food security

Wheat prices spike following Indian export ban

In yesterday’s post, I reviewed India’s decision to restrict exports of wheat last Friday. May 15, 2022:  India bans exports of wheat, complicating efforts to address global food security problems posed by Russia’s war in Ukraine, https://currentthoughtsontrade.com/2022/05/15/india-bans-exports-of-wheat-complicating-efforts-to-address-global-food-security-problems-posed-by-russias-war-in-ukraine/. Despite India’s efforts to walk back the extent of the export ban on Saturday, world market prices for wheat shot up on May 16. See, e.g., Financial Times, Wheat prices rise almost 6% as India export ban shakes markets, May 16, 2022, https://www.ft.com/content/226f3f09-33ff-40c8-b439-08a36c515aba (“Wheat prices rose by the maximum amount allowed on Monday after India imposed a ban on exports, stoking pressure on food costs as tight global supplies roiled international markets. Futures traded in Chicago rose as much as 5.9 per cent to $12.47 a bushel, their highest level in two months.”); Bloomberg, Wheat Soars in Risk to Food Inflation as India Restricts Exports, May 15, 2022 updated May 16, 2022, https://www.bloomberg.com/news/articles/2022-05-15/world-s-food-problems-piling-up-as-india-restricts-wheat-exports (“Wheat jumped by the exchange limit to near a record high after India’s move to restrict exports, exposing just how tight global supplies are during the war in Ukraine and threatening to drive up food prices even more.”); Market Watch,  Wheat prices surge to highest in more than 2 months following India’s ban on exports, May 16, 2022, https://www.marketwatch.com/story/wheat-prices-surge-to-highest-in-more-than-two-months-following-indias-ban-on-exports-11652683058 (“India’s Commerce Secretary B.V.R. Subrahmanyam told reporters on Sunday that the country’s wheat production has dropped by 3 million tons from 106 million tons last year. Prices have surged 20% to 40% in India. However, India also said Sunday that it would continue to export to needy nations — the country mainly provides wheat to Bangladesh, Nepal and Sri Lanka. India consumes most of what it produces, exporting 7 million tons of wheat last year out of 109 million tons produced, said Subrahmanyam.”); Quartz India, India’s wheat export ban is another reality check for its lofty soft power goals, May 16, 2022, https://qz.com/india/2165965/indias-wheat-export-ban-sends-global-prices-soaring/ (“A few weeks ago, it [India] claimed it could feed the world should the World Trade Organization allow it. Later, on May 4, prime minister Narendra Modi reiterated his desire to “save the world from hunger.” After all, in the wake of the Russia-Ukraine war, India had got the perfect window to become a major wheat exporter. On May 14, however, India banned the export of wheat, largely owing to a record high domestic food inflation. Lower yield due to intense heat waves piled on the country’s agony.”).

Based on the price spike today being capped by daily exchange rate increase limits, India’s action will likely result in even higher prices in the coming days.

The U.S., EU and others are looking at ways to reduce the food insecurity flowing from the Russian war in Ukraine including looking to help Ukraine export its agricultural products through western Europe. U.S. Secretary of State Anton Blinken was in Berlin this past weekend and at a press conference noted efforts that will take place in New York this week. See U.S. Department of State, Secretary Antony J. Blinken at a Press Availability, Berlin, May 15, 2022, https://www.state.gov/secretary-antony-j-blinken-at-a-press-availability-18/ (excerpts copied below).

“We’ve marshaled a robust transatlantic response to the humanitarian crisis caused by the war – more than 6 million Ukrainians have fled their homeland.  They’ve been welcomed in countries across Europe and across the Atlantic.  The United States has provided millions of dollars in assistance to countries taking in Ukrainian citizens to help provide essential support and services.  Our countries are also coming together to address some of the broader consequences that are flowing from Russia’s aggression, like the global food shortages and rising food prices that we’re seeing.  Ukraine supplies a great deal of the world’s corn, its wheat, its oil seeds for cooking oil.

“Russia is blocking Ukraine’s ports; it’s destroying its farmland, warehouses, roads, equipment.  That’s not only striking a major blow to Ukraine’s economy, but it’s also designed to inflict pain on the rest of the world to weaken support to the Ukrainian people.  Later this week in New York, we will be convening an emergency session of the UN Security Council and also the foreign ministers to focus on the steps that we can take together to address the immediate challenges for food and to address food insecurity, as well as to look at some of the medium-term and longer-term answers to food insecurity.”

While the WTO Director-General and a significant number of WTO Members are looking for action at the WTO’s 12 Ministerial Conference starting on June 12th not only on a WTO response to the COVID-19 pandemic but also on addressing the problem of rising food insecurity, a number of major countries are having trouble not restricting agricultural exports and hence are exacerbating the challenges of food insecurity which have been worsened by the Russian war in Ukraine. Actions like that taken by India will complicate the global response to food insecurity and cause even higher world prices for core agricultural commodities.

India bans exports of wheat, complicating efforts to address global food security problems posed by Russia’s war in Ukraine

While the WTO permits countries to restrict exports of agricultural products in certain circumstances, history is replete with examples of price swings being exacerbated by the imposition of export restraints on food. As reviewed in a recent post, Russia’s war in Ukraine has caused already high food prices to spike to all time highs in products like wheat where Ukraine and Russia are major exporters. April 19, 2022:  Recent estimates of global effects from Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/04/19/recent-estimates-of-global-effects-from-russian-invasion-of-ukraine/; March 30, 2022:  Food security challenges posed by the Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/03/30/food-security-challenges-posed-by-the-russian-invasion-of-ukraine/.

