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Resource pressures could spark conflicts with global impact - report

by Chris Arsenault | @chrisarsenaul | Thomson Reuters Foundation
Thursday, 5 February 2015 08:56 GMT

A general view of terrain where Chongqing Grain Group's Universo Verde subsidiary planned to build a soybean manufacturing and processing plant, near Barreiras in Bahia state, northeastern Brazil, on Feb. 7, 2014. The barren field in northeastern Brazil was meant to be the centre of one of China's most ambitious agricultural forays into South America. In 2011, Chongqing Grain Group Corp announced a $2 billion project to build a soy crushing plant, railways and a giant inland storage and transportation hub to export goods back to China. Yet today, the company has only managed to bulldoze a 100-hectare area on which the crushing plant might one day stand. REUTERS/Ueslei Marcelino

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Commodities are increasingly exposed to supply chain pressures, and conflict in one country could reverberate across globe

ROME, Feb 5 (Thomson Reuters Foundation) - Illegal deforestation in Southeast Asia, conflicts over water in the Nile Basin and China's growing dependence on South American food are some of the resource challenges facing emerging nations with the potential to cause strife, a risk analysis group warns.

Interconnected supply chains means environmental conflicts can spread across borders, undermining economies far from where initial problems occurred, according to a report by the Earth Security Group, which evaluates risks in emerging markets.

Global commodities such as rice, soybeans, palm oil, petroleum, timber and cocoa are increasingly exposed to supply chain pressures, and a conflict in one country could reverberate across the globe due to increasing integration.

Companies and governments that can build international resilience in the face of sustainability pressures and future disruptions in the global supply of resources will find new opportunities, Alejandro Litovsky, the report's author and CEO of the Earth Security Group, said in a statement.

Multinationals that cannot anticipate or mitigate international risks to their supply chains could suffer.

Four of the most critical risks facing the commodities sector are water quality and availability, conflicts associated with land tenure and deforestation, the stability of energy supplies, and extreme weather events that amplify other pressures, the report said.

From an investment perspective, two of the greatest challenges to global resource security are productivity shortfalls in agriculture, particularly in developing economies, and lack of efficient transport and distribution mechanisms for food and water globally, said Katherine Tweedie of the Investec Investment Institute research company.

Large firms should work with governments in emerging markets to address a web of resource risks that spill across borders, the report said, adding that action from individual companies or countries will not be enough to stabilise the commodities business.

(Reporting By Chris Arsenault, Editing by Alisa Tang.)

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