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
(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
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.
- 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.
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.