While many WTO Members are urging the WTO membership to avoid imposition of export restraints at the present time to reduce food insecurity, a number of countries have shut down exports to protect their domestic consumers. India, which is the world’s second largest producer of wheat and had been looked to to help reduce the challenges in Africa and Asia from Ukraine’s inability to get grain harvested or exported, has faced very high temperatures this spring. In the last days, it has reversed its position of increasing exports to help countries in need to the position of shutting off exports immediately with the exception of volumes under contract and with a possible willingness to work with countries with food security issues. See Reuters, India bans wheat exports as heat wave hurts crop, domestic prices soar, May 15, 2022, https://www.reuters.com/markets/commodities/india-prohibits-wheat-exports-with-immediate-effect-2022-05-14/ (“India banned wheat exports on Saturday days after saying it was targeting record shipments this year, as a scorching heat wave curtailed output and domestic prices hit a record high. The government said it would still allow exports backed by already issued letters of credit and to countries that request supplies ‘to meet their food security needs’.”); Washington Post, India bans wheat exports amid soaring global prices, May 14, 2022, https://www.washingtonpost.com/world/2022/05/14/india-wheat-ban-ukraine/ (“In a Commerce Ministry order, Indian officials said they made the decision after considering India’s own needs and those of neighboring countries. India’s food security was ‘at risk’ because of surging international prices, the ministry said. The announcement was an abrupt reversal weeks after Indian officials and international analysts talked up the possibility of India’s significantly ratcheting up exports to fill the gap created partly by the war in Ukraine. International food prices have soared to record highs in recent months, putting pressure on billions of people, particularly the world’s poorest, officials at the United Nations have warned.”); ABC News, India open to exporting wheat to needy nations despite ban, May 15, 2022, https://abcnews.go.com/International/wireStory/india-open-exporting-wheat-needy-nations-ban-84728532 (“India on Sunday said it would keep a window open to export wheat to food-deficit countries at the government level despite restrictions announced two days earlier. India’s Commerce Secretary B.V.R. Subrahmanyam told reporters the government will also allow private companies to meet previous commitments to export nearly 4.3 million tons of wheat until July. India exported 1 million tons of wheat in April.”); The Times of India, Explained: Why India has banned wheat exports despite big trade plans, May 14, 2022, https://timesofindia.indiatimes.com/business/india-business/explained-why-did-india-ban-wheat-exports-despite-big-trade-plans/articleshow/91565703.cms; Hindustan Times, G7 criticises India decision to stop wheat exports: Germany, May 14, 2022, https://www.hindustantimes.com/world-news/g7-criticises-india-decision-to-stop-wheat-exports-germany-101652533657311.html (“‘If everyone starts to impose export restrictions or to close markets, that would worsen the crisis,’ German agriculture minister Cem Ozdemir said at a press conference in Stuttgart.”).

Press accounts indicate that China’s wheat production for this year is uncertain because of weather considerations as well. See New York Times, War and Weather Sent Food Prices Soaring. Now, China’s Harvest Is Uncertain, May 12, 2022, https://www.nytimes.com/2022/05/11/business/china-wheat-food-prices-inflation.html (“Ukraine’s wheat exports have been mostly halted since Russia’s invasion, while drought has damaged crops in India and the United States. China’s upcoming harvest is another concern..”).

The U.S. Department of Agriculture develops periodic forecasts for production and consumption of major agricultural crops. USDA released its latest global forecast for various crops for 2022-2023 including wheat on May 12, 2022. See USDA, World Agricultural Supply and Demand Estimates, May 12, 2022, https://www.usda.gov/oce/commodity/wasde/wasde0522.pdf. The description of wheat supply and demand is copied below.

“WHEAT: The outlook for 2022/23 U.S. wheat is for reduced supplies, exports, domestic use stocks,
and higher prices. U.S. 2022/23 wheat supplies are projected down 3 percent, as lower beginning
stocks more than offset a larger harvest. All wheat production for 2022/23 is projected at 1,729
million bushels, up 83 million from last year, as higher yields more than offset a slight decrease in
harvested area. The all wheat yield, projected at 46.6 bushels per acre, is up 2.3 bushels from last
year. The first survey-based forecast for 2022/23 winter wheat production is down 8 percent from last
year as lower Hard Red Winter and Soft Red Winter production more than offset an increase in White
Wheat production. Abandonment for Winter Wheat is the highest since 2002 with the highest levels in
Texas and Oklahoma. Spring Wheat production for 2022/23 is projected to rebound significantly from
last year’s drought-reduced Hard Red Spring and Durum crops primarily on return-to-trend yields.

“Total 2022/23 domestic use is projected down 1 percent on lower feed and residual use more than
offsetting higher food use. Exports are projected at 775 million bushels, down from revised 2021/22
exports and would be the lowest since 1971/72. Projected 2022/23 ending stocks are 6 percent
lower than last year at 619 million bushels, the lowest level in nine years. The projected 2022/23
season-average farm price (SAFP) is a record $10.75 per bushel, up $3.05 from last year’s revised
SAFP. Wheat cash and futures prices are expected to remain sharply elevated through the first part
of the marketing year when the largest proportion of U.S. wheat is marketed.

“The global wheat outlook for 2022/23 is for lower supplies and consumption, increased trade, and
lower ending stocks. Global production is forecast at 774.8 million tons, 4.5 million lower than in
2021/22. Reduced production in Ukraine, Australia, and Morocco is only partly offset by increases in
Canada, Russia, and the United States. Production in Ukraine is forecast at 21.5 million tons in
2022/23, 11.5 million lower than 2021/22 due to the ongoing war. Canada’s production is forecast to
rebound to 33.0 million tons in 2022/23, up significantly from last year’s drought-affected crop.

