India's wheat export ban: "A severe blow to the world food market"

Mr. Faith, India has largely stopped wheat exports.

What consequences does this have for the world market?

Jessica von Blazekovic

Editor in Business.

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Export embargoes are once again reducing supply, and prices are also rising.

In this respect, the Indian export embargo is a severe blow to the already tense world food market - especially since India is not the only country that is considering such a step or has already taken it.

Those suffering are the countries in the Global South, which are already facing a risky food situation.

The ten largest buyers of Indian wheat recently included Bangladesh, Afghanistan and Somalia.

Even before India's decision, you warned of growing protectionism in agricultural and food trade.

Why?

I warn, like many others, because I see voices about isolation and even self-sufficiency becoming louder and louder.

At least since the supply bottlenecks as a result of the Corona crisis and once again since the start of the Ukraine war.

These voices obviously harbor the hope that isolation from international trade and far-reaching self-sufficiency for many goods, including agricultural goods, will be the recipe for reducing supply risks in the future.

I think exactly the opposite is the case.

In fact?

If a noticeable part of agricultural goods is only produced in one's own country "according to plan", then relative cost advantages cannot be used and higher food prices are the result.

Also, just as an aside, you would have to do without a variety of diets.

Ultimately, you would be faced with an economy of scarcity.

Due to the decline in global trade relations, supply bottlenecks in certain regions caused by weather, crises or politics cannot be mitigated by (additional) deliveries from other regions.

The more widespread protectionist lockdown is, the weaker the “safety net of world agricultural trade” is and the less risks can be shared and controlled.

In my estimation, world hunger would be far worse.

Free trade in agricultural products thus plays a crucial role in global food supply.

World trade is certainly not completely “free”;

he is subject to the rules of the game.

And that's just as well.

But the importance of a fundamentally open world agricultural trade system is obvious.

Global agricultural trade has experienced remarkable growth, not least since the founding of the World Trade Organization in 1995.

Since then, agricultural exports have more than tripled in value and more than doubled in volume.

The growth was primarily driven by the increasing demand for imports from the Southeast and West Asian and North African countries.

Export embargoes are not only intended to secure supplies, but also to stabilize the current sharp rise in food prices for the local population.

So do they make sense from a national perspective?

Basically not.

Only in very rare cases can export embargoes make sense from a national perspective.

And only if these are very short-term.

But it is certainly understandable if, for example, weather-related crop failures in exporting countries cause concerns among government officials.

This can also be a signal to the population: "We'll take care of it." But the damage is usually greater than the benefit.

In particular, this is not a sensible strategy in the medium and longer term.

Why not?

Firstly, exporting countries would forego export earnings that are often necessary.

Second, they may lose confidence in their trading partners for future business opportunities.

And thirdly, and perhaps most importantly, large exporting nations naturally bear a central responsibility when it comes to pursuing one of the most important goals of the United Nations, namely the reduction of hunger.

Wouldn't it even be beneficial if countries that are currently heavily dependent on wheat imports strengthen their domestic agriculture or diversify their imports?

Of course, this can be an advantage in principle.

Here it is necessary to examine what makes economic sense and what makes sense and is sustainable from a social and environmental point of view.

Risk aspects in terms of security of supply, such as import diversification, can also play a role.

However, many countries are often limited in their production possibilities due to climatic factors, limited natural resources or a lack of capital resources.

In addition, this can also be associated with negative environmental effects.

Think, for example, of the clearing of rainforest for soybean production in Brazil, the overexploitation of arable land in China due to limited land, or water conflicts in arid regions of the world.

How dramatic is the situation on the world food market really?

So far, the warnings of supply bottlenecks as a result of the Ukraine war are often still future scenarios.

The situation is more than worrying.

According to Welthungerhilfe, up to 811 million people were suffering from chronic hunger at the end of 2020, and another 155 million people were affected by an acute food crisis.

A further increase in hunger is expected.

There are currently no indications of additional supply bottlenecks on the supply side for the 2021/22 marketing year.

However, we are currently observing a very high price level for all agricultural products on the world markets as well as on the national markets.

In all likelihood, this will remain at a high level for the next financial year 22/23.

This is less of a problem for the majority of the population in developed countries, but for the population in developing countries, who have to spend a large proportion of their income on food.