Consumer prices have increased around the world since Russia’s war with Ukraine started, especially for crude oil, food grains and edible oil. Earlier this year, the shortage of wheat forced buyers from all over the world to turn to India as a big and steady supplier of wheat. As a result, India was set to export a record 7 million tonnes of wheat this year, capitalising on the huge export opportunity.
On May 12, India’s Ministry of Commerce & Industry said it was preparing to send delegations to 9 countries to export a record 10 million tonnes of wheat this fiscal year – sharply up the previous season. However, on the same day, reports came in that annual retail inflation witnessed 8 year high back in April.
As a result, India banned wheat exports as the record breaking heatwave restricted output, sending domestic prices off the charts. It presented a serious blow to global buyers who were banking on India for the exports. For instance, the news of the ban drove Chicago wheat futures 6% higher in the markets.
A similar move was decided by at least 18 other countries in the last two months, worsening the global food crisis. The U.N. World Food Programme (WFP) said that the number of people facing acute food insecurity had already more than doubled since 2019 to 276 million in the 81 countries in which it operates, before the Ukraine conflict began. The war is forecast to increase the number by at least 33 million, mostly in sub-Saharan Africa.
India’s Commerce Minister Piyush Goyal told Reuters last month that he had been in contact with the WTO and IMF to explain that India needed to prioritise its own food security, stabilise domestic prices and protect against hoarding. But export restrictions risk worsening the rise in global food prices – producing a domino effect as other countries to take similar steps.
Since early this year, apart from India, the following restrictions on exports have been exercised:
- Argentina increased taxes on its soybean oil and meal exports, and lowered the cap for new wheat exports.
- Indonesia restricted the exports of palm oil to ensure that domestic needs are met. Palm oil is an essential in cooking and Indonesia is the largest exporter of palm oil.
- Malaysia prohibited the exports of chicken after a global feed shortage.
- Hungary banned all grain exports.
- Ukraine banned export of rye, barley, buckwheat, millet, sugar, salt, and meat. It introduced export licenses for wheat, corn and sunflower oil. Ukraine is among the world’s leading producers and exporters of grain and the top exporter of sunflower oil.
The increase in trade restrictions are somewhat considered to be a factor for supply disruptions predicted, causing higher prices. This in turn triggers new export restrictions to contain domestic price pressures, generating a “multiplier effect” on international prices. If any of the top five exporters of wheat were to ban exports, the cumulative effect of these measures would be to increase the world price by at least 13%—and much more if others react.
According to experts, a new global food crisis is simmering.