Agricultural export bans amid global food insecurities leave developing world to suffer

Several countries have banned commodity exports since the start of the pandemic, affecting supplies of wheat, rice, fertiliser, palm oil and more
Instead of harmful bans, the world must help farmers increase production and fill gaps in supplies

Wandile Sihlobo

Published: 3:30am, 26 May, 2022

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Periods of uncertainty tend to lead to nations taking drastic, self-interested policy measures. Since the start of the Covid-19 pandemic, several countries have placed temporary bans on exports of grains, ostensibly to protect domestic consumers. In July 2021, China went as far as banning exports of fertiliser in an attempt to ensure adequate domestic supply.

Such inward-looking policy actions often have a notable disruption on the highly interconnected global agricultural market. In the case of China’s ban on fertiliser exports, for instance, the impact was felt through a sharp rise in prices across the global fertiliser market as China is the second-largest fertiliser exporter by value after Russia.

As the world came to better manage the worst of the pandemic’s health aspects through the use of vaccinations and other measures, we saw a reversal of grain export bans by the likes of Vietnam and Kazakhstan. The Group of 7 agriculture ministers had criticised the export bans at the time.

The destruction brought about by Russia’s invasion of Ukraine has had a direct and more severe impact on the agricultural market as both countries contribute substantial volumes of grains, oilseeds and fertiliser exports.

Collectively, they make up nearly 30 per cent of global wheat exports, 30 per cent of barley exports and roughly 60 per cent of global sunflower seed exports. Russia alone accounts for about 14 per cent of global fertiliser exports.

For this reason, global grains and oilseed prices have remained elevated in recent months. The UN Food and Agriculture Organization (FAO) Food Price Index averaged 158.5 points in April, down marginally from the all-time high in March but still 30 per cent up from April 2021. This was probably a temporary blip. Prices are likely to show an uptick to a fresh high in the May data, due to be released next month.

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These price increases have put pressure on consumers worldwide just as households are emerging from the economic shock of Covid-19. We are starting to see the second round of export bans of key commodities, all with the purported aim of protecting domestic consumers.

The first significant agricultural exporter to introduce restrictions was Indonesia, at the end of April, temporarily banning palm oil exports. This was a significant shock to the vegetable oil market because of Indonesia’s significance to global supplies – it accounts for about 60 per cent of worldwide palm oil production.

Before this ban, the disruption to Black Sea exports as a result of the Ukraine war and tighter supplies of palm oil in Asia had already manifested themselves in higher prices. For example, in March, the FAO’s Vegetable Oil Price Index was up by 23 per cent from February, to a record 249 points.

Thus, the recent export policy changes in Indonesia are likely to lead to even higher vegetable oil prices and result in a further increase in the overall FAO Global Food Price Index. The slight reprieve in April appears to be only temporary.

Most recently, India has followed with similar steps, announcing a ban on wheat exports in the past week. The move is likely to fuel further price increases in the market at a time when global wheat stocks are expected to be tight as a result of the predicted fall in production in key areas of the European Union and the Black Sea.

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India’s reasoning for the move isn’t all that different from Indonesia’s. The official statement said it was necessary to manage the nation’s overall domestic food security while supporting neighbouring countries’ needs.

India is a substantial player in the global wheat market and is one of the largest exporters in the world. We are yet to see the full impact of these policy actions on prices. Over the weekend, G7 agricultural ministers condemned India’s ban, noting that such actions would worsen the global food crisis.

The G7 agricultural ministers official communique further stated that “we will continue to avoid any unjustified restrictive measures on exports that could exacerbate the increases in food and input price volatility already seen on international markets, and that could thereby threaten the continued recovery of all facets of global food supply chains and, more broadly, food security and nutrition”.

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Given the heightened uncertainties, bans on exports of essential commodities should not be used by governments as policy instruments of choice, especially by major agricultural producers such as India and Indonesia. Rather, officials should focus on supporting farmers, to increase production and fill the gap in supplies created by the disruption to Black Sea exports as a result of Russia’s invasion of Ukraine.

Frequent export bans just add to the uncertainty surrounding agricultural markets and heighten price volatility. G7 agricultural ministers must take a stand against such action. Governments worldwide should do all they can to support agricultural production, avert a global food crisis and avoid relying on trade policy instruments that only hurt the developing world.

Wandile Sihlobo is chief economist of the Agricultural Business Chamber of South Africa (Agbiz) and the author of “Finding Common Ground: Land, Equity, and Agriculture”. He is also a visiting research fellow at the Wits School of Governance, University of the Witwatersrand

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