Curbing food exports to feed hungry mouths is a recipe for trouble, The Economist reports.
From a “band of bakers” protesting in Washington, DC, to rioters setting buildings alight in Ouagadougou, Burkina Faso, pressure has risen on governments around the world to bring down food prices. In the past two weeks Cambodia, Indonesia, Kazakhstan, Russia, Argentina, Ukraine and Thailand have taken the easy option, restricting food exports in an attempt to shore up domestic supplies.
Such curbs may be politically expedient, but they are economically self-defeating. They demotivate farmers, push them into growing the wrong crops and jeopardise their future access to markets. Moreover, the restrictions on supply send prices even higher on world markets. As David King, secretary-general of the International Federation of Agricultural Producers, puts it, governments are choosing to “starve their neighbours”, rather than allowing higher prices to encourage their farmers to invest in greater production.
Farmers are already frustrated. Just as they enjoy decent earnings after years of falling food prices, governments seek to push prices down. Because of export quotas, Ukrainian growers, after harvesting more than they could sell at home, were forced to toss $100m-worth of rotten grain into the Black Sea earlier this year—just when world markets were desperate for supply. The measures can also be counter-productive, forcing growers to switch into new crops to avoid the export curbs. That can make local food shortages even worse.
When the barriers are lifted, farmers may find they have lost access to once-secure markets. This happened to America in the early 1970s, when President Nixon banned oilseed exports to keep down domestic prices. The embargo caused America`s customers, especially Japan, to look elsewhere for sources of supply.
Export restrictions also exacerbate the rise of global food prices. Last month, when Kazakhstan threatened to limit wheat exports, some wheat prices soared by 25%. Joseph Glauber, chief economist at America`s Department of Agriculture, reckons that restraints on the export of wheat may have added as much as 20% to wholesale prices—though not as much at the retail level.
The more prices rise, the greater the incentive to hoard, which creates an upward price spiral. Across Asia, restrictions on the export of rice have helped increase its cost on world markets by about 75%. On March 26th Cambodia became the latest country to ban rice exports. Thailand, the world`s largest rice exporter, is also considering restrictions. Meanwhile, there is talk that importers, like China and Japan, are stockpiling rice to safeguard supplies.
Instead of putting up barriers to trade, a better response would be a co-ordinated effort to increase supply. That is something the UN Food and Agriculture Organisation (FAO) and European Bank for Reconstruction and Development sought to broker for Eastern Europe a few weeks ago. The FAO says that 23m hectares of arable land have been withdrawn from production in the former Soviet Union since its collapse, some of which could be put to use.
In an emergency, handouts to hungry citizens are better than export curbs. They could even be paid for by the higher tax revenues from farmers` extra income.