The state of the global food market

Consumers around the world are facing high food prices, but by restricting food exports, governments of major food exporting nations will only exacerbate the issue, Sonia Akter writes.

Global food prices have reached historic levels in recent months, driven upwards by the COVID-19 pandemic and Russia’s invasion of Ukraine. In response, 30 countries – including India, Malaysia, Hungary, Uganda, and Turkey – have imposed restrictions on food exports.

While these measures can help these food-exporting countries in the short term by stablising prices domestically and ensuring sufficient supply, in the longer term this food protectionism can drive up global prices, exacerbate inequality, and lead to growing food insecurity.

Food protectionism happens when major food-exporting countries impose restrictions on food exports, such as capping export quantities, increasing export tariffs, and prohibiting the export of certain products altogether.

Governments do this because outflows of food from local to international markets can increase domestic food prices and create shortages in local markets, forcing them to import food to meet local needs. These imports can be expensive, particularly when food prices are high, and deplete a country’s foreign exchange reserves.

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For example, India witnessed unprecedented growth in sugar exports due to rising international sugar prices, prompting the Indian government to restrict sugar exports between 1 June and 31 October 2022.

The World Trade Organization prohibits outright export bans and discourages restrictions in general. However, members can introduce such restrictions on exports as a short-term stopgap measure while considering the food security needs of other countries.

Accordingly, India announced its plan to impose a ban on the private export of wheat on 13 May 2022, but promised to continue wheat export to its long-term trading partners with whom it had signed export agreements, such as Bangladesh, Egypt, and Sri Lanka. Additionally, India will still export wheat through diplomatic channels in response to requests from specific countries.

While it may help prices at home, food protectionism places upward pressure on international food prices, fuelling the global food price crisis.

When India announced a wheat export ban, global wheat prices soared to a new high despite India not being a major wheat exporter. During the 2007-08 food crisis, export bans imposed by 32 countries contributed to an estimated 30 per cent increase in global food prices.

But unlike then, the current food price crisis is compounded by a conflict between major food, oil, gas, and fertiliser producing countries and preceded by a two-year-long pandemic that brought unprecedented supply chain disruptions and general inflation fuelled by stimulative economic policies.

As well as pushing global food prices higher, food protectionism exacerbates inequality. While it affects all food-importing countries, richer countries can afford to keep buying food at higher prices, while low-income countries and countries with limited foreign exchange reserves find feeding their people more challenging.

Then, within these countries, low-income households and other vulnerable groups like women, children, and the elderly bear the brunt of the crisis. In wealthier countries, low-income households are also struggling to cope with rising food and fuel prices.

Even within these households, suffering is unequally shared. The poorest households can spend over half of their income on food and suffer the most when food prices spike. Women and girls bear a disproportionately heavy burden, with households often adjusting their expenditure unequally, cutting back on education and healthcare expenditures for female members more readily than for male members.

This discrepancy also extends even to the actual distribution of food. One study estimated that drought-induced financial hardship in ‘Sub-Saharan Africa’ caused the deaths of 11.9 more girls per 1,000 children than boys.

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Increasing food prices also decreases purchasing power for other purposes, affecting economic activity overall. Without a corresponding increase in income, people must reduce other non-food expenditure – and not just on luxuries. Familes cut crucial spending on healthcare, education, transport, and energy use if they need that money to buy food.

Purchasing power was already very low when pandemic-related movement restrictions ceased and economic activity started to return to its pre-pandemic levels – the Global Report on Food Crisis 2022 reported that there were 40 million additional acutely food-insecure people in 2021 than in 2020 – and food protectionism can make this problem even worse.

Climate change has further intensified the food crisis. For example, a sudden increase in temperature resulted in the Indian government failing to procure sufficient wheat from local markets to replenish its depleted food reserves. A drought in 2021 also resulted in Indonesia temporarily banning palm oil exports due to a poor harvest.

The alternative to food protectionism is to let the market operate more freely, and provide a social safety net for those struggling to meet their needs domestically.

While this option can leave domestic food prices high, social protection measures for low-income households and other vulnerable groups can take the edge off without affecting global prices.

Export restrictions offer temporary respite by boosting short-term domestic supply but have unintended negative consequences in the medium and long term. They exacerbate the global food price crisis, forcing millions of low-income households in food-importing countries into destitution.

Food protectionism also prevents domestic producers from taking advantage of the high international prices of agricultural commodities, stimulating economic activity that can ease the pain later down the line. Ultimately, it is not the path governments should take through this crisis.