How export restrictions are impacting global food prices

Food markets have been wildly disrupted by the war in Ukraine (Ruta, 2022; Espitia et al. 2022). Export restrictions have made a bad situation worse, contributing to food scarcity and higher food prices. For key staples such as wheat, rice and soybean oil, these measures have pushed prices up by 9 percent or more. Continuing down the path of uncooperative trade policies would magnify the shock and worsen global food price inflation. This blog provides information on current policies and their price effects.
 

Food trade protectionism since the invasion of Ukraine

Data collected by the World Bank and the Global Trade Alert show that from the beginning of 2022 until June 2, 2022, 135 policy measures have been announced or implemented affecting trade in food and fertilizers  (the number goes significantly up if we count measures that were imposed but have since lapsed). Some of these were restrictive and some liberalizing, including the removal of a measure previously imposed (Figure 1). The large majority (74 measures) are restricting exports, two-thirds of which are full export bans.

Figure 1: Number of active trade policies on food and fertilizers—January 1 to June 2, 2022

As of June 2, 2022, 86 nations were responsible for the increase in trade related policies imposed in food products and fertilizers since the beginning of the year, especially in the Europe and Central Asia region.  Out of these, a total of 34 countries have imposed restrictive export measures on food and fertilizers. This number is approaching the levels of the 2008-2012 food crisis, where a total of 36 countries-imposed export restrictions contributing to price surges of key staples like wheat and rice by well over 30 percent (Giordani, Rocha and Ruta, 2016; and Martin and Anderson, 2012).

How do export restrictions affect food price inflation?

Consider the full export ban of a food product. Intuitively, the ban reduces the supply of the product in global markets. Other things the same, this measure results in an increase in the world price of the good. How much will this price increase be? It depends. The impact on the world price is affected by factors such as the change in world food supply (i.e. how important a country is in the global export supply of the product) and how elastic imports are with respect to trade costs (i.e. how rigid demand is in the face of shocks). Other factors matter as well, namely price surges can be higher as a result of increases in demand driven by temporary import liberalization or given declines in supply due to export restrictions other than export bans (e.g. export licensing requirements or export quotas).

Table 1 looks at the price effects of the food export restrictions imposed since the beginning of the war in Ukraine. The estimations focus only on export bans and therefore can be considered a lower bound of the effects of uncooperative trade policies. The table provides detailed information on the set of products where the estimated impact of export bans imposed since the beginning of the war has led to increases in prices higher than 5 percent: maize, rice, citrus fruit, soya beans oils and its fractions and wheat. The table also highlights the marginal impact of the bans imposed by each country and their respective contribution to the total increase in world food prices.
 

Key results

• Export bans in products such as rice, wheat and citrus fruits have led to increases in prices estimated at respectively 12.3 percent, 9 percent and 8.9 percent. Also in this case, the increase in price is driven by the reduction in supply of top exporters: India for rice, with a share of exports of 33 percent; Russia for wheat, with a share of exports of 17.5 percent; and Turkey for citrus fruits, with a share of exports of 13.5 percent.
   
• For products such as soya bean oil and maize (corn), the exporters imposing restrictions are not among the top 5 world exporters. However, the demand of these products tends to be more inelastic and therefore the impact on prices is still significant. Specifically, existing export bans are estimated to have increased prices by 14 percent in the case of soya bean oil and by 6.1 percent in the case of maize.

The results in Table 1 show the direct effect of the export bans on food price inflation. But these measures can also ignite a multiplier effect (Giordani, Rocha and Ruta, 2016). Other exporters may impose restrictions shifting in the global supply of food and importers may further reduce import protection shifting out global demand. Both actions would magnify the initial price shock.
 

Conclusion

Trade ministers meeting in Geneva for the World Trade Organization’s 12th Ministerial Conference in mid-June expressed their concern that trade disruptions could undermine global food security. The Ministerial Declaration on the Emergency Response to Food Security fell short of committing countries to avoid or limit export restrictions on food. But it stated that “Members imposing such measures should take into account their possible impact on other Members, including developing countries, and particularly least-developed and net food-importing developing countries.” The results presented in this blog provide a first assessment of such spillover effects.

Table 1: Price impact of export bans imposed since the beginning of the year on selected products

Note: For maize the table excludes Kosovo and Egypt, countries for which trade data is not available. For soya bean oil and its fractions the table excludes Cameroon, for which trade data is not available. The table excludes export bans imposed by Australia, Canada, Japan, New Zealand and the United States as they are specifically towards the Russian market. Total trade shares come from UN Comtrade data and are calculated as the average for 2018, 2019 and 2020 (in case data is available). The direct price effects of export bans are calculated using trade elasticities from Fontagne, Guimbar and Orefice (2019) and assuming a total reduction on export quantities from trading partner. Direct Price effect _ij = ∆ Quantity _ij Elasticity _ij . Where i is the importer and j is the exporter. * The export ban imposed by Russia excludes exports to countries in the Eurasian Economic Union (Armenia, Belarus, Kazakhstan, and Kyrgyzstan).