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  • Writer's pictureThe San Juan Daily Star

Governments tighten grip on global food stocks, sending prices higher

Production operations at Indonesian Asian Agri palm oil mill and processing plant in Kerinci, Riau, Indonesia, Dec. 10, 2015. The country has halted outgoing shipments of palm oil, a key ingredient in packaged food.

By Ana Swanson

Ukraine has limited exports of sunflower oil, wheat, oats and cattle in an attempt to protect its war-torn economy. Russia has banned sales of fertilizer, sugar and grains to other nations.

Indonesia, which produces more than half the world’s palm oil, has halted outgoing shipments. Turkey has stopped exports of butter, beef, lamb, goats, maize and vegetable oils.

Russia’s invasion of Ukraine has unleashed a new wave of protectionism as governments, desperate to secure food and other commodities for their citizens amid shortages and rising prices, erect new barriers to stop exports at their borders.

The measures are often well intended. But like the panic-buying that stripped grocery store shelves at various moments of the pandemic, the current wave of protectionism will only compound the problems that governments are trying to mitigate, trade experts warn.

Export restrictions are making grains, oils, meat and fertilizer — already at record prices — more expensive and even harder to come by. That is placing an even greater burden on the world’s poor, who are paying an ever-larger share of their income for food, increasing the risk of social unrest in poorer countries struggling with food insecurity.

Since the beginning of the year, countries have imposed a total of 47 export curbs on food and fertilizers — with 43 of those put in place since the invasion of Ukraine in late February, according to tracking by Simon Evenett, a professor of international trade and economic development at the University of St. Gallen.

“Before the invasion, there’s a very small number of attempts to try and restrict exports of food and fertilizers,” Evenett said. “After the invasion you see a huge uptick.”

The cascade of new trade barriers comes as the war in Ukraine, and the sanctions imposed by the West on Russia, are further straining supply chains that were already in disarray from the pandemic. Russia is the world’s largest exporter of wheat, pig iron, nickel and natural gas, and a major supplier of coal, crude oil and fertilizer. Ukraine is the world’s largest exporter of sunflower seed oil and a significant exporter of wheat, pig iron, maize and barley.

With countries facing severe threats to supplies of basic goods, many policymakers have quickly dropped the language of open markets and begun advocating a more protective approach. Recommendations range from creating secure supply chains for certain critical materials in friendly countries to blocking exports and “reshoring” foreign factories, bringing operations back to their home countries.

In a speech last week, Treasury Secretary Janet Yellen said the pandemic and the war had revealed that United States supply chains, while efficient, were neither secure nor resilient. While cautioning against “a fully protectionist direction,” she said the U.S. should work to reorient its trade relationships toward a large group of “trusted partners,” even if it meant somewhat higher costs for businesses and consumers.

Ngozi Okonjo-Iweala, the director general of the World Trade Organization, said in a speech Wednesday that the war had “justifiably” added to questions about economic interdependence. But she urged countries not to draw the wrong conclusions about the global trading system, saying it had helped drive global growth and provided countries with important goods even during the pandemic.

“While it is true that global supply chains can be prone to disruptions, trade is also a source of resilience,” she said.

The WTO has argued against export bans since the early days of the pandemic, when countries including the U.S. began throwing up restrictions on exporting masks and medical goods and removed them only gradually.

Now, the Russian invasion of Ukraine has triggered a similar wave of bans focused on food. “It’s like déjà vu all over again,” Evenett said.

Protectionist measures have cascaded from country to country in a manner that is particularly evident when it comes to wheat. Russia and Ukraine export more than one-quarter of the world’s wheat, feeding billions of people in the form of bread, pasta and packaged foods.

Evenett said the current wave of trade barriers on wheat had begun as the war’s protagonists, Russia and Belarus, clamped down on exports. The countries that lie along a major trading route for Ukrainian wheat, including Moldova, Serbia and Hungary, then began restricting their wheat exports. Finally, major importers with food security concerns, like Lebanon, Algeria and Egypt, put their own bans into effect.

Evenett said the dynamic was “still unfolding” and likely to get worse in the months to come. Ukraine’s summer growing season for wheat is being disrupted as fighting keeps farmers away from their fields and pulls workers off to war. And grocery stores in Spain, Greece and Britain are already introducing restrictions on the amount of cereals or oil that people can buy.

“We’re already feeling the pinch in Europe of limited supplies of these key crops,” he said.

Price increases for food have been felt particularly keenly in poorer countries in the Middle East and sub-Saharan Africa, which depend on imported food.

In a blog post Thursday, Abebe Aemro Selassie, the director of the International Monetary Fund’s African Department, and Peter Kovacs, an economist in the department, wrote that sub-Saharan Africa was facing a severe shock from rising food and fuel prices that would slow economic growth, sink governments into debt and erode standards of living.

Food accounts for about 40% of consumer spending in sub-Saharan Africa, they said, and around 85% of the region’s wheat supplies are imported.

International organizations have pledged to increase their support for emergency food supplies and other aid, but the scale of the problem is daunting.

A prolonged war, or the addition of new sanctions, could cause prices to rise further. But even absent those trends, the factors that have pushed up prices may be hard to unwind.

In a report Tuesday, the World Bank said the war in Ukraine had altered trade patterns in ways that would keep commodity prices higher through the end of 2024.

The World Bank estimated that prices of non-energy goods, like agricultural products and metals, would increase almost 20% this year before moderating in following years, while wheat prices are expected to rise more than 40% to reach a high this year.

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