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Economy

Trouble is Brewing in the Global Coffee Industry

Samantha Maloof

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Saying that coffee is ubiquitous in the West is a colossal understatement. The consumption of coffee is about one third the level of tap water in North America and Europe. Over half of all Americans over the age of eighteen consume coffee on a daily basis. In order to meet demand, the United States imports around $4 billion worth of coffee each year. However, as coffee consumption continues to increase, climate change is making it difficult to keep pace with demand.

According to a recent study by the Climate Institute, climate change will slash by half the amount of land suitable for coffee cultivation around the globe, especially in Africa and Central America. This has been something of an open secret, as coffee giants like Starbucks and Lavazza have gone on record in the past describing how climate change is posing a very real danger to the industry. The economic effect is not limited to coffee retailers though – the report went on to tell of the ways the livelihood of over 120 million people across two continents is imperiled. And, for the vast majority of those millions, coffee is the only thing keeping them barely above the level of destitution.

Prior to the Climate Institute’s savage body blow to the coffee industry, the lion’s share of the press coffee had received this year involved the findings of the International Agency for Research on Cancer (IARC) who released a landmark study of coffee and its relationship to various types of cancers. The agency initially classified coffee as “possibly carcinogenic to humans” when it first examined the issue in 1991. After a quarter century and a review of thousands of relevant studies, IARC backed off of its assessment, downgrading coffee’s potential to cause cancer as “not classifiable” regarding its carcinogenic potential. In addition, the agency not only didn’t find any credible link to coffee and cancer, it also found that there’s evidence showing coffee’s ability to potentially reduce the risk of certain kinds of cancers. IARC was in serious need of good press of its own. The agency has suffered withering criticism in the past several months over findings that red meat is a carcinogen and bacon is, for purposes of cancer, the functional equivalent of diesel exhaust. A similar spat involved the popular pesticide glyphosate, after IARC broke ranks with several regulatory agencies (like the EPA and the EU’s EFSA) and declared the substance “probably carcinogenic” despite shaky evidence.

With the production of coffee out of sight, and therefore out of mind, of most in the West, the impact of climate change was little acknowledged or understood. But, for the coffee growers in East Africa and Central America, the potential, even probable, effect of climate change has long been known. According to a separate study, two thirds of the land used to grow coffee in places like Ethiopia would become “unviable” due to climate change by 2100. Farmers in Tanzania have seen their crop yields halved over the last sixty years due to increased nighttime temperatures. Uganda is experiencing a similar situation, whereby rising temperatures are pushing farmers to higher and higher altitudes, despite lacking the wherewithal and knowhow to adapt.

In addition to a massive drop in quantity, farmers have also reported a significant fall-off in quality as well. Thanks to a lack of rainfall, beans are being harvested prior to maturity, which means a harvest full of beans lacking in suitable aroma, proper color, and sufficient size. Modern irrigation might mitigate these effects, but for the average coffee farmer toiling in the shadow of Kilimanjaro, a suitable system would cost him the proceeds of almost all of four years’ worth of his crops. For farmers who, even in ideal circumstances, find themselves teetering on the razor-thin edge between total economic collapse and managing to eke out enough to go on for another year, the situation is nothing less than completely disastrous.

The struggling coffee farmer is not the only one who will feel the effect of climate change upon the coffee industry. Citing the increased impact of severe hurricanes, mudslides, erosion, many farmers in Central America have dropped the crop altogether. Fewer growers means an obvious decline in overall production, putting an additional strain upon the global supply. The 2015-2016 coffee season saw a deficit of 3.5 million bags, an improvement from the prior season’s gap of 6.4 million bags to be sure, but with demand increasing each year by four million to five million bags, any deficit is problematic in the extreme.

Coffee growers also find themselves battling political instability to bring their crops to market. Ecuador has a climate perfectly suited to coffee cultivation but, after the drop in prices a decade ago, farmers have been unwilling to gamble on coffee again. As coffee plants take between three and five years to mature and produce their first crop of beans, the years of protests, strikes, government instability, and attempted coups make the prospect of planting now for a crop that won’t mature until several years seems like a poor decision. There are successful attempts at establishing new coffee crops in formerly politically chaotic countries like South Sudan, but, without immediate action on climate change, such efforts may be doomed to failure in the long run.

As far as the average coffee consumer is concerned, the beloved aromatic beverage is only as far away as the nearest coffee shop. But, if action isn’t taken soon to remedy the problems plaguing the industry, the world may wake up one day to a carafe that is permanently empty.

Samantha is a freshly minted graduate in International Relations based in Cairo, currently working as a research assistant in a small think tank looking at development and inequality in Africa

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Economy

Guiding a new generation of learners on inclusive green economy

MD Staff

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As population numbers continue to grow and material resource use rises to unprecedented levels, the limits of today’s dominant model of economic growth have become increasingly apparent: extraction of material resources, including biomass, fossil fuels and non-metallic minerals has tripled since 1970, reaching an approximate 90 billion tonnes in 2019. A comprehensive overview of alternative economic models that center around environmental sustainability – published by UN Environment, the Zayed International Foundation for the Environment and Tongji University – hopes to help guide efforts to move to inclusive, green economies.

