By Hu Yukun
Heavily reliant on the global food market, Singapore is now facing rising inflation resulting from the worsened food supply caused by the continuing COVID-19 pandemic and the Russia-Ukraine conflict. Keeping this challenge under control is taking serious efforts from several different sectors.
“From the moment we were separated from Malaysia, it was destined that, as a port city cut off from its natural hinterland, we had no way to develop other than to create very extensive links with the rest of the world…. So we made the world our hinterland.”
In his last work One Man’s View of the World, Lee Kuan Yew, the first prime minister of Singapore, explained that the key to Singapore’s survival and prosperity has been making the most of the global market. As a city-state that lacks natural resources, it has been engaging in international trade to fulfill the basic needs of its 5.7 million residents.
Never has this been more true than on food supply. Singapore imports more than 90 percent of its food from over 170 countries. According to the Singapore Food Agency (SFA), in 2018 local farms only produced 13 percent of vegetables, 9 percent of fish and 24 percent of eggs. A steady global supply made Singapore well known for a variety of street food and local cuisines, while the authority has always been aware of the main challenges with this model such as outbreaks of food diseases, closure of ports, or political changes in food-producing countries.
Decade-High Inflation
Despite constant alertness, Singapore is now grappling with the latest wave of food supply disruptions, the worst in decades. On the first day of June, neighboring Malaysia imposed an export ban on chicken, another sign of growing global food shortages. Suddenly, Singaporeans had to brace for a shortage of chicken rice, their de facto national dish.
“The ban would make us totally unable to sell,” said Daniel Tan, owner of a chain called OK Chicken Rice. “It’s like McDonald’s with no burgers.” To vendors like him, the ban would be “catastrophic.” Considering the fact that over 95 percent of its chicken is imported, including over one third from Malaysia, it is no surprise that rising prices have become standard in restaurants and street stalls.
In May, food inflation in Singapore reached 4.5 percent, a 13-year high, and is predicted by Nomura Holdings to hit 8.2 percent in the second half of the year. The continuing Russia-Ukraine conflict is a major source of the food supply disruptions. Although Singapore only imports a small amount of eggs and cooking oil from Ukraine and seafood and alcoholic beverages from Russia, the domino effect could still hurt.
With the conflict between the two European countries causing higher oil and gas prices and disrupting staple food exports, pressure on global food prices is unavoidable. In Malaysia, chicken feed normally consists of soybeans and grain which need to be imported. The global feed shortage due to the conflict over 8,000 kilometers away forced the Malaysian government to consider alternatives, and lower-quality feed is preventing birds from growing as fast as before, slowing the entire supply chain. As a result, Malaysia halted its chicken exports, causing the price for Singaporeans to go through the roof.
Prior to the conflict, the COVID-19 pandemic had already disrupted the international supply chain connecting Singapore with its two essential food trade partners, Malaysia and China, though the impact was modest. And extreme weather in other regional exporters such as a heat wave in India and monsoon season in Thailand further threatened Singapore’s food security.
With its traditional hinterland now looking less reliable, the city-state is now at a crossroads and seeking another way out.
Domestic Supply
Normally, central banks around the world raise interest rates and tighten monetary policy to mitigate the effects of inflation. Since last October, the Monetary Authority of Singapore (MAS) adopted tight moves three times, strengthening the Singapore dollar (SGD) against the currencies of its trading partners. In April, MAS took even more aggressive dual moves for the first time in 12 years: re-centering the midpoint of the exchange rate policy band at the prevailing level and slightly increasing the rate of currency appreciation in hopes of slowing inflation momentum.
A strengthened SGD could mean cheaper imported goods and immediately tame imported food inflation. Yet essentially what is happening now in Singapore is the cost-push inflation, meaning a decrease in the aggregate food supply stemming from an increase in the cost of production. Without a solution to the disrupted supply chain, monetary policy itself will not work for the long term and could harm Singapore’s export-driven economy.
Since the World Bank has warned that food prices are about to rise by another 20 percent this year, it is more urgent than ever that Singapore solve the supply problem directly. “Singapore has been downplaying agriculture and importing food,” said Paul Teng, adjunct senior fellow at the S. Rajaratnam School of International Studies. “Now we’ve done a U-turn and started to look at production, but this strategy needs time to pay off.”
The Singapore government shares this sentiment. Before the pandemic, it announced the “30 by 30” goal in 2019 to build the country’s capability and capacity in the agri-food industry to produce 30 percent of the country’s nutritional needs locally by 2030. To support domestic farms to grow and expand, SFA introduced various funding schemes such as a 60 million SGD Agri-Food Cluster Transformation Fund to support local farms seeking to increase their production capabilities and an over 23 million SGD fund to award R&D in sustainable urban food production.
To overcome land and resource constraints in the port city, the authority’s plans place particular focus on technology and innovative ways to increase production efficiency. For example, indoor multi-story LED lighting and recirculating aquaculture systems could produce 10 to 15 times more than traditional farms, and SFA has been working on making the Lim Chu Kang area a high-tech agri-food zone that will improve food production in a sustainable and resource-efficient manner.
Admittedly, such efforts are far from completely eliminating the need for imports since Singapore has long been investing in its gross domestic product (GDP) and average household income rather than agricultural production. Uncertainties also remain as to whether domestic food products will be competitive in price, especially after the global supply chain returns to normal. Moreover, local citizens’ attitudes towards the locally produced “novel food” will be a decisive factor if the county is able to change course.
According to Dil Rahut, senior research fellow at the Asian Development Bank Institute, currently Singapore is still producing only 10 percent of its own nutritional needs, so the “30 by 30” goal would be “very hard” to achieve. However, in addition to diversification of imports, the plan is still important in terms of facilitating a level of self-reliance to more easily endure times as tough as today.
“That will not only help Singapore stabilize its food prices and food security, but also global food security and food prices,” Rahut said.
China Report ASEAN 