Water Shortages and China

Happy Monday everyone and welcome to Food Jungle! We’ll try our best to stay positive but, after last week’s earnings reports, it’s proving much more difficult than we had originally anticipated. Still, we move.

This week:

🚰 Southern Spain is going through a worrying water shortage.

💸 Prices for everything at the supermarket are going bananas.

🛒 Did you say … “state-owned” grocery stores?

🐄 China’s economic situation affects dairy suppliers in New Zealand.

SPAIN
WATER SHORTAGE DYSTOPIA

Oranges, olives, watermelons, almonds, carrots and chillies all have two things in common: they’re grown in southern Spain and they need water to survive. Recently, however, the “water” part has been severely lacking. After record-high temperatures in 2022, a series of heatwaves in 2023, and almost three consecutive years of reduced rainfall, reservoirs in the worst affected areas of Spain are at less than 20% capacity.

For example, since April 2022, the 80,000 residents of Pozoblanco - a village in the Cordoba province - have needed around 180,000 litres of fresh water to be delivered to them DAILY after the nearest reservoir completely dried up. What’s more, this doesn’t just affect the drinking supply of Pozoblanco’s residents. Without safe drinking water, farmers can’t grow the crops necessary to feed cows and pigs, bakeries can’t make bread, and the country can’t export much of the produce that we, around the world, have come to love. It’s no surprise, then, that analysts expect southern Spain to lose 7% of its GDP if the situation persists this winter.

Spanish officials say that 74% of the country could be covered by desert by the end of the century if this kind of heat continues. Surely this is a lesson to the rest of Europe, showing what could happen if climate action isn’t taken quickly?

INFLATION
FOOD PRICES GOING BANANAS

Ok, when the prices of beef surged to record highs this year we looked on. But when the average Big Mac price passed the $5.50 mark, we lost our fricken’ minds! Looking further into it, we realised that it’s not just beef and Big Macs, it’s everything.

Shoppers in the US, for example, are paying 33% more for food than they had been before the pandemic. And, despite restaurant visits reaching pre-pandemic levels, restaurant goers are paying around 40% more for fast-food orders than they were in 2019. As your “finance bro” would mansplain to you, the Food & Beverage and Restaurants subindexes of the S&P 500 dropped 19% and 11%, respectively, this year, while the overall S&P 500 has climbed 10%. 🧐 

One reason that is frequently sighted is, surprise SURPRISE, climate change. Hot weather is drying up water supplies and is making it harder for farmers around the world, for instance, to consistently sustain their cattle with feed or sugar cane plantations with water.👇️ supply means 👆️ prices and we’re not happy about it. To add insult to injury, Steve Cahillane, CEO of Kellanova (formerly part of Kellogg), says we just gotta DEAL WITH IT until, hopefully, things smooth over.

For when you want to stare up at the sky and go on a Seinfeld-esque rant, here are some other price hikes you should know about:

• A gallon of orange juice in the US is now 10% more expensive than it was in October, 2022.

• The inability of cows to regularly produce milk during recent heat waves has led to butter trading at “record highs”.

• Droughts in Spain have caused olive oil prices to soar 12.5% this year.

• Raw sugar is trading at its highest price since 2011 and the price of candy is up 20% from 2021.

UNITED STATES
A CITY SUPERMARKET NEAR YOU?

Chicago is looking to create municipally-owned grocery stores to help more people in low-income neighbourhoods get access to fresh food. Aiming to take advantage of a $20 million state fund, designed to address “food deserts” in Illinois, Chicago mayor, Brandon Johnson, wants to open stores in the infamous South and West sides of his city. All this in an effort to, supposedly, address robbery-related issues that have been plaguing privately-owned stores for a very long time and to make Illinois “healthier”. The theory behind this is that:

• Governments are the only institutions that can function at an operational loss and

• Governments can regularly employ law enforcement to deal with robbery and theft.

Erie, Kansas, is used as an example of a smaller city that has implemented a similar strategy to successfully provide fresh food to residents who generally have few grocery store options. Since its creation in 2021, the small, city-owned store has successfully provided fresh and healthy produce to local residents, albeit with only one profitable month in 2022.

Although this is a lovely story of a community pulling together, we have to ask whether this kind of centralised food planning could even work in a huge city like Chicago? Critics argue that crime is the biggest issue here. Thefts and robberies in Chicago are up 25% and 11%, respectively, this year alone! Maybe that’s the problem? Perhaps there is a larger systemic issue at play here that needs to be resolved first?

NEW ZEALAND
THE CHINA EFFECT

One of the perks of being China's supplier is that when things go well, they go REALLY well. But, on the off-chance that China’s real-estate market goes all wonky, things could go VERY badly.

New Zealand is in just such a predicament. The country usually exports around 30% of its dairy products to the Asian powerhouse and this has - historically - been very profitable. China, alone, has consumed 41.5 million metric tons of milk this year! But now, given the shaky real-estate situation in China, dairy export levels in New Zealand are down nearly 50%, compared with March, 2022, levels and its economy is really starting to feel the pressure.

While the Chinese economy itself is slowly recovering, things seem👌… for now. But this just goes to show just how precarious economic interdependence can be, especially when you rely so heavily on the fortunes of one country, such as China.

BEFORE YOU GO…

• The eight South American nations that make up the Amazon rainforest have pledged to end illegal deforestation - for cattle-ranching, gold mining, oil and timber extraction - in the region by 2030.

• Mexican sauce brand, Tia Lupita, has raised $2.6 million in seed funding.

• Sales of Heineken beer fall by 4.2% in the third financial quarter due to its Russian market exit.

• Chick-fil-A has agreed to pay customers $4.4 million in rebates or gift cards to settle class action suit for secretly raising menu prices on delivery orders by 25-30%.

• Despite raising its prices, Coca Cola beat analysts’ expectations in the third quarter when it sold 8% more coke than in 2022.