Export bans abroad threaten to push sky-high food prices even higher
Soaring food prices both in the U.S. and abroad have prompted countries to ban exports of core agricultural commodities, pushing up domestic food prices and leading agronomists to wonder what additional crops could face supply constraints on their way to grocery stores.
Food inflation in the U.S. is already at a 40-year high, with the annual index for consumer food prices up 9.4 percent in April — the largest 12-month increase since 1981 — according to the Department of Labor.
Meat, poultry, fish and egg prices increased by more than 14 percent over the last year, the biggest jump since 1979.
India’s partial ban on wheat exports announced over the weekend increased the winter wheat crop prices by more than 8 percent before leveling off slightly on Wednesday. The decision compounded a crunch on the commodity set off by the war in Ukraine, often referred to as the breadbasket of Europe.
“There was some general thinking that India was going to be able to fill a lot of that supply gap that Ukraine historically filled, but it’s less likely to fill it this year,” Mark Jekanowski, a research economist with the Agriculture Department and chairman of its World Agricultural Outlook Board, said in an interview.
“The news that India banned their exports — that drove prices even higher and suggests global supplies are tightening even more,” he said.
Ukrainian officials have been calling attention to the country’s ample food stocks that have been rendered inaccessible by the Russian military invasion, now in its 12th week.
“If you see increasing prices and shortages of flour and grain in your country, the reason is because Russia attacked Ukraine. We have a lot of agricultural products, the entire crop from 2021, in our warehouses ready to be shipped around the world,” Ukrainian Foreign Minister Dmytro Kuleba said last week.
“The only reason why we are not doing it is because Russia continues blocking our ports and not allowing exports,” he said.
But economists are quick to caution that since food prices are set on global commodity markets with many different countries and suppliers, there isn’t a one-to-one correlation between an export ban and a price hike.
“The impact of a ban on exports of wheat from India, in the aggregate, will be positive, will tend to push prices up, but other than short-run panic responses, in effect, the impact will be very, very small,” Vincent H. Smith, a professor of agricultural economics at Montana State University, said in an interview.
“Of far greater concern” to the price of bread “would be the price of gas and transportation costs — getting the wheat to the mill, the flour to the baker, the bread to the supermarket, and then stacking the shelves,” Smith said. “A lot of what we call ‘food price inflation’ is inflation affecting labor costs and the particular issue of higher energy prices.”
Washington insiders and politicians from agriculture states have echoed this analysis.
“Now, I agree with people who say we aren’t going to have a food shortage here in the United States of America. There may be some products that you’ll see [facing shortages] like baby formula, but overall, you’re still going to see that box of Wheaties on the shelf,” former North Dakota senator and noted farming advocate Heidi Heitkamp (D) said in an interview.
“But increasing transportation costs for commodities is going to be a major factor driving up base commodity prices.”
India’s wheat export ban was prompted 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 many restrictions that countries have placed on key ingredients for foods, 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 percent rise in global food prices as measured by the United Nations Food and Agriculture Organization.
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 can contribute to the overall inflationary environment felt by shoppers at U.S. grocery stores.
Experts say there’s risk associated with protectionist policies now proliferating in agricultural trade but extending into other economic sectors and supply chains as well.
Growing protectionism is “certainly a big danger,” Claude Barfield, a former consultant to the U.S. trade representative’s office, said in an interview. “It’s not clear how all this is going to work out.”
Other regions of agricultural sensitivity now include certain countries in South America as well as China, where “rumor has it the wheat crop may not be great this year,” according to Smith.
While China could end up a net importer of wheat this year, Smith said, “We never know what China will do, because decisions about importing in China remain essentially done by the ruling party.”
The corn crop in Brazil is currently a few weeks away from harvest, and economists are keen to see how its size and quality could also affect global prices.
The export ban on “Indonesia palm oil and India wheat were pretty surprising when they occurred, and they emphasize the unpredictable nature of it,” Jekanowski said.