20 Jun 2022
The current period of geopolitical volatility, particularly driven by the ongoing conflict in Ukraine, has seen a sharp rise in the number of countries implementing bans or restrictions on the exports of their agricultural products.
While some of these restrictions have been widely publicised, many more have received little attention outside of their own geographic region despite having an impact on millions of consumers - particularly in developing countries.
“Agri export restrictions can take several forms. A country can completely ban the exports of a particular product or it can selectively choose which countries receive its agri exports.”
It’s fair to say, across the board, the outlook is uncertain and concerning and will likely rely on good seasons for supply and price concerns in key commodities to ease.
In looking across the scope of the current export bans, it is important to analyse just how widely this practice has been used by countries in the past, why governments make this decision and just what the longer-term impacts have been. From this, it is possible to look at what the impacts of the current set of trade bans may be and how they may impact stakeholders across the agri supply chain going forward.
The period of 2022 following the start of the conflict in Ukraine has seen an escalation in the number of agricultural export bans globally as many countries grow increasingly concerned about the cost and availability of foodstuffs.
Recent export restrictions have covered a range of commodities and regions. Among the most prominent, Indonesia’s temporary ban on palm oil exports, combined with the loss of Ukrainian sunflower exports, contributed to a surge in most oilseed prices. Egypt, which had been hit hard by the loss of wheat exports from Ukraine, banned its own exports of wheat, flour, lentils, pasta and fava beans in a bid to maintain food supplies.
Outside of the direct impacts of the Ukraine conflict, China’s ban on fertiliser exports, which began in 2021, not only drove up fertiliser prices globally but had the dual impacts of potentially reducing global crop yields and production levels while also driving up the costs of agri products reliant on fertiliser.
Additionally, Argentina’s ban on exporting its own beef in 2021 contributed to a rise in global beef prices as major importers reacted to reliability concerns from one of their major suppliers with further concerns this could be repeated by other South American exporters.
With many of these restrictions having taken place recently - and with the outlook for a number of them uncertain - it becomes important to examine why these restrictions are imposed, what consequences have been seen in the past and how they have been ended.
Agri export restrictions can take several forms. A country can completely ban the exports of a particular product or it can selectively choose which countries receive its agri exports - as India has stated it will do, still being open to exports to countries in dire need. An exporting country may also look to limit agri exports by imposing an export tax, as Russia did with its wheat in early 2021, which effectively makes the price of the exports almost prohibitive. Or there may be export quotas.
The aim of the restrictions is to maintain both an adequate supply of the particular agri product in the exporting country as well as to seek to ensure domestic food prices do not rise too high. For example, if wheat is worth a high price on world markets at a particular point, then producers and exporters will sell it at the global price, which may lift domestic prices dramatically – not just for the grains themselves but for all the food products which are made from them, particularly bread and noodles which form the basic and essential food staples in many developing countries.
The largest concern from essential foods being in short supply or too high priced is populations will not be able to access them with the consequences ranging from reduced diets and calorie intakes to the potential in extreme cases of famine and starvation. In addition, as was seen in the 2008 global food crisis, populations who are concerned about being able to access adequate food have the potential to rise up against their governments, in the form of civil unrest.
While the move by some governments to restrict agri exports seeks to limit the potential for these developments, governments will sometimes also seek to make other changes to prevent domestic food shortages and price rises. These include laws to prevent people or companies from stockpiling food as well as regulating industries so only government entities can trade or sell agri goods.
The question around whether export restrictions are justified will always be difficult and contentious. On one hand, the move usually does succeed in its aims of avoiding food shortages in the producing country as well as keeping a lid on prices. In this way, it will help in easing the potential for civil unrest and the implications that could have for a country’s citizens
On the other hand, it can also have longer term structural impacts on the producing country’s agricultural sector. For example, if a country’s wheat farmers are forced to accept a lower domestic price rather than a higher export price which they could have received then they are less likely to work hard to produce a major crop in the coming year, an impact which could see overall production fall. Alternatively, they may also pursue a different agri crop of some kind which is more attractively priced, again reducing supplies of the major crop.
Additionally, in terms of their own farms, if a nation’s farmers are restricted in the revenue they can generate, then this means less money for them to put into a range of inputs and equipment such as fertiliser, seed, farm machinery and irrigation, which could result in a lower level of crop production over the longer term and potentially less sustainable farming practices.
Agri export restrictions also inevitably impact the consumers in their main export markets. For example, when Malaysia banned exports of chicken in May, it particularly impacted Singapore, which had imported a third of its chicken from its neighbour - and where chicken rice is one of the country’s most popular dishes.
A further impact of export restrictions is the likelihood there will be more bans imposed by other exporters. Following India’s decision to ban sugar exports, the move was followed rapidly by both Kazakhstan and Kyrgyzstan. Both countries cited the fact the Indian export ban had seen such a sharp rise in prices they worried a surge in exports from their own countries could lead to domestic shortages.
Overall, while export bans are usually put in place due to rising commodity prices, they also serve to push them up even further, as countries scramble to pay whatever is needed to procure dwindling supplies.
A further consequence, over the longer term, is importing countries which have the capacity will seek to increase their storage levels of agri commodities, particularly grains. This has especially been the case for China which has lifted its storage of major grains since the 2008 crisis to a point where the country now accounts for around half the global total.
Clearly where there have been agri export restrictions in the past they have almost always been temporary, though of varying lengths. The major cause of them ending is the easing of supply concerns, whether through supplies in storage being released, supply chain blockages removed or major agri producers having strong production years. In the 2008 global food price rises, which were largely about the high price of rice, a decision by Japan to export its stockpiled rice played a major role in contributing to the easing of global supply and price concerns.
Looking ahead in 2022, the outlook for many of the current export restrictions and their consequences remains uncertain and concerning. Aside from any developments which would see a relaxation of agri exports impediments from Ukraine and Russia, it may well be that good seasons for most of the world’s major agri producing and exporting countries will be vital to easing the current situation.
Michael Whitehead is Head of Food, Beverage and Agribusiness Insights and Natasha Kemp is Acting Head of Food, Beverage and Agribusiness at ANZ Institutional
Click here to read the full June 2022 Agri InFocus report.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
20 Jun 2022
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