“Projected 2022/23 world use is slightly lower at 787.5 million tons, as increases for food use are more
than offset by declining feed and residual use. The largest feed and residual use reductions are in
China, the European Union, and Australia as well as a sizeable decline in food use in India.
Projected 2022/23 global trade is a record 204.9 million tons, up 5.0 million from last year. Imports
are projected to rise on increased exportable supplies from Russia and Canada more than offsetting
reductions for Ukraine and Australia. Russia is projected as the leading 2022/23 wheat exporter at
39.0 million tons, followed by the European Union, Australia, Canada, and the United States.
Ukraine’s 2022/23 export forecast is 10.0 million tons, down sharply from last year on reduced
production and significant logistical constraints for exports. India is expected to remain a significant
wheat exporter in 2022/23. Projected 2022/23 world ending stocks are reduced 5 percent to 267.0
million tons and would be the lowest level in six years. The largest change is for India, where stocks
are forecast to decline to 16.4 million tons, a five-year low.”

With likely reduced availability of product globally and with reduced stocks of wheat on hand, tThe G7, led by the EU and US, are working to find ways to help Ukraine move its wheat production to export despite Russia’s closure of the Black Sea. Such efforts if successful will reduce the global damage done on food security on products like wheat. As reviewed in my last post,

“The EU is working to facilitate movement of Ukrainian agricultural products by land through EU member states. But the main challenges are the blockage of Black Sea ports by Russia and the reported theft of agricultural products and equipment from Ukrainian farms and depots. See, e.g., CNN, Russians steal vast amounts of Ukrainian grain and equipment, threatening this year’s harvest, May 5, 2022, https://www.cnn.com/2022/05/05/europe/russia-ukraine-grain-theft-cmd-intl/index.html; Voice of America, Russian Blockade of Ukrainian Sea Ports Sends Food Prices Soaring, May 7, 2022, https://www.voanews.com/a/russian-blockade-of-ukrainian-sea-ports-sends-food-prices-soaring/6561914.html; Politico, EU plans to help Ukraine’s food exports dodge Black Sea blockade, EU farm chief warns Russia wants to portray itself as feeding the poor, while it destroys Ukraine’s farmland. May 10, 2022, https://www.politico.eu/article/eu-plans-to-boost-ukraines-food-exports-black-sea-blockade/.”

May 11, 2022:  Less than five weeks to the WTO’s 12th Ministerial Conference — what are likely deliverables?, https://currentthoughtsontrade.com/2022/05/11/less-than-five-weeks-to-the-wtos-12th-ministerial-conference-what-are-likely-deliverables/.

Hopefully, India will in fact work to facilitate exports to many of the nations dependent on wheat from Ukraine in the coming months to help reduce the food insecurity flowing from Russia’s war in Ukraine. But the announcement on Friday of banning exports is a concerning signal and will likely lead to even higher prices for wheat in the coming weeks and months.

Food security challenges posed by the Russian invasion of Ukraine

Ukraine and Russia are important exporters of wheat, corn and sunflower oil. See, e.g., WTO Trade Profiles 2021 at 376 (Ukraine top three agricultural expoers were sunflower-seed, or cotton oil ($5.32 billion), corn ($4.885 billion) and wheat and meslin ($3.594 billion)) and 298 (Russian Federation, top two agricultural exports were wheat and meslin ($6.403 billion), sunflower seed or cotton oil ($2.206 billion). Ukraine’s exports in 2022 are certain to be disrupted by the Russian war in the country which is harming infrastructure, the ability of farmers to plant crops, increasing input costs and maritime costs. Effects on Russian exports are less clear but could be affected as well.

The United Nation’s Food and Agriculture Organization (FAO) released an updated evaluation of risks on food security both for Ukrainians and for the world from the ongoing conflict last week (March 25), See FAO, Information Note, The importance of Ukraine and the Russian Federation for global agricultural markets and the risks associated with the current conflict, 25 March 2022 Update, https://www.fao.org/3/cb9236en/cb9236en.pdf. The Executive Summary (pages 1-4) is copied below.

“Executive Summary

“1. Market structure, trade profiles and recent price trends

“1.1 Market shares

“• The Russian Federation and Ukraine are among the most important producers of agricultural commodities in the world. Both countries are net exporters of agricultural products, and they both play leading supply roles in global markets of foodstuffs and fertilisers, where exportable supplies are often concentrated in a handful of countries. This concentration could expose these markets to increased vulnerability to shocks and volatility.

“• In 2021, either the Russian Federation or Ukraine (or both) ranked amongst the top three global exporters of wheat, maize, rapeseed, sunflower seeds and sunflower oil, while the Russian Federation also stood as the world’s top exporter of nitrogen fertilizers, the second leading supplier of potassium fertilizers and the third largest exporter of phosphorous fertilizers.

“1.2 Trade profiles

“• Many countries that are highly dependent on imported foodstuffs and fertilizers, including numerous that fall into the Least Developed Country (LDC) and Low-Income Food-Deficit Country (LIFDC) groups, rely on Ukrainian and Russian food supplies to meet their consumption needs. Many of these countries, already prior to the conflict, had been grappling with the negative effects of high international food and fertilizer prices.

“Risk analysis: Assessing the risks emanating from the conflict

“2.1 Trade risks

“• In Ukraine, the escalation of the conflict raises concerns on whether crops will be harvested and products exported. The war has already led to port closures, the suspension of oilseed crushing operations and the introduction of export licensing requirements for some products. All of these could take a toll on the country’s exports of grains and vegetable oils in the months ahead. Much uncertainty also surrounds Russian export prospects, given sales difficulties that may arise as a result of economic sanctions imposed on the country.

“2.2 Price risks

“• FAO’s simulations gauging the potential impacts of a sudden and steep reduction in grain and sunflower seed exports by the two countries indicate that these shortfalls might only be partially compensated by alternative sources during the 2022/23 marketing season. The capacity of many exporting countries to boost output and shipments may be limited by high production and input costs. Worryingly, the resulting global supply gap could raise international food and feed prices by 8 to 22 percent above their already elevated baseline levels.

