, it maintains the asymmetry of checks, as goods exported from the UK to the EU have already faced controls since January 2021. Second, it impacts food producers, who had complained about their continental rivals having a “free pass” while they endured checks on fresh food exports to the EU.

The delay can lead to uncertainty for businesses making long-term investment and supply chain decisions. However, it may also provide more time for them to adjust to the new border controls.

European leaders frustrated by Xi Jinping’s absence at the G20 summit.

Xi Jinping’s absence from the G20 summit in New Delhi has frustrated European leaders eager for diplomatic dialogue with China. European officials view Xi as the ultimate decision-maker in China, and securing time with him is an opportunity to present European perspectives on critical issues like Ukraine, which his close advisors may need to hear.

The absence of President Xi is seen as a missed opportunity for European leaders who are keen to de-risk their relationship with China but still wish to engage with the world’s second-largest economy. European Council President Charles Michel’s planned meeting with Xi was cancelled, and he was offered an appointment with Premier Li Qiang instead. Other European leaders, including Ursula von der Leyen and Rishi Sunak, had also sought meetings with Xi.

Xi’s absence has raised speculation about possible reasons, from China’s domestic economic challenges to tensions with India or a Chinese effort to undermine the G20 forum after the expansion of BRICS. It also has to work on drafting a G20 communique, with Beijing allegedly obstructing progress. This development could affect the global supply chain by potentially delaying or complicating efforts to address trade and economic issues between the European Union and China, impacting global trade dynamics and the stability of international economic relations.

German electricity price fight deepens ahead of government retreat.

There is a growing debate within the German government over whether to subsidize electricity prices for energy-intensive industries, including chemical and steel production.

German Chancellor Olaf Scholz’s Social Democrats party (SPD) is divided on this issue, with some members supporting subsidies to help struggling industries facing higher energy costs. In contrast, others, like Finance Minister Christian Lindner, oppose such measures on economic grounds.

The backdrop to this debate is Germany’s shift away from Russian gas, which has led to higher gas and electricity prices in the country. Economy Minister Robert Habeck initially proposed a subsidy scheme to keep industries in Germany from relocating due to rising energy costs. However, Chancellor Scholz is more cautious about increasing public debt and prefers a temporary solution to the problem.

The outcome of this current debate could have implications for the global supply chain, especially for industries like chemicals and steel, which are critical components in various manufacturing processes. If Germany chooses to subsidize electricity prices for these industries, it could help them remain competitive, potentially stabilizing supply chains that rely on their products. On the other hand, if subsidies are not provided, some industries might consider relocating, which could disrupt supply chains and affect global markets.

UK manufacturing faces historic output contraction.

The UK manufacturing sector faced a severe downturn in August, experiencing its sharpest contraction in over a year. The S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) hit a low of 43.0, falling from 45.3 in July and dropping below the neutral 50.0 mark.

This downturn is attributed to economic fragility, rising interest rates, and the increasing cost of living, which have significantly impacted demand. Several vital indicators reflected the manufacturing sector’s struggles.

Output and new orders saw record declines, with production volumes dropping for the sixth month. New order intakes were also negatively affected by worsening market conditions. The weakest sub-industry was intermediate goods, experiencing rapid declines in output, new orders, new export business, input purchasing, and employment.

Despite these challenges, manufacturers held a positive outlook, with 56 percent expecting growth in the coming year. This optimism stemmed from hopes of a market recovery, new product launches, and diversification plans. However, this contraction in the UK manufacturing sector could have global supply chain implications, potentially affecting the availability and cost of goods produced in the UK. The decline in output and new orders, coupled with reduced staffing levels, may disrupt the supply of certain products and lead to price fluctuations.

Asia

China launches a $40 billion state fund to boost the chip industry.

Reuters reported that China is set to announce a new $40 billion state-backed investment fund for its semiconductor industry. This signals the country’s determination to enhance its chip capabilities, reducing reliance on foreign technology and protecting national security interests.

This move comes in response to US export controls that have limited China’s access to advanced chip-making equipment. The fund, known as the China Integrated Circuit Industry Investment Fund or Big Fund, is the largest of its kind, surpassing previous funds created in 2014 and 2019. It will focus on investments in chip manufacturing equipment, a crucial part of semiconductor production.

President Xi Jinping has emphasized China’s need for self-sufficiency in chip manufacturing, mainly as semiconductors play an essential role in various industries, including telecommunications, consumer electronics, and defense. This development has significant implications for the global supply chain. China’s investments in its semiconductor industry could disrupt the existing dynamics and increase competition with established chip producers like the United States and South Korea.

