May 30, 2023

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We are experiencing the worst food crisis in a decade and international trade restrictions are making it worse

*Par Mari Elka Pangestuaxel & Van Trosengurg

The global food crisis was one of the main themes discussed at the 12th Ministerial Conference of the World Trade Organization (WTO) held in June. The crisis, unprecedented in a decade, has seen a growing number of countries ban or restrict exports of wheat and other commodities in a misguided attempt to control rising domestic prices. These actions are negative and urgent action is needed to stop and reverse the current trend.

The price of wheat, a staple in many developing countries, has risen 34% since Russia invaded Ukraine in late February. . Prices of other food items have gone up. Faced with this situation, 34 countries had already imposed restrictions on food and fertilizer exports by early June, almost as much as during the 2008-2012 food crisis, 36 countries had imposed trade restrictions.

These interventions end in failure because they reduce global supply and increase food prices. Other countries respond by imposing their own restrictions, triggering a cycle of trade activity that has a multiplier effect on prices.

Everyone is affected by this inflation, but the poor are hit hardest, especially in developing countries where food represents half of a typical family’s budget. Moreover, these countries are particularly vulnerable because they are often net food importers.Past experiences leave no room for doubt What happens when food is scarce or unaffordable? (a) For the less fortunateFor example, the food crisis of 2008 led to a significant increase in malnutrition, particularly among children. Also, according to some studies, the school dropout rate then rises to 50% among children from poorer families.

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Measures taken to control exports during the 2008 crisis had a significant impact on food prices, which contributed to worsening the situation. of Research work (a) If exporters had not imposed restrictions at that time, prices would have been 13% lower on average.

Today, the war in Ukraine accentuates the price boom that began earlier due to unfavorable weather in major producing countries, rapid economic recovery from the crisis caused by COVID-19, and rising energy and fertilizer costs. The war has severely disrupted exports from Ukraine, one of the world’s leading suppliers of agricultural products. The country is a notable producer of corn, barley and sunflower seeds used to make cooking oil, all of which cannot reach world markets because Ukrainian ports are blocked.

The multiplier effect of unilateral trade restrictions, i.e. these measures have the effect of stimulating other measures and raising prices, is already evident (Figure 1). Russia, the world’s second-largest wheat exporter, with a 17.5% share by volume, imposed a temporary ban on wheat and other grain exports in March. Smaller exporters such as Kazakhstan and Turkey followed suit. By early June, 22 countries had imposed restrictions on wheat exports, accounting for 21% of world trade in the grain. . These restrictions led to a 9% rise in the price of wheat, or one-seventh of the total price since the beginning of the war.

Export controls are not the only trade measures taken by governments in response to rising prices. Some countries reduce customs duties or relax import restrictions. Chile, for example, has increased tax rebates on wheat. In normal times, a permanent reduction in import restrictions would be welcome. However, in a crisis, these temporary relaxations put upward pressure on food prices by stimulating demand, as export controls do by reducing supply.

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Developing economies of Africa, aAsia, Latin America and the Middle East Most affected by trade restrictions (a) Bangladesh buys 41% of its wheat consumption from Black Sea countries. For the Republic of Congo, this share is 67% and for Lebanon 86%. . With such dependence and no other suppliers available in the short term, this situation is likely to have immediate painful consequences for the people of these countries. Rising prices will eventually prompt major agricultural exporters to increase production and shift some of the Black Sea grain, but this will take time.

In total, According to the Trade Policy Monitor set up by the World Bank (a) 74 export restrictions such as taxes or direct embargoes on fertilizers, wheat and other foodstuffs have been announced or imposed. Similarly, 61 measures aimed at liberalizing imports, for example by reducing customs duties, were counted (if we take into account 70 that were cancelled).

Number of Trade Actions in Force on Food and Fertilizers, 1 January-2 June 2022

Source: World Bank Group calculations based on the Global Trade Alert Monitoring System.

At the end of their meeting, representatives of more than 100 WTO member countries took an important first step by agreeing to intensify efforts to facilitate trade in food and agricultural products, including grains and fertilizers. .

Also, the Group of Seven advanced economies (G7), which includes major food exporters such as Canada, the European Union and the United States, have already pledged to avoid export bans and other measures. World Bank President David Malpass has called Other major suppliers should follow this path. Together, these countries account for more than half of the world’s exports of major commodities such as wheat, barley and corn.

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It is urgent: to alleviate the food crisis, it is essential that all trade restrictions on food products imposed since the beginning of the year be lifted as soon as possible. The war in Ukraine is causing unnecessary suffering to the most vulnerable people around the world. The international community has a duty to fully cooperate to increase the flow of food around the world so as not to add to the bitterness of hunger in an already critical situation.

Evidence World Bank

*Let’s do Elka Bangestu

World Bank Executive Director for Development Policy and Partnerships

Axel von Trotsenburg

Chief Operating Officer of the World Bank