The official launch today of The Inclusive Green Economy: Policies and Practice marks the successful completion of a long-standing collaborative project.

Nineteen million premature deaths are estimated to occur each year due to environmental and infrastructure-related risks and natural-resource use. Resource extraction has also been identified as the leading cause of global biodiversity loss. This has led to an increasing number of countries to rethink their economic development model.

“Since Rio+20, an increasing number of countries are embarking on pathways towards inclusive green economies. I hope this book will help guide these efforts globally”,  Dr. Mohamad Ahmed Bin Fahad, Chairman of the Zayed International Foundation for the Environment highlighted in his welcome address at the launch.

An inclusive green economy is defined by UN Environment as one that is low-carbon, efficient and clean in production, but also inclusive, based on sharing, circularity, collaboration, solidarity, resilience, opportunity and interdependence. The handbook aims to offer a comprehensive framework for analysing inclusive green economy issues, such as investing in natural capital and clean technologies, as well as policies to enable investments. 

“With this collection – based on a wide range of thinking on the transition to an inclusive green economy – we hope to provide a useful resource for students and other stakeholders” Fulai Sheng, co-editor of the publication, emphasised.

 “This new textbook makes an important contribution to our understanding of how poverty, inclusiveness and employment issues must be fully taken into account to ensure a fair and just transition to a green economy”, Steven Stone, Chief of UN Environment’s Resources and Markets Branch, said.

Commending UN Environment and its partners on their efforts, the Executive Director of the UN Institute for Training and Research (UNITAR), Nikhil Seth, further observed that “publications like the one launched today will be instrumental in transmitting novel ideas and concepts that can inspire leaders of tomorrow”.

Dr. Meshgan Al Awar, Secretary General of the Zayed Foundation and Co-Author of the textbook, summarized the implication and significance of this initiative by noting, “The Inclusive Green Economy textbook provides an inspiring framework for nations, organizations and individuals to follow and simulate as they endeavor in this direction”.

UN Environment

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Economy

Retirees worldwide will outlive their savings by a decade – and women will fare worse

MD Staff

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Retirees in six major economies can expect to outlive their savings by years. Women should prepare to bear the brunt of such shortfalls, going without retirement savings for at least two years longer than their male counterparts.

As government and employer-sponsored retirement plans are under strain globally, individuals have found themselves to be increasingly responsible for their retirement savings. Despite this, savings have not accelerated fast enough to make up for the deterioration of traditional retirement plans, suggests a new report by the World Economic Forum, Investing In (and for) Our Future.

In six economies analysed, most male retirees can expect to live past their savings by nearly a decade. Women can expect to go even longer without their savings, as they will likely live more than 10 years without retirement savings to rely on due to their longer average lifespans.

These shortfalls can vary greatly by country and gender; men in the United States are expected to outlive their savings by about eight years while women in Japan will live nearly 20 years past their savings account. Despite these vast differences, the average retiree in Australia, Canada, Japan, the Netherlands, the United Kingdom, or the US will not be able to last through retirement on savings alone.

Image: Investing in (and for) our Future, World Economic Forum

These shortfalls must be addressed, by both individuals and policy-makers, to ensure that seniors can enjoy life throughout their non-working years.

Governments must act to create retirement landscapes that prevent savings shortfalls. Currently, retirement policies in many countries, including India and China, can often hinder optimal retirement savings and investments.

Though governments should act, they would be wise to avoid implementing one-size-fits-all retirement policies as individual retirement needs can vary greatly from person to person. Instead, governments should change, or even roll back, their regulations to allow individuals to make investments that will increase their long-term returns.

A new report from the World Economic Forum identifies two key investment changes governments should allow so individuals can most effectively address their savings gaps. Both identified actions aim to optimize investment so retirement savers can achieve higher yields from their savings.

1. Consider risk from the perspective of someone saving for retirement

“The real risk people need to manage when investing in their future is the risk of outliving their retirement savings,” said Han Yik, Head of the Institutional Investors Industry, World Economic Forum. “As people are living longer, they must ensure they have enough retirement funds to last them through their longer lives. This requires investing with a long-term mindset earlier in life to increase total savings later on.”

Many people are far too risk-averse in their retirement investing. While consistent saving is important to build retirement money, being mindful of long-term returns on retirement portfolios is crucial to ensuring that an individual doesn’t outlive their savings. Many young to middle-age savers should change their risk outlook, understanding that outliving their savings is a far greater risk to them than short-term investment risk.

2. Diversify the investment of saving accounts, by geography and asset type

While focusing on long-term returns is often beneficial for retirement savers, diversification can preserve those returns by mitigating overall investment risk.

Currently, most retirement investment vehicles are largely based on traditional equity and fixed-income investments that have the advantages of being easy to value as well as having high liquidity. However, given the long-term nature of retirement savings, that liquidity comes at a cost. Although they require adequate understanding and sound financial advice, investment in alternative assets, particularly illiquid assets, can bring strong diversification benefits to a retirement investment portfolio.

