Covid19: Emerging International Food Trade and Price Trends and Benchmarking with 2008

History is repeating but differently; This is much wider and deeper than 2008 food trade trends.

Currently, the policies of some food exporting countries such as Vietnam, Myanmar, Cambodia, Russia, etc. could trigger food price spikes and speculative behavior in global agricultural commodity markets.  Example, Vietnam and Myanmar stopped export of rice just few days back. Russia is mulling to stop Wheat exports. Myanmar closed the Mant Wain Gate in Muse for the food truck movement to Yunan, China. Mostly such changes in export policy are set in response to restrictions imposed by other exporters, particularly for large exporters and in important products such as staple foods. [Myanmar and Thailand are competing in Chinese food market.] Such behaviors were the reason for significant increase of food prices in 2007-10.

The food price crisis of 2007-2008 shows, however, that policy concerns about food availability can easily turn into a serious price crisis. At that time, some countries responded by imposing export restrictions, which pushed up world market prices of staples, leading other grain exporters to also limit exports, including India, in efforts to insulate their consumers from the initial food price rises.

Export Restricted Products during 2007 – 2010

Argentina	Wheat, Maize, Oilseed (Soyabean, Sunflower)
Bolivia	Soyabean and Soyabean oil
China	Wheat, Rice, Maize, Soyabean
Cambodia	Rice
India	Wheat, Non-Basmati Rice and Basmati Rice, Maize
Egypt	Rice
Pakistan	Non-Basmati Rice and Basmati Rice
Russia	Wheat, Barley, Rapeseed
Ukraine	Wheat, Barley, Maize
Vietnam	Rice

(Above cited are just few examples)

     

Instruments Used: Export Tax, Export Quota / Licence, MEP, Even countries specified whom they will export, Export Window, STE

When prices were high, importers (obviously rich countries) provided food import subsidies or lowered the trade barriers [while the response to a low price is the imposition of tariffs on food products or lower subsidies to imports].  Example, Saudi Arabia, major importer of basmati rice from India, provided import subsidy (per metric ton basis) in rice imports.

The experiences of 2008 food prices suggest that the joint imposition of higher export taxes and lower import tariffs (or higher import subsidies) contracts world supply and expands world demand, thus resulting in even higher international food price. During 2007-10, food prices were almost 60 per cent higher than average prices of the period 1990-2006. This surge in prices had been particularly strong in some sectors, namely staple foods such as cereals, where the increase in average prices was higher than 90 per cent. One of the major reasons for increase in price during 2007 was panic buying of importing countries. Multinational Corporations were one of the major beneficiaries of the food price crisis.

There are three major differences prevailing in current scenario while benchmarking it with 2007-10 food crisis.

a)  Presently, the economic scenario of most of the food-exporting nation is negative. In 2007, the food exporting countries did not have lockdown and contraction of GDP. Therefore, the present economic climate will force them to look for new avenues of revenue or additional income. Therefore, the export restrictions are going to be an inevitable measure for those food-exporting countries to sustain the economy.

b)  In the current crisis, there is a disruption to international transport and distribution of key staples, being dry bulk commodities, which can be loaded, shipped and discharged with human-to-human interaction. Example Cereals. The ban of ship crew change and ship as well as manpower quarantine time period reduces the number of vessels engaged, productivity and chartering rate in international trade.  This has direct economic relation with food prices and supply chain.

c)    During 2007-10 food crisis, the role of WTO was stronger and the DSB was effectively functioning.  Due to the weaker or no WTO in the current scenario, the food exporting countries will not much bother about compliance of WTO rules. Of course, the economic emergency situation, now, of these food-exporting countries will allow them to consider domestic compulsions. Further, the Bi-polar world and survival of each country in the current scenario would push them towards new policies in food exports in order to protect social stability and livelihood, and eventually Balance of Payment. 

d)  Two important factors such as migration of seasonal agriculture workers and unknown climate change due to reduction in pollution level will have its own share of impact on upcoming monsoon season in quality variations in products.

Every crisis is different and current one has got much different behavior. The global food price increase and trade restrictions will become imperative in the coming weeks and months. The Covid19 crisis presents number of opportunities for India to become a largest and permanent player in global food market. However, India needs to recalibrate her food export and import policies very much carefully in order to protect food security and maximize the revenue - market to market and product to product - with Bharatiya Value.