“• If the conflict keeps crude oil prices at high levels and prolongs the two countries’ reduced global export participation beyond the 2022/23 season, a considerable supply gap would remain in global grain and sunflowerseed markets, even as alternative producing countries expand their output in response to the higher output prices. This would keep international prices elevated well above baseline levels.

“2.3 Logistical risks

“• In Ukraine, there are also concerns that the conflict may result in damages to inland transport infrastructure and seaports, as well as storage and processing infrastructure. This is all the more so given the limited capacity of alternatives, such as rail transport for seaports or smaller processing facilities for modern oilseeds crushing facilities, to compensate for their lack of operation.

“• More generally, apprehensions also exist regarding increasing insurance premia for vessels destined to berth in the Black Sea region, as these could exacerbate the already elevated costs of maritime transportation, compounding further the effects on the final costs of internationally sourced food paid by importers.

“2.4 Production risks

“• Although early production prospects for 2022/23 winter crops were favourable in both Ukraine and the
Russian Federation, in Ukraine, the conflict may prevent farmers from attending to their fields and harvesting and marketing their crops, while disruptions to essential public services could also negatively affect agricultural activities.

“• Current indications are that, as a result of the conflict, between 20 and 30 percent of areas sown to winter crops in Ukraine will remain unharvested during the 2022/23 season, with the yields of these crops also likely to be adversely affected. Furthermore, considerable uncertainties surround Ukrainian farmers’ capacity to plant crops during the fast approaching spring crop cycle.

“• The conflict is also likely to affect the ability of Ukraine to control its animal disease burden, significantly increasing the risk of proliferation of animal diseases, notably of African swine fever (ASF), within Ukraine and in neighbouring countries.

“• In the case of the Russian Federation, although no major disruption to crops already in the ground appears imminent, uncertainties exist over the impact that the international sanctions imposed on the country will have on food exports. Any loss of export markets could depress farmer incomes, thereby negatively affecting future planting decisions.

“• Economic sanctions imposed on the Russian Federation could also disrupt its imports of agricultural inputs, notably pesticides and seeds, on which the country is highly dependent. This could result in less plantings, lower yields and lower qualities, exposing the Russian agricultural sector and global food supplies, at large, to non-negligible risks.

“2.5 Humanitarian risks

“• The conflict is set to increase humanitarian needs in Ukraine, while deepening those of millions of people that prior to its escalation were already displaced or requiring assistance due to the more than eight-year conflict in the eastern part of the country. By directly constraining agricultural production, limiting economic activity and raising prices, the conflict will further undercut the purchasing power of local populations, with consequent increases in food insecurity and malnutrition.

“• Humanitarian needs in neighbouring countries, where displaced populations are seeking refuge, are also set to increase substantially.

“• Globally, if the conflict results in a sudden and prolonged reduction in food exports by Ukraine and the Russian Federation, it will exert additional upward pressure on international food commodity prices to the detriment of economically vulnerable countries, in particular. FAO’s simulations suggest that under such a scenario, the global number of undernourished people could increase by 8 to 13 million people in 2022/23, with the most pronounced increases taking place in Asia-Pacific, followed by sub-Saharan Africa, and the Near East and North Africa. If the war lasts, impacts will go well beyond 2022/23.

“2.6 Energy risks

“• The Russian Federation is a key player in the global energy market. As a highly energy-intensive industry, especially in developed regions, agriculture will inevitably be affected by the sharp increase in energy prices that has accompanied the conflict.

“• Agriculture absorbs high amounts of energy directly, through the use of fuel, gas and electricity, and indirectly, through the use of agri-chemicals such as fertilisers, pesticides and lubricants.

“• With prices of fertilizers and other energy-intensive products rising as a consequence of the conflict, overall input prices are expected to experience a considerable boost. The higher prices of these inputs will first translate into higher production costs and eventually into higher food prices. They could also lead to lower input use levels, depressing yields and harvests in the 2022/23 season, thus giving further upside risk to the state of global food security in the coming years.

“• Higher energy prices also make agricultural feedstocks (especially maize, sugar and oilseeds/vegetable oils) competitive for the production of bio-energy and, given the large size of the energy market relative to the food market, this could pull food prices up to their energy parity equivalents.

“2.7 Exchange rate, debt, and growth risks

“• The Ukrainian hryvnia reached a record low against the United States dollar (USD) in early March 2022, with likely repercussions for Ukrainian agriculture, including a boost to its export competitiveness and curbs on its ability to import.

“• Although their extent remains unclear at this stage, conflict-induced damages to Ukraine’s productive capacity and infrastructure are expected to entail very high recovery and reconstruction costs.

“• The economic sanctions imposed on the Russian Federation have also led to a significant depreciation of the Russian rouble. Although this should make Russian exports of agricultural commodities more affordable, a lasting rouble depreciation would negatively affect investment and productivity growth prospects in the country.

“• Weakening economic activity and a depreciated rouble are also expected to have serious effects on countries in Central Asia through the reduction of remittance flows, as for many of these countries remittances constitute a significant part of gross domestic product (GDP)

“• The current conflict may also have global spillovers. While its impact on the global economy remains uncertain at this stage and will depend on several factors, the most vulnerable countries and populations are expected to be hit hard by slower economic growth and increased inflation, at a time when the world is still attempting to recover from the recession triggered by the COVID-19 pandemic.

“• Agriculture is the backbone of the economies of many developing countries, the majority of which rely on the United States dollar for their borrowing needs. As such, a lasting appreciation of the USD vis-à-vis other currencies may have negative significant economic consequences for these countries, including for their agrifood sectors. Moreover, the potential reduction of GDP growth in several parts of the world will affect global demand for agrifood products with negative consequences for global food security. Lower GDP growth will also likely reduce the availability of funds for development, especially if global military expenses increase.

