Trade Restrictions Exacerbate Worst Food Crisis in Decades

Trade Restrictions Exacerbate Worst Food Crisis in Decades

The worst global food crisis in the last decade was one of the key issues discussed at the 12th ministerial meeting of the World Trade Organization last month. . This is a crisis exacerbated by a growing number of countries banning or restricting exports of wheat and other commodities in a misguided attempt to limit rising domestic prices. These actions have the opposite effect – they must be stopped and reversed.

The price of wheat, a staple food in many developing countries, has risen by 34 percent since Russia’s invasion of Ukraine in late February. Other food costs have also increased. In response, 34 countries imposed restrictions on food and fertilizer exports in early June – a figure close to the 36 countries that used such controls during the 2008-2012 food crisis.

These actions are self-destructive as they reduce global supply and push food prices higher. Other countries respond by imposing restrictions of their own, fueling an increased cycle of trade actions that have a multiplier effect on prices.

Everyone is squeezed by food price inflation, but the poor are hardest hit, especially in developing countries where food accounts for half of a typical family budget. Also,  developing countries are particularly vulnerable as they tend to be net importers of food. History leaves no doubt about what happens when food becomes scarce or unaffordable for the poorest people: The 2008 food crisis, for example, caused a significant increase in malnutrition, especially among children. Some studies have shown dropout rates of up to 50 percent among children from the poorest households.

Measures to limit exports during the 2008 crisis had a significant impact on food prices, making things worse. Research  shows that if exporters had avoided imposing restrictions, prices would have been on average 13 percent lower.

This time, the war in Ukraine is accelerating the price increase that started earlier due to adverse weather conditions in key producing countries, rapid economic recovery after the collapse caused by COVID-19, and rising energy and fertilizer costs. The war severely disrupted shipments from Ukraine, one of the world’s largest food suppliers. The country is also a major supplier of maize, barley and sunflower seeds used to make cooking oil – products that cannot reach world markets as Ukrainian ports are closed. .

The multiplier effect is already visible, with unilateral trade restrictions fueling additional policy activism and higher prices. Russia, the world’s number 2 wheat exporter with a share of 17.5 percent by volume in March, announced that it has temporarily banned the export of wheat and other grains. Smaller exporters such as Kazakhstan and Turkey followed suit. In early June, 22 countries imposed restrictions on wheat exports, which cover 21 percent of the world’s grain trade. These restrictions   led to a 9 percent increase in the price of wheat – about one-seventh of the total increase in prices since the start of the war.

Export restrictions aren’t the only trade measures governments have taken in response to higher prices. Some countries are cutting taxes or otherwise easing restrictions on imports. Chile, for example, increased the reductions in tariffs on wheat. Normally, a permanent cessation of import restrictions would be welcome. But in a crisis, temporary reductions in import restrictions put upward pressure on food prices by increasing demand, just as export restrictions do to cut supply.

Among those most affected by the trade restrictions are  emerging economies in Africa, Asia, Latin America and the Middle East. Bangladesh imports 41 percent of the wheat it consumes from the Black Sea region. For the Republic of the Congo, the figure is 67 percent and for Lebanon 86 percent. Given the extent of the dependency, it is likely to be an immediate pain for the people of these countries, as alternative suppliers will not be available in the near term. Rising prices will eventually create incentives for major agricultural exporters to increase production and replace some of the exports from the Black Sea region, but this will take time.

Altogether,  tracking by the World Bank’s Global Trade Alert  shows that 74 export restrictions such as taxes or outright bans on fertilizers, wheat and other food products have been announced or implemented since the beginning of the year (98 of them including the past). Similarly, 61 liberalizing import reforms such as tariff reductions were counted (70 taking into account the past).

At the end of their meeting,  representatives from more than 100 WTO member states took an important first step: they agreed to step up efforts to facilitate trade in food and agricultural products, including grains and fertilizers and reaffirmed the importance of avoiding export restrictions.

In addition, the Group of Seven Advanced Economies, which includes major food exporters such as Canada, the European Union and the United States, has pledged to avoid export bans and other trade-restrictive measures. World Bank President David Malpass urged other major food exporters to join in. Together, these countries represent more than 50 percent of global staple food exports such as wheat, barley and maize.

This is an urgent matter: To alleviate the food crisis, it is imperative that all food-related trade restrictions imposed since the beginning of the year be lifted as quickly as possible. The war in Ukraine has created unnecessary suffering for the most vulnerable people everywhere. The global community has the mandate to fully cooperate to expand the flow of food worldwide. So the misery of hunger is not added to the mix.

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