In this area, again, policy-makers must ensure their retirement policies do not hamper the ability of individuals to make the best long-term choices for their portfolios. In most countries, default retirement options focus on liquidity and the ability to perform daily valuations at the expense of long-term growth. Governments should consider changing or even rolling back these regulations to allow retirement savers to invest in the assets best suited to their individual retirement goals.

In addition, many retirement portfolios also tend to have a heavy domestic focus. Diversifying the geography of investments in portfolios can reduce risk to home country economic events. By expanding the locations of their investments, retirement savers, particularly savers from smaller economies, can protect themselves from market or economic slumps in an individual economy while still maximizing their returns.

Decumulation, or spending in retirement, is another key area of well-being after the working years yet there is far less research dedicated to it.

For instance, today’s retirement spending projections are based on the rule that retirees will withdraw 4% of their portfolio each year they are retired. However, the World Economic Forum and Mercer suggest that this estimate does not match how retirees spend in the real world, with much higher spending in early retirement years and less as retirees age. This spending volatility highlights the need for new retirement solutions that both allow for flexible spending while also ensuring savings that last through retirement.

“With populations around the world living longer than ever before, we need far more creative decumulation solutions for longevity protection” says Rich Nuzum, President, Wealth at Mercer. “There are some alternative solutions emerging such as pooled annuity funds, but older individuals are going to need a more diverse range of financial tools to help protect against longevity risk.”

Some countries, such as the UK and the Netherlands, have begun to recognize the importance of robust policies for the decumulation period and are even considering rolling back regulations for retirement savings. However, there is much more to be done in this area to ensure that seniors can thrive during their period of enjoying the funds they have worked so hard to save over their working years.

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Economy

Sustainable development: Within reach in Iran and Asia and the Pacific

Armida Salsiah Alisjahbana

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Climate change is increasing the intensity and frequency of natural disasters in Asia and the Pacific. The tragic loss of life and the destruction wrought by recent flooding in the Islamic Republic of Iran is a reminder of the threat to lives, livelihoods and societies posed by extreme weather events. A reminder that only an integrated response to economic, social and environmental challenges can pave the way to sustainable development.

The floods which swept across the Islamic Republic of Iran in spring this year were devastating. They affected 10 million people and 500,000 people were displaced of which half were children. Hospitals and schools were destroyed, denying 100,000 children and education and thousands access to basic health care. Large sections of the country’s road network were affected, which will weigh on the economy, but also impact on many families’ daily lives. Damages have been estimated at $4.7 billion, a third of which concern the agricultural sector, critical to many livelihoods.

Yet as tragic and costly as the recent floods have been, they are also part of a wider phenomenon: the increasing risk of natural disasters outpacing resilience in the Islamic Republic of Iran and in Asia and the Pacific. Sand and dust storms, drought, desertification and wind erosion are all expected to rise in South-West Asia by 2030. Intensified by climate change, these disasters are becoming increasingly frequent. They hit the poor and vulnerable hardest, particularly in informal settlements. Some of Iran’s least developed provinces have suffered the most, with successive sand and dust storms destroying crops and infrastructure, and undermining people’s health, study and work.

These challenges exemplify why economic, social and environmental considerations must be considered together, if we are to effectively mitigate the consequences of natural disasters and achieve sustainable development. Evidence from across the globe tells us ignoring the social impact of economic growth can place a huge strain on societies, and at its worst lead to instability and conflict. Ignoring the environmental cost of economic growth in many parts of our region has led to climate change and an increased risk of natural hazards, which entrench poverty and perpetuate inequality. Nowhere is an integrated, multilateral response needed more than in Asia and the Pacific, the most disaster-prone region in the world.

With this in mind, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) has worked with the Islamic Republic of Iran to establish the Asian and the Pacific Centre for the Development of Disaster Information Management (APDIM) in Tehran. It will deliver targeted capacity development for disaster information management and knowledge sharing. A regional cooperation mechanism for combatting the sand and dust storms has already been adopted. This will work to reduce the causes of risk of multiple hazards, develop a sand and dust storms alert system and tap regional partnership networks to enhance technical support where it is most needed.

My ambition is for APDIM to fit into a broader regional development and cooperation effort. One to reduce the inequality and environmental degradation which have accompanied recent exponential economic growth in our region. Our analysis shows the investment needed to achieve sustainable development in Asia and the Pacific is within reach. Developing countries’ investment needs stand at an additional $1.5 trillion per year, or five percent of their combined GDP. In the Islamic Republic of Iran, we estimate investments needed to climate-proof basic infrastructure are equivalent to roughly 1 per cent of Iran’s GDP in 2018. Further investment would be required in education and people centered approaches to build resilient communities and economy.

Sustainable development which balances economic growth with the need for social inclusion and environmental protection is essential to ensure a prosperous Iran today and a clean, compassionate and safe future for our children. Investing in people, as well as investing in skies, land and water can ensure that future. The Islamic Republic Iran has the means and the will. Yet persistence will be required to achieve this ambition, and the United Nations family stands ready to assist in any way it can in the months and years ahead.

UNESCAP

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