“Policy recommendations

“• In order to prevent or limit the conflict’s detrimental impacts on the food and agricultural sectors of Ukraine and the Russian Federation, every effort should be made to keep international trade in food and fertilizers open to meet domestic and global demand. Supply chains should be kept fully operational, including by protecting standing crops, livestock, food processing infrastructure, and all logistical systems.

“• In order to absorb conflict-induced shocks and remain resilient, countries that depend on food imports from Ukraine and the Russian Federation will need to find alternative export suppliers for their food needs. They should also rely on existing food stocks and enhance the diversity of their domestic production bases.

“• The food security impacts of the conflict on vulnerable groups necessitate timely monitoring and well-targeted social protection interventions to alleviate the hardship caused by the conflict and to foster a fast recovery from it. To assist the internally displaced people, refugees and groups directly affected by the conflict, the reach of Ukraine’s national social protection system should be expanded by registering additional population groups within the Unified Social Information System.

“• In countries hosting refugees, access to existing social protection systems and job opportunities should also be eased by lifting legal access barriers and, where needed, by increasing the capacity of host countries’ social protection systems to absorb additional caseloads.

“• Countries affected by potential disruptions ensuing from the conflict must carefully weigh measures they put in place against their potentially detrimental effect on international markets including over the longer term. Particularly, export restrictions must be avoided. They exacerbate price volatility, limit the buffer capacity of the global market, and have negative impacts over the medium term.

“• The spread of African swine fever (ASF) and other animal diseases must be contained by improving biosecurity and good husbandry practices at all geographical levels, by taking steps to facilitate early detection, timely reporting and rapid disease containment, and by implementing measures that support virus detection, such as surveillance schemes and targeted sampling of animals.

“• Market transparency and policy dialogue should be strengthened, as they play key roles when agricultural commodity markets are under uncertainty and disruptions need to be minimised to ensure that international markets continue to function properly and that trade in food and agricultural products flows smoothly.”

Figure 15 of the paper (page 10) identifies countries largely dependent on Ukraine and Russia for wheat.

The FAO also released a separate paper on the food security challenges for the people of Ukraine on March 25, 2022. See FAO, Note on the impact of the war on food security in Ukraine, 25 March 2022, https://www.fao.org/3/cb9171en/cb9171en.pdf.

The FAO’s latest Food Price Index (released March 4, 2022, shows agricultural products already at all time highs. See FAO, The FAO Food Price Index rises to a new all-time high in February, Release date: 04/03/2022, https://www.fao.org/worldfoodsituation/foodpricesindex/en/#:~:text=Release%20date%3A%2004%2F03%2F,February%202011%20by%203.1%20points.

As reviewed in a prior post, countries imposing sanctions on Russia, including the G-7 and the EU, are working to minimize the food security issues. March 26, 2022:  Blockage of Accession of Belarus to WTO, additional sanctions on Russia and other recent developments, https://currentthoughtsontrade.com/2022/03/26/blockage-of-accession-of-belarus-to-wto-additional-sanctions-on-russia-and-other-recent-developments/ (“The G-7 Leaders’ Statement on March 24, 2022 outlined their efforts to address the potential food security issues caused by Russia’s invasion of Ukraine. See G-7 Leaders’ Statement, March 24, 2022, paragraphs 17 and 18,  https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/24/g7-leaders-statement/#:~:text=We%2C%20the%20Leaders%20of%20the,against%20independent%20and%20sovereign%20Ukraine. ’17. More immediately, President Putin’s war places global food security under increased pressure. We recall that the implementation of our sanctions against Russia takes into account the need to avoid impact on global agricultural trade. We remain determined to monitor the situation closely and do what is necessary to prevent and respond to the evolving global food security crisis. We will make coherent use of all instruments and funding mechanisms to address food security, and build resilience in the agriculture sector in line with climate and environment goals. We will address potential agricultural production and trade disruptions, in particular in vulnerable countries. We commit to provide a sustainable food supply in Ukraine and support continued Ukrainian production efforts. 18. We will work with and step up our collective contribution to relevant international institutions including the World Food Programme (WFP), in parallel with Multilateral Development Banks and International Financial Institutions, to provide support to countries with acute food insecurity. We call for an extraordinary session of the Council of the Food and Agriculture Organization (FAO) to address the consequences on world food security and agriculture arising from the Russian aggression against Ukraine. We call on all participants of the Agriculture Markets Information System (AMIS) to continue to share information and explore options to keep prices under control, including making stocks available, in particular to the WFP. We will avoid export bans and other trade-restrictive measures, maintain open and transparent markets, and call on others to do likewise, consistent with World Trade Organization (WTO) rules, including WTO notification requirements.’”).

The issue is taking center stage at the WTO as reviewed in a recent press notice from the WTO on the Director-General’s comments at an informal meeting of the General Council. See WTO news release, DG Okonjo-Iweala: “This is not the time to retreat inward,” 28 March 2022, https://www.wto.org/english/news_e/news22_e/dgno_28mar22_e.htm. Some of the news release is copied below.

“’For dozens of poor countries and tens of millions of people, basic food security is in danger,” she warned. “These countries already have been some of the slowest economic recoveries from the pandemic, and international cooperation on trade is necessary to help mitigate risks of poverty, hunger, even famine and social unrest.’

“The Director-General noted that the UN Secretary-General has set up a three-tiered steering committee involving heads of government, heads of international organizations and technical experts to deal with the issue of surging energy and food prices. 

