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COVID-19: Why export restrictions are the wrong response

14 May 2020

As COVID-19 spreads around the globe, fears are mounting that food supplies may start running short. While we should take these concerns seriously, they should not be overstated either, especially in the case of basic staples. As noted in the May edition of the AMIS Market Monitor, global markets for wheat, rice and maize continue to be well supplied, stocks are healthy, production is unlikely to be disrupted, and prices have remained relatively stable.

In order to ensure sufficiency of domestic food supplies several countries have recently taken steps to limit exports. As we saw during the food price crisis of 2007-2008, such policies might backfire and become a threat to global food security. At the time, leading cereal exporters cut their sales abroad in order to insulate their own markets from increasing food price rises. In response, several importing countries lowered or completely lifted import tariffs, which prevented any significant rationing of import demand. As a result, global food prices not only kept rising but also became more volatile. In the case of rice, the most important food staple, such policy measures contributed to almost half of the price surge.

In sharp contrast to the last crisis, cereal supplies today are at far more comfortable levels while upcoming production of key staple crops is unlikely to suffer major disruptions. This is particularly the case in large exporting countries where much of production is mechanized, requires relatively little labour input, and takes place in areas with dispersed, already socially distanced, rural populations. Similarly, there is low probability of disruptions to international transport and distribution. Being dry bulk commodities, food staples can usually be loaded, shipped and discharged with minimum human-to-human interaction.

Thus far, the trade restrictions put in place have been, for the most part, temporary measures with little adverse impacts on international prices. However, the danger is that more countries might follow suit, leading to the same panic-buying and hoarding behaviour witnessed a decade ago. The world’s poor would be the ones bearing the brunt.

The recent statement of G-20 Agriculture Ministers gives reason for hope that lessons have been learnt from 2007-2008. It cites the importance of working to ensure the continued flow of food, products, and inputs essential for agriculture and food production across borders despite the challenges faced from COVID-19. Such actions will allow international markets to play an instrumental role in avoiding food shortages and mitigating the inevitable global economic downturn that will result from the pandemic.