Awakening from Slumber: The Surprising Resurgence of Food Protectionism

2023-08-19 09:30:24

Food protectionism: Fresh rise after brief slumber

It is said that there's enough food in the world for everyone, but not everyone can access it. And this happens mainly due to income distribution, in normal situations.

The situation only worsens when the world's largest food grain producers, during some sort of crisis or as a part of a political strategy, feel they need to save the food for themselves and consequently stops exporting it.

This is exactly what has seen a rise in recent years.

Fallout from the Covid-19 pandemic and other factors such as poor harvest had already driven up food prices around the world. Then the Russia-Ukraine war broke out in February 2022, leading to a complete halt of grain shipments from Ukraine, previously a major exporter, through the Black Sea. Also, Russia temporarily halted its own grain exports, further exacerbating the situation.

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In the aftermath, several countries imposed restrictions on food exports to protect their domestic stock. These restrictions were implemented in the forms of licensing requirements, increased taxes and outright bans.

These actions exacerbated disruptions in global markets, leading to escalated prices and heightened price instability.

Export Restrictions Trend

At the peak of the export restriction trend in late May, according to International Food Policy Research Institute (Ifpri), such measures were implemented by 23 countries, and almost 17% of global food and feed exports (on a caloric basis) were affected.

The situation was similar to the 2007-08 food price crisis, when 15.3% of global trade of calories was affected as 19 countries banned export of food items. Apart from that, a couple of other countries implemented export licensing or export tax measures to restrict export.

According to data gathered by the World Bank and the Global Trade Alert, from the beginning of 2022 until June same year, over 74 policy measures were announced or implemented, negatively affecting trade in food and fertilizers. Two-thirds of those measures were full export bans.

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Unsurprisingly, countries intended to protect and build their stocks of the food commodities most affected by the Russia-Ukraine War, and those included wheat, feed grain and vegetable oil. Of course, restrictions were also imposed on the export of maize, barley, rye, potatoes, eggplants, tomatoes, sunflower seeds, onions, sugar and many other commodities.

Improved Situation and Current Scenario

However, the situation got better by July 2022, when the Black Sea grain initiative was agreed between Russia, Turkey and the UN, allowing Ukrainian grain shipments to leave its ports safely. Many countries also decided to go easy on the restrictions, leading to the affected trade falling to 7.3%. The situation prevailed for the rest of the year, and prices of major food commodities mostly fell to pre-war levels.

As of 14 August 2023, according to Ifpri data, there are active outright bans on export of dozens of food commodities, implemented by 19 countries, many of which also kept in place export licensing and export taxes measures. In addition, Uganda, the 20th country, has tax measures on the export of maize, rice and soya beans.

Bangladesh is also among these countries, which banned export of aromatic rice to keep its price in the local market under control last year.

Impact of Protective Measures

As a result of such protectionist measures, food inflation continues to batter many countries in the world, especially the low, lower-middle, and upper-middle-income countries, with many experiencing double-digit inflation.

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Meanwhile, the Indian government imposed a sudden ban on exporting non-basmati white rice last month, which came as a shock to the world. The ban is sure to have a domino effect as other suppliers will take similar protectionist measures to avoid potential domestic shortages. The ban will create a 10 million tonne gap in rice supply.

Now that India has banned rice export, speculations are high that the next product facing similar restrictions might be sugar. The world is currently highly dependent on Indian sugar.

The Indian ban came just three days after Russia quit the Black Sea grain deal on 17 July warning it could not guarantee the safety of Ukrainian grain shipments.

The end of the grain deal is feared to impact food security in Asia due to rising prices of grains and oilseeds, as well as vegetable oils.

Price Impact

India caters to 40% of the rice demand in the international market. Last year, India exported a staggering 56 million tonnes of rice. The impact of the latest rice export ban by India on prices of the world's most consumed staple has been swift. Global prices have risen by around 20% since India's ban.

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Some 73% of Bangladesh's imported rice comes from India. Although the prices of rice and other food commodities have seen big inflation in the last two years, the recent ban has not had any impact on the country's rice prices, for now.

According to an earlier TBS report, the ministry of food said there are currently 16.19 lakh tonnes of rice in stock in the country, and the government has no plans to import rice at the moment, as the stocks are in a good position. Therefore, despite the price hike of rice in the international market, it will not have any direct impact on Bangladesh.

However, in the long run, Bangladesh is not completely out of danger.

"The world will be suffering from warmer weather in 2023 and 2024. As a result, food production will be affected. In such a situation, food prices have shot up, and it may get worse," Agricultural economist Dr Md Jahangir Alam Khan told The Business Standard.

"Russia, too, has stopped exporting rice, although it is not a big factor in terms of the rice market. Russia and India supply respectively 5% and 40% of the world's rice. Other rice exporting countries have also restricted rice exports in order to ensure their own food security.

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"On the other hand, wheat and maize trade is also impacted due to the Russia-Ukraine war and the expiration of the Black Sea grain deal," added Dr. Alam, who is the former president of Bangladesh Agricultural Economists' Association.

As a result of these protective measures, Bangladesh is in a vulnerable position, he added.

"Moreover, the Aush yield has not been very good, and also, the Aman fields have been affected due to drought followed by floods in some areas. These may affect the food security of Bangladesh. However, I do not fear immediate danger because of bumper harvests of the last two crops — Boro and last year's Aman. The stock of rice is ample in the country at present," the agro-economist continued.

But the government should take preparations for the worst in case the Aman harvest is not good, the expert concluded.

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