“The WTO is also expected to play a key role in finding solutions to the food crisis, the Director-General noted. The chair of the WTO’s agriculture negotiations, Ambassador Gloria Abraham Peralta of Costa Rica, is planning a food security conference that will take place at the end of April.  WTO Secretariat staff have also been carrying out analysis on food security issues which will be shared with members shortly.

“’We at the WTO have a solid basis on which to consider workable solutions to the present crisis,” the DG declared.

“In the near-term, international cooperation on trade will be needed to minimize the impact of supply crunches for key commodities where prices are already high by historical standards and to keep markets functioning smoothly, the Director-General said. While only 12 members have imposed export restrictions on food to date, coordinated government action is needed to avoid a repeat of the cascading export restrictions that exacerbated the rise of food prices in the crisis of 2008-2010.

“In addition, countries with buffer stocks that can afford to share could coordinate the release of wheat, barley, other cereals and grains and oils into international markets, thereby alleviating the supply squeeze.  Countries such as the United States, Canada, Australia, Argentina, and France could increase wheat cultivation while others such as China, Germany, Morocco, Saudi Arabia, Egypt, and Nigeria could increase global supply of fertilizer. Africa, with plentiful land and other resources, can also take steps to produce more food itself by using more adaptable varieties of wheat, maize and other crops.

“Trade facilitation measures could also be brought into play to ease the free flow of goods, while efforts should be made to allow the UN’s World Food Programme full access to humanitarian purchases. Prompt notification and information sharing regarding food supplies and stockpiles can help the international community better manage the situation and keep markets functioning more smoothly.”

WTO Members have a poor track record of not retreating from sharing core commodities during periods of shortages, which actions result in increased price volatility and significant harm to food importing nations. The transparency exercise as part of the COVID-19 pandemic on actions on both medical goods and agricultural products has improved the ability to understand actions being taken. But to date, Members continue to take actions to restrict exports when internal food security concerns arise.

I have written with former colleagues a number of papers in the past looking at the food security problems during earlier periods in the last fifteen years and the risks of social unrest that arise for many countries when core commodities become unaffordable. They are imbedded below.

GDP

1-Stewar-Manaker

2-2015-Global-Hunger-and-the-WTO-how-the-International-Trade-Rules-Address-Food-Security

Let’s hope that the focus of the G-7, EU and agricultural exporting countries and the attention being given to the issue at the WTO will result in a minimization of increased food insecurity to people around the world in the coming months.

WTO Secretariat Information Note on COVID-19 and Agriculture

On Wednesday, August 26, the WTO Secretariat put out an Information Note entitled “COVID-19 and Agriculture: A Story of Resilience”. It is one in an impressive line of information notes providing useful information on how COVID-19 is affecting global trade in goods and services. The full array of information notes published to date can be found on the WTO webpage, https://www.wto.org/english/tratop_e/covid19_e/covid19_e.htm. Wednesday’s Information Note is embedded below.

agric_report_e

The note focuses on the fact that trade in agricultural goods have fared better than total trade in goods during the pandemic. The Secretariat, at the time of preparing the Information Note, had access to trade data through April 2020 and for May 2020 for some countries. A key summary paragraph from the note states:

“Trade in agricultural products has been more resilient than overall trade. This reflects the essential nature of food and the resulting relative income-inelasticity of demand for it, as well as the fact that most agricultural trade (notably cereals and oilseeds) takes place in bulk marine shipments that have not been subject to major disruptions. While overall merchandise trade fell sharply in the first half of 2020, agricultural and food exports increased by 2.5 per cent during the first quarter of the year compared to the same period in 2019, with an increase of 3.3 per cent in March, followed by a 0.6 per cent increase in April, although the preliminary data for May indicate a small decrease (-1.3 per cent) compared to 2019.2

“2 Data for May 2020 were available for a limited set of 64 countries at the time of writing.”

Importantly, while some governments imposed export restrictions on some agricultural products early in response to COVID-19, some of those restrictions have been lifted and there have been other initiatives to liberalize trade in agriculture.

However, the note reviews the challenges for many people to get adequate food despite food stocks and good harvests. A prior August 15 post of mine reviewed the challenges facing many nations in accessing adequate food supplies in 2020. See August 15, 2020,  Food security and COVID-19 – how World Trade Organization Members could fill a pressing need, https://currentthoughtsontrade.com/2020/08/15/food-security-and-covid-19-how-world-trade-organization-members-could-fill-a-pressing-need/

The Information Note’s conclusion provides a note of caution on agricultural trade despite the greater resilience of such trade over other trade in goods:

“The COVID-19 crisis has had a major impact on the global economy and trade. Countries are still fighting the pandemic, and its repercussions for food supply chains are still unfolding. While agricultural trade has proven more resilient than trade in other goods owing to the essential nature of food products, additional disruptions to supply chains could start to undermine this resilience, with damaging consequences.

“There is currently no supply-related reason why the ongoing health crisis should turn into a food crisis. However, disruptions to food supply chains constitute a risk for global food security. Governments’ trade policy choices will play a major role in shaping how the situation evolves.

“Transparency remains crucial for food security. Incomplete or insufficient information creates uncertainty that, in turn, leads to sub-optimal policy decisions. Sharing timely information on trade-related measures, as well as making information available on production, consumption, stocks and food prices, would help markets function efficiently and contribute to ensuring global food security.”

