Foreign export bans threaten to push food prices even higher


Soaring food prices in the United States and abroad have prompted countries to ban agricultural commodity exports, pushing up food prices in the domestic market and causing agronomists to wonder which additional crops might face supply constraints on their way to grocery stores.

Food inflation in the United States has already reached its highest level in 40 years, with the annual consumer price index for food rising 9.4% in April – the largest 12-month increase since 1981 – according to the Department of Labor.

Prices for meat, poultry, fish and eggs have risen more than 14% in the last year, the biggest rise since 1979.

India‘s partial wheat export ban announced over the weekend sent winter wheat crop prices up more than 8% before stabilizing slightly on Wednesday. The decision aggravated war-induced shortages of basic goods in Ukraine, often referred to as Europe’s breadbasket.

“There was a general idea that India was going to be able to fill a lot of this supply gap that Ukraine has historically filled, but it is less likely to fill it this year,” said Mark Jekanowski, research economist at the Department of Agriculture and chairman of its World Agricultural Outlook Board, said in an interview.

“News that India has banned its exports – which has driven prices even higher and suggests global supplies are tightening even further,” he said.

Ukrainian officials have drawn attention to the country’s vast food stocks that have been rendered inaccessible by the Russian military invasion, now in its 12th week.

“If you see an increase in prices and shortages of flour and cereals in your country, it is because Russia attacked Ukraine. We have a lot of agricultural products, the whole harvest of 2021, in our warehouses ready to be shipped around the world,” Ukrainian Foreign Minister Dmytro Kuleba said last week.

“The only reason we don’t is because Russia keeps blocking our ports and not allowing exports,” he said.

But economists are quick to warn that since food prices are set in global commodity markets with many different countries and suppliers, there is no one-to-one correlation between an export ban and a price increase.

“The impact of a ban on wheat exports from India, on the whole, will be positive, will tend to push up prices, but short-term panic reactions aside, indeed, the impact will be very, very low,” Vincent H. Smith, a professor of agricultural economics at Montana State University, said in an interview.

“Gasoline prices and transportation costs would be much more of a concern ‘for the price of bread – getting the wheat to the mill, the flour to the baker, the bread to the supermarket, and then stacking the shelves,'” Smith said. “Much of what we call ‘food price inflation’ is inflation that affects labor costs and the particular problem of rising energy prices.”

Washington insiders and farm state politicians echoed that analysis.

“Now I agree with people who say we are not going to have a food shortage here in the United States of America. There may be products you will see [facing shortages] like formula, but overall you’ll still see that box of Wheaties on the shelf,” former North Dakota senator and famed agriculture advocate Heidi Heitkamp (D) said in an interview.

“But rising raw material transportation costs will be a major factor driving up basic raw material prices.”

India’s wheat export ban was driven in part by domestic political concerns and fears of unrest following nationwide protests by farmers in 2020 and 2021. The ban is just one of the many restrictions that countries have imposed on key food ingredients, adding to the overall inflationary environment. .

According to a list compiled by the International Food Policy Research Institute, a Washington-based nonprofit, 20 countries now maintain export bans on various foodstuffs, contributing to a 30% rise in global prices. food, as measured by the Food and Agriculture Organization of the United Nations.

These include export bans on palm oil from Indonesia, pasta from Algeria, beef from Argentina, sugar from Pakistan, wheat and vegetable oil from Egypt, and cereals from various countries in Africa – all of which may contribute to the overall inflationary environment felt by US grocery shoppers.

Experts say there is a risk associated with protectionist policies that are currently proliferating in agricultural trade, but also spreading to other economic sectors and supply chains.

Growing protectionism is “certainly a great danger,” Claude Barfield, a former consultant to the office of the U.S. Trade Representative, said in an interview. “We don’t know how this is all going to work out.”

Other agriculturally sensitive regions now include some South American countries as well as China, where “rumor has it the wheat crop may not be good this year,” according to Smith.

While China could become a net importer of wheat this year, Smith said, “We never know what China will do, because decisions about importing into China are still mostly made by the ruling party.”

The corn crop in Brazil is currently just weeks away from harvest, and economists are keen to see how its size and quality could also affect world prices.

The export ban on “Indonesian palm oil and Indian wheat was quite surprising when it happened, and it underscores its unpredictable nature,” Jekanowski said.

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