Daily Management Review

Food Export Limitations, Ranging From India To Argentina, Run The Danger Of Driving Inflation


Food Export Limitations, Ranging From India To Argentina, Run The Danger Of Driving Inflation
It only took 24 hours for Prime Minister Narendra Modi's government in India, the world's second-largest wheat producer, to abandon its intentions to "feed the world" last month.
Following five straight record harvests, Modi stated publicly in April that India was ready to cover a portion of the gap created by Ukraine in global grain markets by increasing wheat exports. India has always exported only a little amount of wheat, keeping the majority of its production for internal consumption.
On May 12, India's Ministry of Commerce and Industry announced plans to send delegations to nine countries in order to export a record 10 million tonnes of wheat this fiscal year, a significant increase over the previous season.
But a flood of troubling data changed everything.
In early May, India's wheat crop was revised downward due to an unexpected heatwave that harmed yields. Then, on May 12, figures showed that inflation in the 1.4 billion-person country had risen to a near eight-year high due to increasing food and fuel prices caused by the Ukraine crisis.
Concerned about rising inflation, which contributed to the demise of the previous Congress party government in 2014, Modi's office instructed the Ministry of Commerce on May 13 to put the "brakes on" wheat exports immediately, according to one government official who requested anonymity due to the sensitivity of the issue.
"This (inflation data) prompted the government to issue an order at midnight" imposing a ban on wheat exports, said a second source.
News of the restriction by India, which is the only significant wheat exporter at that time of year, drove Chicago wheat futures 6 percent higher after markets reopened on Monday.
India is one of at least 19 countries that have imposed food export restrictions in the aftermath of the Ukraine conflict, which has hampered international trade flows for various agricultural items and sparked violent protests in other poor countries. more info
Governments enforced restrictions from Delhi to Kuala Lumpur, Buenos Aires to Belgrade, at a time when the economic damage caused by the COVID-19 epidemic, along with variables such as harsh weather and supply chain bottlenecks, had already drove hunger to record levels around the world.
The United Nations World Food Programme (WFP) reported in April that the number of people facing acute food insecurity – when their inability to consume adequate food threatens their lives or livelihoods – had more than doubled since 2019 to 276 million in the 81 countries where it operates, prior to the Ukraine conflict.
It was predicted that the war, which hampered shipments from Russia and Ukraine, two agricultural powerhouses, would increase that figure by at least 33 million, largely in Sub-Saharan Africa.
Members of the World Trade Organization can impose temporary export prohibitions or restrictions on foodstuffs or other products if they are required to relieve "critical shortages."
Last month, India's Commerce Minister Piyush Goyal told Reuters that he had communicated with the World Trade Organization (WTO) and the International Monetary Fund (IMF) to emphasise that India needs to prioritise its own food security, stabilise domestic prices, and defend against hoarding.
However, export restrictions risk exacerbating the rise in global food prices, creating a domino effect as the crisis worsens, prompting other countries to take similar measures, according to Michele Ruta, the World Bank Group's lead economist in the Macroeconomics, Trade, and Investment Global Practice.
Many economists believe the global food crisis is already worse than the last one, which peaked in 2008 and was caused by causes such as droughts, worldwide population growth, increased meat consumption in major developing economies, and increased usage of crops to make biofuels.
Shortages at the period sparked protests all around the world, notably in Africa, where food accounts for a disproportionately large portion of household budgets.
According to Simon Evenett, a professor of international trade and economic development at the University of St. Gallen, assurances from international organisations to national governments in 2008 that there was enough food to go around globally took some of the wind out of those pushing for export restrictions.
"This time around that is harder to do as we do have a supply hit here in both Ukraine and Russia," Evenett said, adding the size of summer harvests in major food producers would help determine how things develop in the second half of 2022.
According to USDA data, Ukraine and Russia accounted for 28 percent of world wheat exports, 15 per cent of corn exports, and 75 per cent of sunflower oil exports in the 2020/21 season.
As harvests approach, global food prices have steadied at high levels in the last two months. However, there are some concerning indicators, with drought in the United States threatening to diminish the amount of the winter wheat crop, and wheat crops in France being pounded by hail, strong winds, and torrential rains this month. more info
Dry weather in Argentina, the world's sixth largest wheat exporter, has slowed crop sowing and lowered production projections for the 2022/23 season.
Furthermore, Evenett stated that the attitude in international forums such as the G20 is now less collaborative as a result of years of populism and heightened tensions between major geopolitical powers.
"This current situation in many ways is a lot more troubling than 2008 and look at what risks arose then to political stability," he said. "We will have a very tense six to nine months ahead of us."