Food and Energy Issues Slow Growth

Food and Energy Issues Slow Growth

The IMF lowered its forecast for global economic growth this year. The spike in food prices and the energy crisis were also taken into consideration in the lowering of their forecast.


JAKARTA, KOMPAS – (10/15/2021) Previously, in July 2021, the IMF or the International Monetary Fund projected the global economy to grow 6 percent. Subsequently, the IMF corrected global economic growth in 2021 to 5.9 percent. 

The IMF also corrected the economic growth of the United States, China and Indonesia for this year. The US economy, which was originally estimated to grow 7 percent, was corrected to 6 percent, China’s 8.1 percent to 8 percent, and Indonesia’s economy was corrected from 3.9 percent to 3.2 percent.

This correction is contained in the October 2021 Edition of the World Economic Outlook entitled “Recovery During a Pandemic: Health Concerns, Supply Disruptions, and Price Pressures”, which was released on 13 October 2021.

The spread of the new Delta variant of the corona virus, which has caused restrictions on economic activity and global supply chain stagnation in many countries, are the main causes of the economic slowdown. The IMF said the global Covid-19 vaccine gap was getting bigger.

Nearly 60 percent of the population in developed countries has been fully vaccinated and some are now receiving booster vaccines. On the other hand, about 96 percent of the population in low-income countries is still unvaccinated.

This condition is exacerbated by rising food prices and the cost of shipping goods across oceans (ocean freight). In addition, the energy crisis that occurred in a number of countries could also affect the production of the global manufacturing industry sector.

IMF chief economist Gita Gopinath said that food prices had raised the most in low-income countries. This condition can cause food insecurity, increase the burden on poor households, and risk causing social insecurity.

Supply disruptions due to the pandemic and weather anomalies, as well as rising food prices and logistics costs have led to a shortage of key inputs in several countries and reduced manufacturing industry activity.

“Consumer price inflation is increasing rapidly, such as in the US, Germany, and in many developing countries,” Gopinath said in a press statement in Jakarta.

Previously, the Food and Agriculture Organization of the United Nations (FAO) reported that the Food Price Index in September 2021 was 130, up 32.8 percent on an annual basis. The index increase is the highest since the last ten years. The increase in the index to above 100 has occurred for the last 11 months or as of October 2020.

The increase was driven by prices for cereals, especially wheat, rice and corn, as well as vegetable oils, such as crude palm oil (CPO), and soybeans.

Facing this, the IMF asked each country to tackle the pandemic as best as they can, including aspects related to financial management and economic recovery. The IMF also hopes that each country can manage their inflation levels.

Processed food goes up

Chairman of the Indonesian Food and Beverage Entrepreneurs Association (Gapmmi) Adhi S Lukman, said that the price of imported food raw materials, such as wheat, rice, and sugar, even food coloring and preservatives, rose between 20-30 percent. This is increasingly burdensome for businesses and the food-beverage industry, which have not yet fully recovered from the effects of the Covid-19 pandemic.

This increase in the price of food raw materials will certainly have an impact on the increase in processed food and beverage products. The increase in the price of processed food products will also be influenced by the increase in logistics costs and the planned increase in Value Added Tax (VAT) next year.

“The prices of these food and beverage products are estimated to increase by 5-10 percent. Until the end of this year, we will not increase the price. The price increase for these products will only be carried out in early 2022,” said Adhi.

As for the energy crisis and weather anomalies in a number of countries, said Adhi, a number of Gapmmi members are worried that they will not be able to get supplies of imported food raw materials. This was due to reduced food production and decreased manufacturing activity in a number of countries.

However, on the other hand, a number of Gapmmi members are also aiming for opportunities to increase exports, especially to countries that have reduced their manufacturing activities due to the energy crisis, such as China, the US, Japan, India, and a number of countries in Europe.

“There are even a number of food-beverage companies that have received original equipment manufacturer (OEM) cooperation services from companies in China. They produce food with the brand, label, standardization and components requested, then send it back to the company in the country,” he said.

Fiscal management

Head of the Fiscal Policy Agency of the Ministry of Finance, Febrio Kacaribu, ensured that the government’s economic and fiscal policies will continue to be directed to support efforts to control the Covid-19 pandemic, maintain the sustainability of economic recovery, as well as accelerate structural reforms.

This commitment is reflected in the 2022 State Budget policy, which shows an attitude of vigilance and initiative from the government towards increased global risk.

A form of government anticipation is to strengthen independence in financing development through tax reform. The government and the DPR have approved the Law on the Harmonization of Tax Regulations (UU HPP) which is one of the milestones for tax reform for fiscal sustainability in the medium term, strengthening the tax base, and a healthy state budget for public welfare.

“With the spirit of managing the pandemic and economic recovery, the government seeks to create sustainable and inclusive growth and development in Indonesia in the midst of a challenging global environment,” Febrio said.

According to him, one of the global risks that the government is wary of is the spread of the Covid-19 pandemic. Even though Indonesia has passed the peak of the Covid-19 wave, the government continues to improve its capabilities in handling the pandemic.

Until October 12, 2021, Indonesia’s total vaccinations reached 157.93 million doses or 28.87 percent of the population. This number consists of the first dose of vaccination reaching 100.32 million doses (36.68 percent of the population) and the second dose of 57.61 million doses (21.06 percent of the population).

According to Febrio, the effectiveness of various policies, such as the implementation of Community Activity Restrictions (PPKM), and acceleration of vaccinations, have become factors that have made the pandemic situation in the country much more manageable.

“Along with the improvement in the domestic Covid-19 pandemic situation, the momentum for economic recovery has strengthened, especially since September 2021. The government estimates Indonesia’s economy this year to be in the range of 3.7-4.5 percent.” Febrio concluded.


Source: Kompas Daily. Edition: Friday, October 15, 2021. Economics and Business Rubric. Page 9.


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