U.S. example on agricultural exports suggests greater contraction in 2nd quarter of 2020

U.S. trade data are available through June 2020. At least for the United States, U.S. domestic exports of agricultural products (HS Chapters 01-24) through June 2020 were off from 2019 levels (which were themselves below 2018 levels). On a monthly basis, the contraction worsens month by month after February as the below data on U.S. domestic exports of agricultural goods show (exports are FAS values in billions of US $):

1st half 2018$69.3
1st half 2019$65.6
1st half 2020$64.0
% change 2019-2020-2.50%
% change Jan. 2019-2020+0.13%
% change Feb. 2019-2020+5.04%
% change March 2019-2020-1.46%
% change April 2019-2020-3.95%
% change May 2019-2020-7.17%
% change June 2019-2020-7.67%

U.S. domestic exports of agricultural goods show dramatic differences in trends in 2020 based on the 2-digit HS chapter involved. Chapter 02, meat and edible meat offal, increased in the first half of 2020 by 8.4%; Chapter 04, dairy produce and other products, increased 17.27%Chapter 10, cereals, increased by 1.13%; Chapter 15, animal fats and oils and their cleavage products, increased 23.19%; Chapter 23, residue and waste from the food industry, prepared animal feed, increased 2.43%; the other nineteen Chapters showed declines up to 15.17%.

For the United States, the U.S.-China Phase 1 Agreement appears likely to improve U.S. agricultural exports in the last months of 2020 and hence may change the U.S. trade trend for agricultural goods in the third and fourth quarters. See August 8, 2020,  U.S.-China Phase 1 trade agreement – review of U.S. domestic exports through June 2020, https://currentthoughtsontrade.com/2020/08/08/u-s-china-phase-1-trade-agreement-review-of-u-s-domestic-exports-through-june-2020/.

But the above data for the U.S. suggests that global agricultural trade may be harder hit in the second quarter than the Secretariat Information Note tracks through April (and for partial data for May). All of which simply says the Information Note’s conclusion that transparency and accuracy and timeliness of data are critical at the present time to prevent the COVID-19 health crisis from becoming a food security crisis of even greater proportions than is already projected by the World Food Programme.

Food security and COVID-19 — how World Trade Organization Members could fill a pressing need

In 2020 as the world has been dealing with the health and economic consequences of the COVID-19 pandemic, the World Trade Organization has focused attention on keeping markets open by urging Members to provide notifications of trade restrictive and trade liberalizing measures taken not just on medical goods but also on agricultural products. The G20 countries and various groups of WTO Members have made commitments to impose restrictions only under limited circumstances and only temporarily, consistent with WTO obligations. Some Members have urged countries to agree not to impose export restraints on agricultural goods to limit worsening challenges during the COVID-19 pandemic. On agricultural export restrictions, a number of countries have applied some restrictions despite information that global food supplies are sufficient which should make restrictions unnecessary. The attention paid to the issue by the WTO and its Members have limited the number of countries engaged in agricultural export restraints which is a positive development.

With the steps many countries have taken to limit the spread of the COVID-19, there has been enormous economic pain incurred by most countires, with tens of millions of people in countries temporarily unemployed, schools closed, food distribution disrupted with the closure of restaurants which constitute a large part of food shipped from processing plants and farms.

The UN, World Bank and others have projected huge increases in the number of people pushed into extreme poverty because of the effects flowing from the pandemic. Extreme poverty brings with it food security issues as people suffering extreme poverty don’t have the means to procure basic food needs.

The United Nation’s World Food Programme (WFP) has long been involved in helping address food security needs around the world. In the COVID-19 pandemic, the WFP is mobilizing to provide assistance to some 138 million people in 83 countries. With most countries occupied with dealing with the needs of their own populations, countries and private citizens have been slow to respond to the humanitarian challenges facing so many around the world. The WFP has appealed for US$4.9 billion to let them perform their stepped up function during COVID-19 through the end of 2020. As of August 6, they had received only 9 percent of what they need, $US440 million.

The WFP during the pandemic has been involved in facilitating services by many NGOs and international organizations. For example, “Over 16,500 health and humanitarian personnel from 288 organizations have now been transported to destinations throughout Africa, Asia, the Middle East and the Commonwealth of Independent States countries by WFP’s air passenger service since its launch on 1 May. 53 destinations are now being served, with approximately 2,500 passengers using WFP’s service per week.” WFP, COVID-19, Level 3 Emergency, External Situation Report #12 (6 August 2020)(emphasis in original). The latest situation report is embedded below and reviews the wide array of services provided as well a review of some of the countries with acute needs. It also provides a link to contribute to the WFP.

WFP-0000118265

The External Situation Report indicates that there are 27 countries (based on an FAO-WFP hotspot analysis) which “are at risk of significant food security deterioration in the next six months”. (page 2). Countries at risk are Guatemala, Honduras, El Salvador, Nicaragua, Haiti, Peru, Ecuador, Colombia, Venezuela, Burkina Faso, Mali, the Niger, Sierra Leone, Liberia, Nigeria, Cameroon, Central African Republic, Democratic Republic of the Congo, Lebanon, Sudan, South Sudan, Mozambique, Zimbabwe, Somalia, Yemen, Ethiopia, Iraq, Syrian Arab Republic, Afghanistan and Bangladesh (total is 31, though Peru, Ecuador, Colombia appear to be at a lower level of risk based on coloration used on page 2). FAO – WFP early warning analsyis of acute food insecurity hotspots, https://docs.wfp.org/api/documents/WFP-0000117706/download/.

Where is the food aid?

For many countries, agricultural production has remained reasonably strong but large volumes of agricultural products have been destroyed based on lack of domestic markets, typically flowing from the collapse of the restaurant trade and the challenges in redirecting product, packaging and labeling into retail channels. See, e.g., New York Times, April 11, 2020, Dumped Milk, Smashed Eggs, Plowed Vegetables: Food Waste of the Pandemic, https://www.nytimes.com/2020/04/11/business/coronavirus-destroying-food.html.

At the same time, there have been huge increases in internal-country demand for help from food banks in some countries. See, e.g., for the United States: Feeding America, The first months of the food bank response to COVID, by the numbers, https://www.feedingamerica.org/hunger-blog/first-months-food-bank-response-covid-numbers.

