The world is currently on the brink of a growing debt crisis that could plunge millions more into hunger as countries struggle to feed their populations, leading food experts have warned. According to a new report, unsustainable and inequitable food systems are a key contributor to the spiralling debt crisis. The 31-pager, published on March 6th by the International Panel of Experts on Sustainable Food Systems (IPES Food), an international group of 23 food system experts, argues that import dependencies, extractive financial flows, boom-bust commodity cycles, and climate-vulnerable food systems are combining to destabilize the finances of the world’s poorest countries. “Last year’s record high food prices may have receded, but the food crisis is still biting and it’s entering a dangerous new phase – of skyrocketing debt distress and spiralling hunger in dozens of low and middle-income countries,” says IPES-Food expert economist Jennifer Clapp. “Rising debt bills are becoming unaffordable for many governments, just as they struggle to pay for food and fertilizer imports – and they’re running out of road. Decades of progress in reducing hunger risks being undone.” And the situation is already grave. At the end of 2022, some 349 million people were facing acute food insecurity, with 49 million on the brink of famine, while some 828 million people were chronically undernourished. The report therefore calls for comprehensive debt relief and a radical transformation of food systems to build a basis for sustainable public finances in low-income countries and durable progress in the fight against hunger and poverty.

The introduction to the report gives an overview of the rapidly unfolding hunger crisis and debt crisis. Following a decade of steadily rising debt levels, public finances in low-income countries have come under even greater pressure due to the COVID-19 pandemic and the economic disruptions caused by the Ukraine war. In 2022, low-income countries were not only affected by rising food prices but also soaring import costs for fertilizer and energy. Rapidly rising interest rates in wealthy countries have played a key role in turning those pressures into an emerging debt crisis. By January 2023, US federal reserve rates had risen from 0.08% to 4.33% in less than a year, with over a third of developing countries seeing their currencies depreciate by more than 10% against the dollar. This meant that dollar-denominated debts suddenly became more costly to service. As a result, global public debt rose to its highest levels in almost 60 years and the debt servicing costs of the world’s poorest countries increased by 35% in 2022. About 60% of low-income countries, and 30% of middle-income countries, are now considered at high risk of (or already in) debt distress. A map in the report shows that some of these countries are also classified by UN agencies as suffering from acute food insecurity or a major food crisis. 21 countries are nearing catastrophic levels of both debt distress and food insecurity – including Afghanistan, Cameroon, Ethiopia, Haiti, Lebanon, Somalia, Sudan, and Zimbabwe. IPES-Food says that Lebanon, Sri Lanka, Suriname, and Zambia already defaulted on sovereign debts between 2020-2022, raising concerns that another 12 governments could also be close to default. And in January 2023, Ghana requested urgent restructuring of its foreign debt, while Pakistan's foreign reserves had reportedly run dry, leaving food shipments sitting in its ports and sparking emergency talks with the International Monetary Fund (IMF).

Debt accrued by low-income countries is frequently blamed on economic mismanagement, corruption, and external shocks but this does not tell the whole story. The IPES Food experts argue that, although rarely acknowledged by policymakers, today's unsustainable and inequitable global food systems are a key contributor to the debt crisis. Chapter 2 identifies four ways in which food systems are deepening the current debt crisis. The first driver is import and dollar dependencies which generate high debts and prevent countries investing in diversifying their food systems and economies. Export orientation was heavily prioritized through structural adjustment programmes which included the promotion of cash crop exports and cheap grain imports, and the withdrawal of state subsidies for food and fuel. These reforms were accompanied by multilateral trade liberalization that exposed developing world agriculture to unfair competition with highly subsidized production in the Global North. The authors explain that the effects of these policies have been particularly acute in Africa, with staple food production declining and the continent’s food import bills more than tripling over recent decades. Agricultural exports have grown in parallel. Many developing countries have specialized in cash crops, to generate dollars to pay off debts and import staple foods, often at the expense of diverse food crops traditionally consumed by local populations. “Many African countries’ economies and food systems are on the brink of meltdown,” says Million Belay, IPES-Food expert and co-ordinator of the Alliance for Food Sovereignty in Africa. “We’re selling coffee and cotton to the rich to pay off debts, while we import increasingly unaffordable staple foods from outside, climate change batters our harvests, and interest payments spiral out of control.”

