Rising protectionism is exacerbating chaos in global food markets brought on by the war in Ukraine, with governments clamping down on exports of staples including grains, cooking oil and pulses.
Soaring food prices and, in some cases, the threat of social unrest have led to an increase in exporters banning overseas sales or putting in place other restrictions such as taxes or quotas. These protectionist steps have only driven up the food import bill further for countries dependent on international markets for important food commodities, hitting some of the poorest in the world.
Beata Javorcik, chief economist at the European Bank for Reconstruction and Development, warned protectionism would only artificially boost prices, already at record levels, fuelling global food insecurity. “This is going to increase global poverty rates. And in extreme situations, it may induce authoritarian regimes to become more oppressive,” she said.
Before the invasion of Ukraine, droughts and Covid-19 labour restrictions had driven international food prices higher. The war has led to 23 countries turning to food protectionism, according to the US think-tank International Food Policy Research Institute (IFPRI).
The share of restricted products in the world food trade measured in calories was 17 per cent, the same level seen during the 2007-08 food and energy crisis, said the IFPRI.
Indonesia last month became the latest country to announce an export ban, stopping overseas sales of palm oil. The commodity is the most traded vegetable oil in the world, used in everything from cakes to cosmetics.
Jakarta’s decision has been another blow for consumers already struggling with a jump in cooking prices because of the invasion of Ukraine, a leading sunflower oil supplier. Supermarkets in the EU and UK have rationed cooking oil as shoppers have rushed to stockpile.
The move by the leading palm oil exporter has meant that, together with Ukrainian and Russian sunflower oil, more than 40 per cent of supplies on the international vegetable oil market have become difficult to access.
Jakarta’s first-ever blanket ban on exports of the edible oil, implemented as the country prepared for feasting at the end of Ramadan, appears to have paid off politically. After a rapid decline, approval ratings for President Joko Widodo climbed 4 percentage points to 64 per cent in the latest survey by pollster Indikator.
But as the ban staved off discontent in Indonesia, it stoked chaos elsewhere. Pakistan, whose new government is already contending with an inflation crisis, soon formed an official task force to address its palm oil supplies. Islamabad has sought to reassure the public by seeking guarantees from Indonesian officials that Jakarta would resume shipments before the end of the month, according to Usman Qureshi, joint secretary in Pakistan’s commerce ministry.
Although agricultural commodity traders do not expect the ban to last long, some warned that the unexpected move had affected Indonesia’s reputation as a place to do business. One palm oil trader in Singapore said: “I will diversify my exposure [away from Indonesia] a bit more going forward.”
David Laborde, a senior research fellow at IFPRI, said the export restrictions had created a domino effect, reducing world supply to those who needed it. “You end up undermining the world trade system,” he said, adding that by limiting access to international markets, restrictions also reduced incentives for farmers to grow crops. “You hurt your own farming system and your own food supplies.”
Traders are now focused on whether India will announce a food export ban.
One of the world’s largest wheat producers, the country’s exports rose to a record high of more than 7mn tonnes in the year ended March, helping fill the shortfall caused by the Ukraine war. But searing heat in March and April, where temperatures of up to 45C hit large parts of India’s wheat belt, have heightened concerns about the country’s domestic supply. With several more weeks of heat expected before the onset of the annual monsoon next month, the government this week downgraded its forecast for the current wheat crop by 5 per cent to 105mn tonnes for the year to June.
Prices quoted on wheat markets around the world have risen over the past few days following reports that New Delhi was also considering restricting exports to protect domestic stocks from further shortfalls.
But India’s food secretary Sudhanshu Pandey disputed that restrictions were an option, saying the country had enough to meet its domestic needs. “Wheat exports are on,” he told reporters on Wednesday, adding that the arrival of Argentina’s own wheat crop from June should ease pressure on Indian and global supplies.
Traders said any restrictions on Indian exports would shock international markets. “The world has been relying on India for alternative supplies at a time when global inventories are historically tight and supplies remain severely restricted from the Black Sea,” said Kona Haque, head of research at ED&F Man, an agricultural commodities trading house. Any suggestion that India might move to ban exports would cause “global wheat markets to panic and prices to rise”, she warned.