It would seem that coordinated action by major agricultural goods producers in the WTO with the WFP and other groups should be able to provide large quantities of agricultural goods to those in need globally in the remaining months of 2020, goods which might otherwise simply be destroyed.

Similarly, while all countries are financially stretched during the pandemic, helping WFP obtain the needed financial resources to provide a coordinated pledging event should be of interest to WTO Members and many of the multilateral organizations working on COVID responses, as well as the business community and the general public.

While the WTO has grappled with limiting/eliminating export subsidies for agricultural goods, the WTO has always recognized the need to maintain the flow of humanitarian need particularly in agricultural goods. Consider these paragraphs from the 2015 Nairobi Ministerial Conference Decision on Export Competition (WT/MIN(15)45, WT/L/980 (21 Dec. 2015) at 6-7):

“International Food Aid

“22. Members reaffirm their commitment to maintain an adequate level of international food aid, to take account of the interests of food aid recipients and to ensure that the disciplines contained hereafter do not unintentionally impede the delivery of food aid provided to deal with emergency situations. To meet the objective of preventing or minimizing commercial displacement, Members shall ensure that international food aid
is provided in full conformity with the disciplines specified in paragraphs 23 to 32, thereby contributing to the objective of preventing commercial displacement.

“23. Members shall ensure that all international food aid is:

“a. needs-driven;

“b. in fully grant form;

“c. not tied directly or indirectly to commercial exports of agricultural products or other goods and services;

“d. not linked to the market development objectives of donor Members;
and that

“e. agricultural products provided as international food aid shall not be re-exported in any form, except where the agricultural products were not permitted entry into the recipient country, the agricultural products were determined inappropriate or no longer needed for the purpose for which they were received in the recipient country, or re-exportation is necessary for logistical reasons to expedite the provision of food aid for another country in an emergency situation. Any reexportation in accordance with this subparagraph shall be conducted in a manner that does not unduly impact established, functioning commercial markets of agricultural commodities in the countries to which the food aid is re-exported.

“24. The provision of food aid shall take into account local market conditions of the same or substitute products. Members shall refrain from providing in-kind international food aid in situations where this would be reasonably foreseen to cause an adverse effect on local13 or regional production of the same or substitute products. In addition, Members shall ensure that international food aid does not unduly impact established, functioning commercial markets of agricultural commodities.

“25. Where Members provide exclusively cash-based food aid, they are encouraged to continue to do so. Other Members are encouraged to provide cash-based or in-kind international food aid in emergency situations, protracted crises (as defined by the FAO14), or non-emergency development/capacity building food assistance environments where recipient countries or recognized international humanitarian/food entities, such as the United Nations, have requested food assistance.

“26. Members are also encouraged to seek to increasingly procure international food aid from local or regional sources to the extent possible, provided that the availability and prices of basic foodstuffs in these markets are not unduly compromised.

“27. Members shall monetize international food aid only where there is a demonstrable need for monetization for the purpose of transport and delivery of the food assistance, or the monetization of international food aid is used to redress short and/or long term food deficit requirements or insufficient agricultural production situations which give rise to chronic hunger and malnutrition in least-developed and net food-importing developing countries.15

“28. Local or regional market analysis shall be completed before monetization occurs for all monetized international food aid, including consideration of the recipient country’s nutritional needs, local United Nations Agencies’ market data and normal import and consumption levels of the commodity to be monetized, and consistent with Food Assistance Convention reporting. Independent third party commercial or non-profit
entities will be employed to monetize in-kind international food aid to ensure open market competition for the sale of in-kind international food aid.

“29. In employing these independent third party commercial or non-profit entities for the purposes of the preceding paragraph, Members shall ensure that such entities minimize or eliminate disruptions to the local or regional markets, which may include impacts on production, when international food aid is monetized. They shall ensure that the sale of commodities for food assistance purposes is conducted in a transparent, competitive and open process and through a public tender.16

“30. Members commit to allowing maximum flexibility to provide for all types of international food aid in order to maintain needed levels while making efforts to move toward more untied cash-based international food aid in accordance with the Food Assistance Convention.

“31. Members recognize the role of government in decision-making on international food aid in their jurisdictions. Members recognize that the government of a recipient country of international food aid can opt out of the usage of monetized international food aid.

“32. Members agree to review the provisions on international food aid contained in the preceding paragraphs within the regular Committee on Agriculture monitoring of the implementation of the Marrakesh Ministerial Decision of April 1994 on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-developed and net food-importing developing countries.

“13 The term ‘local’ may be understood to mean at the national or subnational level.

“14 FAO defines protracted crises as follows: ‘Protracted crises refer to situations in which a significant portion of a population is facing a heightened risk of death, disease, and breakdown of their livelihoods.’

“15 Belize, the Plurinational State of Bolivia, Ecuador, Fiji, Guatemala, Guyana, Nicaragua, Papua New Guinea and Suriname shall also have access to this provision.

“16 In the instance where it is not feasible to complete a sale through a public tender, a negotiated sale can be used.”

It is believed that the current WTO provisions on food aid should not pose hurdles to countries providing in kind aid where there are needed food products that can be exported during the pandemic. If that is not the case, then the WTO Members should agree to a temporary waiver of relevant restrictions to permit food aid during the pandemic.

There has been much discussion within the G20, WTO, WHO and other groups that collective action on the medical front is critical to see that medical goods, vaccines, are therapeutics are available equitably and at affordable prices. What one hasn’t seen is the same focus on ensuring that the world’ populations have access to food equitably and at affordable prices. During the pandemic, WTO Members have the opportunity to work together to see that food is not wasted and that food aid is supplemented to the extent possible to alleviate the unique challenges to food security presented by the COVID-19 pandemic.