It may also lead to technological advancements and innovation in the semiconductor sector, impacting the availability and pricing of chips worldwide. As China strives for semiconductor self-reliance, it could reshape the global chip market and influence the strategies of other major players in the industry.

China outpaces the US and others in clean energy revenue generation.
There is a significant disparity between Chinese and US companies in generating income from renewable energy sources, including solar, wind, nuclear, and others. Chinese companies, particularly those listed on the Shanghai Composite Index, are significantly ahead of their US counterparts.

While Chinese firms derive a substantial portion of their revenue from clean energy, US companies in the S&P 500 generate just 3.4 percent of their income from such sources. China’s dominant position in the clean energy supply chain, including companies like LONGi Green Energy Technology Co. and Tongwei Co., has enabled Chinese firms to excel in this field.

The Asia-Pacific region, which includes China, has over 680 companies generating more than half their revenue from clean energy, compared to about 410 companies in the US and 430 in Europe, the Middle East, and Africa combined. This disparity in clean energy revenue generation could impact the global supply chain.

Chinese companies’ strong presence and leadership in clean energy technologies might allow them to secure a competitive advantage as the world shifts towards renewable energy solutions. Conversely, US companies may need to accelerate their transition to cleaner energy sources to remain competitive on a global scale and meet sustainability goals.

Iran anticipates the release of frozen funds by South Korea.

Iran is discussing with South Korea to release Iranian funds frozen in South Korea. Iran has sought to access these funds in the past, and it has been linked to various negotiations and incidents, including the detention of individuals.

However, South Korea’s Foreign Minister, Park Jin, has confirmed ongoing efforts to resolve this issue, indicating a potential breakthrough in releasing Iranian assets.

This development could have implications for the global supply chain. Iran aims to unfreeze billions of dollars to bolster its domestic economy and purchase goods from abroad that are not subject to sanctions. If successful, this could increase trade opportunities between Iran and South Korea, benefiting both countries. Iran’s desire to expand its defence exports and imports may also impact global arms trade dynamics.

Moreover, South Korea’s election as a non-permanent member of the UN Security Council may facilitate increased cooperation between Iran and South Korea, potentially opening doors for further diplomatic and economic engagement. The eventual release of Iranian funds in South Korea can affect global supply chains by influencing trade and economic dynamics in the region and beyond Iranian shores.

America

The US commits $15 billion to aid automakers in EV transition.

The US Department of Energy (DoE) is set to provide up to $15.5 billion in funding to support the transition to electric vehicles (EVs). This funding includes $10 billion in loans and $2 billion in grants for projects aimed at converting automotive manufacturing facilities to produce EVs and preserving jobs in local communities.

The DoE also plans to offer $3.5 billion in funding to expand domestic battery manufacturing, focusing on battery materials and components. This program aims to support the production of hybrid, electric, and hydrogen fuel cell vehicles and the growth of light, medium, and heavy-duty electrified vehicles and components. The funding aligns with the US National Blueprint for Lithium Batteries, which seeks to strengthen the domestic battery supply chain and accelerate the development of a secure and equitable domestic industrial base by 2030.

This initiative will significantly impact the global supply chain for EVs and battery materials. By increasing domestic battery production and retrofitting automotive manufacturing facilities, the US aims to reduce its reliance on imports and bolster its EV industry. This could lead to greater competition in the global EV market and potentially influence battery materials and components’ supply and demand dynamics.

Read also: Using policy actions to overcome Africa’s supply chain hurdles

Transcontinental

ADB reports record $2.5 trillion global trade finance gap

The global trade finance gap has reached a record high of $2.5 trillion, as reported by the Asian Development Bank (ADB). This trade finance gap represents the difference between the financing requested and the financing approved to support international trade activities like imports and exports.

The gap has grown significantly, increasing by 47 percent from $1.7 trillion in 2020. Several factors contributed to this surge, including rising interest rates, economic uncertainties, inflation, and geopolitical tensions. This widening trade finance gap is concerning because trade heavily relies on financing, with approximately 80 percent of global trade transactions involving some form of financing.

The implications for the global supply chain are significant. Companies face supply chain challenges, with insufficient financing being the top concern. Resilient supply chains are built on adequate financing, reliable logistics, and digital technology utilization.

Moreover, respondents in the survey conducted by ADB suggested that aligning with Environmental, Social, and Governance (ESG) standards could help reduce the trade financing gap. However, due to more complex due diligence processes, ESG alignment might also increase financing costs.