A looming food crisis will further harm the four out of five FINCA customers who became more food insecure during the COVID pandemic. Just as their lives stabilized, the war in Ukraine has accelerated inflation and upended the supply and distribution of agricultural commodities. Wheat prices are up 60%. Maize has surged 54% since January 2021. Price increases are likely to continue through 2024. The World Food Program predicts that the number of severely hungry people will swell to 323 million people over the next year.
Climate change, which is already causing malnutrition and lower agricultural yields, will worsen these challenges. Those whose survival is already a day-to-day struggle will suffer the most, including many FINCA customers.
Financial inclusion organizations can support our customers, who sustain their families mostly through self-employment and small-scale farming. With FINCA’s help – in the form of responsible credit, savings and financial education, they may be able to stave-off the worst effects of the growing food crisis. Meanwhile, food and cash aid are needed to prevent starvation. More must also be done to strengthen local food supplies and build the resilience of those most in peril.
Customer data that FINCA collected with support from the Social Performance Task Force shows that 77% of customers reported deteriorating food security. For some people that meant skipping meals. For some it meant going a day or more with nothing to eat. Analysis of data from 11,000 people in 13 countries in which FINCA works delivers a clear picture of the risk factors that predict deteriorating food consumption and a looming food crisis. Figure 1 (below) estimates the relative contribution of each risk factor and their cumulative impact.
Figure 1: Levels of Food Insecurity and Associated Risk Factors
Cutting back on “expensive” foods was widespread. While it might seem benign, the baseline diet of low-income people is often heavy on items with limited nutritional value. Eliminating high-cost items like meat and dairy can have serious health consequences, especially for vulnerable populations like children and pregnant or nursing mothers.
Income is an obvious risk factor. Eliminating the very top earners in the sample (i.e., those with a low poverty probability, 15% or less), raised the likelihood of degraded food quality to 85%. If that family was relatively large (3+ children) and lived in a rural area, there is a 99% probability that the household downgraded their food consumption. This is a vivid example of the vulnerability of smallholder farmers. They suffer the most from malnutrition, and their livelihoods are directly impacted by supply chain disruptions and climate change.
Under normal circumstances, skipping the occasional meal may not be worrisome. When people regularly can’t procure food, it becomes a major concern with potentially long-lasting effects. FINCA’s model shows that raising the poverty threshold (i.e., eliminating those who are better off) increases the likelihood of regularly skipping meals from 50% to 64%. Gender is another major risk factor, especially when compounded with a larger family size. This is consistent with other findings that women and girls tend to eat last and least, which is why they account for 60% of the chronically food insecure.
Finally, having no identified source of income makes forced meal-skipping a near certainty. In normal times, these clients make up less than 10% of the total. They grew to represent 24% of FINCA clients at the height of the pandemic.
About 14% of FINCA clients reported going hungry for a full day or longer. We had less success profiling these families, maxing-out at 67% certainty, indicative of the complexity of the issue. Even so, we identified a distinctive set of risk factors. Eliminating people with a low probability of poverty (30% or less) doubles the incidence of severe hunger to 31%. The issue lurks just beneath the surface, even if it seems less common at first glance.
Other risk factors include lack of savings, borrowing small amounts, and being a woman with less than a secondary education. (This adds to the growing evidence of the decisive role that secondary education plays in predicting a woman’s income and financial behaviors.) Adding the burden of childcare (at least 4 children), leads to a 67% certainty that a female customer experienced severe hunger because of COVID. The data is compelling on its own. Hearing directly from our female customers about going to bed on an empty stomach makes it impossible to avoid. And it raises the urgency of helping these women build better resilience for the challenges ahead.
World leaders are calling for urgent action. Each percentage point increase in food prices forces 10 million people into extreme poverty. A 2022 World Food Programme Report describes the severity and magnitude of the food crisis. In Haiti, for example, severe hunger could affect nearly half the country’s population.
Figure 2: Countries with Over Three Million People Forecast to be in Food Crisis or Worse in 2022
In response, FINCA is strengthening its focus on financial health and resilience, especially product development, service delivery and research. We aim to help customers stave-off hunger by enabling them to build wealth and manage financial resources. We also are devoting more resources to sectors that are directly related to food production. Our focuses include agriculture, food processing and distribution.
In the way that it affected everyone at the same time, COVID was a once -in-a-generation event. Food insecurity will be a more localized and seasonal problem. It will effect certain households more than others. It also will influence the demand for savings and credit, and clients’ ability to service their debts. While the scale of the challenge is smaller than a pandemic, our response to food insecurity and hunger should consider the risk factors that predict its worst effects.