Bans on exported food products seem to be announced on a near-monthly basis. In December 2021, Argentina announced it would limit the amount of wheat and corn being exported. In April, Indonesia’s government announced something similar, banning the export of palm oil.
Despite being the world’s largest exporter of palm oil, the ban was implemented to secure local demands and lower domestic price. Three weeks later, the Indonesian government announced it would end the export ban. After facing extreme heat in May, the Indian government announced it was banning the export of wheat.
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These recent bans have not all been crop-related. At the end of May, Malaysia’s government announced that it was implementing a ban on the export of chicken due to domestic shortages.
At first glance, the concept of banning exports can seem logical, specifically when the domestic market imposing the ban is facing shortages or extreme local prices. But on examination of the economic impacts of such decisions, these bans can have the opposite effect from what was intended. With countries banning the export of various commodities, such decisions are similar to decisions made 15 years ago during the food crisis of 2007-2008.
In October 2007, India announced it would ban the export of rice to ensure that enough rice was domestically available. The announcement skyrocketed Thailand’s export price of rice. Between May 2007 and May 2008, the international price of rice went from US$317 per tonne to $902 per tonne, an increase of 184 percent. India’s action shifted the problem of supplying the global demand for rice onto other rice exporting countries.
While global trade is essential, when shocks hit the system, imposing a ban can cause a larger ripple to global trade.
Currently, India and Argentina’s bans on wheat exports have contributed to the rise in wheat prices, which have risen from $380 per tonne in November 2021 to $495 in April 2022, a 30 percent increase. This higher price also hurts the World Food Programme, which buys wheat for redistribution to food-insecure countries.
Political rationale frequently dictates that export bans be enacted to protect domestic supply and ensure food stocks are adequate to feed the population. Economic evidence establishes that export bans raise commodities prices higher than would have been the case in the absence of the ban. With commodities like rice and wheat being two of the three global staples, export bans negatively affect billions of consumers in other countries.
As supply chain challenges continue to rise, which contribute to greater uncertainty about their ability to globally function in the face of rising fuel prices, transportation costs and inflation, export bans may increase in the coming months.
This would be a very worrying trend. Food prices have soared for many products in virtually all parts of the world. Commodity export bans will simply push these high prices even higher.
Low income and fixed income households will experience the greatest impacts because the price of some products may be pushed beyond their means, with one result being a nutritionally reduced diet. The sad reality is that all of this is beyond the control of the average consumer and these poor policy decisions simply result in higher food prices for all of us.
While it is easy to look back at how export bans have had greater impacts on us all, maybe it is time the World Trade Organization consider a new policy or system to reduce bans when prices surge and supplies dip. Otherwise, we are just continuing this cycle in which the less fortunate continue to lose.
Stuart Smyth is an associate professor in the University of Saskatchewan’s Department of Agricultural and Resource Economics and holds the Agri-Food Innovation and Sustainability Enhancement Chair.
