Facing the approaching food storm, not only importing countries are trembling, but even traditional grain exporting countries are beginning to tighten their pockets and keep their domestic rations first. According to
Xinhua Finance, Indonesia suddenly announced a ban on the export of edible oil on April 22. Indonesian President Joko Widodo announced that the export ban on all edible oil and palm oil products was activated on April 28. Historical experience shows that high food prices can trigger food protectionist barriers. In mid-2008, the world experienced a significant surge in the prices of staple foods. In just a few months, the World Bank's food price index has risen by 60 percent. International corn, rice and wheat prices have risen by 70 percent, 180 percent and 120 percent, respectively, since mid-2007. Countries such as India panicked and banned rice exports without evidence of a global shortage, causing prices to surge. These price spikes have had a huge impact on developing countries. According to the World Bank, 105 million people in low-income countries have been left impoverished or pushed into poverty by soaring prices. "Tightening trade in agricultural products will contagious each other, resulting in a transmission effect. Countries that need wheat cannot get wheat, which will aggravate the overall panic in the agricultural product market, trigger protectionism in food trade, and keep food at home. Compared with industrial product trade, the global agricultural product trade has The degree of free trade is not high, and this crisis will further exacerbate this trend, and countries will seek to protect themselves, creating a vicious circle," said Si Wei, executive vice president of the School of Economics and Management at China Agricultural University.
The barriers of agricultural trade protectionism are more complex than industrial trade protectionism. Si Wei explained that grain trade is different from industrial trade, and the agricultural interests involved are complex. It not only involves the interests of domestic farmers, but also may affect food security. It cannot be a relatively complete free trade like industrial products. Industrial trade divides labor according to the principle of trade comparative advantage and optimizes resource allocation. For example, factories are outsourced to overseas countries with cheap labor resources, but agricultural products cannot be like this. They are limited by their own resources and depend on resource endowment constraints. The resource endowments of the world's major grain exporting countries have some commonalities, such as large land area and abundant arable land. The food importing countries are poor countries and countries like China with a large population and a small number of land and rapid economic development. Because agriculture is a matter of survival, countries are more cautious, and the share of food that can truly achieve global agricultural free trade every year is not much.
In the early days of the COVID-19 pandemic, many governments were concerned about agricultural export restrictions, leading to a rush to buy, but things quickly recovered and supply chains held up well. Yet current events increasingly resemble the global food crisis of 2007-2008. The shock did not originate in the trading system, but ended in the trading system, where countries lashed out at export controls while trying to keep agricultural products at home.
Since the last food crisis, the world has had 15 years to prepare emergency response mechanisms, including agreements to reduce export controls and the creation of agricultural market information systems to increase production transparency. But the implementation is not very good, and there is no guarantee that in a crisis situation it will promote cooperative rather than restrictive policies. Gloria Abraham Peralta, chairman of the WTO agricultural trade negotiations, bluntly stated when introducing the text of the agricultural negotiations in 2021 that agricultural trade is still affected by market distortions and protectionism. The Global Trade Alert Monitoring Service reports that food export restrictions have more or less doubled since 2021.
So far, there has been news every few days that the government of a certain country restricts food exports in order to stabilize domestic food prices, but this approach is a temporary solution. Hussain Bazhe, director of the Turkish Foreign Policy Institute and professor of international relations at the Middle East University of Science and Technology, pointed out that during the last food price crisis, export restrictions by food-producing countries became one of the main drivers of soaring and volatile agricultural market prices. . Given the current tight market, governments of grain exporting countries are strongly advised to refrain from imposing export restrictions on essential goods. Past experience shows that these temporary policies will only bring down domestic food prices in the short term, but the reduction in supply on the world market will further exacerbate the rise in global food prices and ultimately domestic food prices. Also, it is equally important that importing countries avoid improvised responses such as cutting import subsidies to shore up domestic supply.
U.S. Department of Agriculture estimates that after five consecutive years of record harvests, India has nearly a tenth of the world's wheat stocks. The U.S. holds 6% and 12% of global wheat and corn reserves, respectively. North African countries, which are particularly dependent on grain imports from the Black Sea region, together account for about 5 percent of global wheat reserves.
Countries with sufficient grain warehouses can use existing reserves to avoid paying high food prices, but people in countries with little surplus will inevitably suffer from rising prices. Rising food prices reduce real household incomes and trap more people into food poverty. The impact is more severe in developing regions, where a significant portion of people's disposable income is spent on food. Taking the United Kingdom and Nigeria as examples, the impact of rising food prices on ordinary Nigerian households is more serious. Nigerian households’ food expenditure accounts for 56.4% of their income, while the average British household’s food expenditure accounts for only 8.2% of their income.
In developed countries, food accounts for less than 5 percent of total household expenditures. Therefore, food price inflation can be temporarily digested. But in developing countries, food costs can reach 50% of the cost of living and have a huge impact on society. Unfortunately, the same populations affected by higher food prices as those affected by the economic upheaval of the Covid-19 crisis have already suffered from their ability to recover. Even more unfortunate, rising food prices will also increase the cost of doing business for global food producers such as Nestlé and Kraft Heinz, which, by the laws of economics, will pass on the impact of higher costs to shoppers.
Egypt is also one of the most affected countries. About 70% of Egypt's wheat needs are imported from Russia and Ukraine. Egypt's current reserves are only enough to sustain the country's subsidized food program for about four and a half months, and rising wheat prices are expected to add another $763 million to Egypt's already huge $3.2 billion bread subsidy bill this year. Compared with Egypt, which still has surplus food, African countries such as Benin and Somalia have almost no food reserves.
Whether this food shortage can be alleviated depends largely on the timing of the Russian-Ukrainian conflict. If the conflict continues to intensify, food will become more scarce. When many people are chasing very scarce and expensive food resources, this situation can lead to civil conflict.
Overwhelmed by the increased bread subsidy bill, the food crisis-stricken Egyptian government is looking for new supplies while imposing price controls on non-subsidized bread to stem a sharp rise in prices. Timothy Kardas, an expert on Egyptian political economy at the Tahrir Middle East Policy Institute, a Washington-based think tank, said that the possibility of such inflation exacerbating unrest in Egypt, coupled with years of austerity by the Egyptian government, has eroded the purchasing power of the people.
Lebanon’s trade minister, Amin Salam, said the country has only one month of wheat reserves left. The economic crisis in Lebanon has left nearly a quarter of households in doubt whether they will be able to eat enough.
In 2008, soaring food prices led to riots in 48 countries. How should the world avoid this most unfavorable situation this time? Arnold Pettit, executive director of the IGC, suggested that countries should learn from the last food crisis and refrain from adopting trade restrictions. The grain value chain is so complex that trade restrictions can hurt other countries and exacerbate food price increases. This is the case for intra-sub-Saharan African rice trade, and export restrictions will hurt the economies of landlocked countries in the region. Rice is increasingly seen as a staple food in African countries. On the wheat side, the Turkish milling industry plays a vital role in supplying flour and pasta to the Middle East and sub-Saharan regions. Any export restrictions would also have a huge impact on these countries.