The second driver are extractive financial flows. Over decades, governments have cut social spending and outsourced food system investment to corporate actors and creditors – resulting in uneven development, persistent hunger, and the depletion of state capacity – and ultimately funneling resources out of the Global South, the report summarizes. “With initial policy reforms failing to deliver the desired results, and public resources perpetually strained in low-income countries, governments have increasingly turned to public-private partnerships (PPPs) to finance development projects. Agriculture-focused PPPs have become particularly prominent in the wake of the 2007-2008 food price spikes, coming alongside (and sometimes enmeshed with) development aid.” The report refers to corporate-friendly partnerships with a focus on boosting productivity via chemical inputs, and developing agri-exports and growth corridors, e. g. the Gates Foundation-led Alliance for a Green Revolution in Africa (AGRA), the US-led Feed the Future initiative or the now-defunct G8 New Alliance on Food Security and Nutrition. The authors criticise that PPPs and other agri-development financing vehicles have further contributed to the erosion of state functions and accountability mechanisms and did not meet their proclaimed goals. For example, AGRA continues to receive millions of dollars of funding despite failing to deliver on stated hunger and poverty reduction goals, while “Feed the Future” has offered limited returns on huge private sector investment to date. The external debt is increasingly owed to private creditors such as banks and companies. In 2022, poorer countries paid 47% of external debt payments to private lenders, 12% to China, 14% to other governments, and the remaining 27% to multilateral institutions like the IMF. Financial transfers from the Global North are often dwarfed by the funds funnelled out of developing countries. In 2021, developing countries paid $356 billion in interest payments alone, while only $185 billion were received in aid. For many countries, this results in a perpetual strain on public finances, low capacity for state action, and insufficient investment in resilience and social policies like anti-hunger programmes. During the first year of the pandemic, 64 developing countries spent more on debt payments than on healthcare.

A third driver are boom-bust cycles and corporate consolidation: When food prices rise, powerful and highly concentrated agribusinesses benefit while farmers get squeezed. “Grain trading giants such as Cargill are getting rich, as are many multinational energy companies. But growers themselves are barely in the black,” an article in the Financial Times is quoted. When prices crash, many farms and food businesses fail, leading to further corporate consolidation. In 2022, the nine top fertilizer companies were expected to quadruple their profits compared to 2020, while governments in the Global South were depleting their public finances to subsidize their farmers’ access to fertilizer. However, “for the world’s poorest rural communities, many of whom are net food buyers and have little access to state support, there is no upside to global price volatility,” the authors write. Frequently, animals are sold and families have to increase household debt in response to the current food price crisis. Through these cycles of boom, bust, and corporate consolidations, economic inequalities and power imbalances are growing – within agriculture, between farmers and agribusinesses, and among world regions – and investment in resilience is undermined. The fourth driver is the climate crisis. “Climate breakdown is fast becoming the biggest driver of economic collapse and debt distress in the Global South, decimating harvests and destroying livelihoods in countries least responsible for the crisis. With climate finance failing to materialize, it is becoming harder for low-income countries to repay debts and invest in climate-resilient food systems,” the authors warn. In most low-income countries, debt servicing costs continue to exceed climate spending. The lack of public funding leaves low-income countries increasingly reliant on further debt to address climate resilience – but instead of being able to access low-cost capital, countries are being penalized for their climate vulnerabilities in the shape of higher interest rates, the authors conclude.

In the final chapter the authors argue that comprehensive debt relief must go hand-in-hand with food system transformation, to build a basis for sustainable public finances in low-income countries and durable progress in the fight against hunger and poverty. In order to break the cycle of unsustainable food systems, hunger and debt, IPES-Food calls for urgent action to provide debt relief and development finance on a right scale sufficient to meet the needs of COVID-19 recovery, climate-resilient food systems, and the Sustainable Development Goals. Their second recommendation is to repair historical food system injustices and return resources to the Global South. This could be done through windfall taxes on food profiteers and steps to achieve tax justice and repay ‘ecological’ and historical debts. Thirdly, they call for the democratization of financial and food systems governance. They argue that institutions like the World Bank and IMF must finally be reformed to break free from Global North biases over decision-making which disregards the interests of poor countries and marginalized populations. “Yes, the debts of poorer nations should be canceled to allow them to feed their people – but this is not enough,” said Lim Li Ching, co-chair of IPES-Food. “To get off the debt treadmill, it’s vital to break the vicious cycle of unsustainable food systems, hunger, and debt – by also investing in building resilient food and farming, repairing the historical injustices that have left poor countries funneling resources to the rich, and reforming international decision-making on food and debt to put poor countries first.” (ab)