If in response to disappointing wheat harvests countries announce an export ban, African countries such as Tanzania could be hit particularly hard, as such bans actually push international wheat prices upwards. This is the conclusion drawn by LEI, part of Wageningen UR, in a report published today.
When food prices were high in 2007 and 2008, a number of countries introduced trade restrictions. More recently, countries including Russia and Ukraine responded to the failed domestic grain harvest by introducing an export ban. In the report Sit down at the ballgame; How export barriers make the world less food secure, LEI researchers conclude that this type of measure has a negative impact on food security.
Low prices but higher costs
The situations in Tanzania and Kenya served as examples. These countries have themselves also introduced export bans for grain. Although this led to lower prices on the domestic market, it also resulted in higher costs. Farmers received less for their harvest, and those farmers who were able to produce a surplus lost access to a profitable foreign market. Traders lost a lucrative foreign market as well as investments and contacts. The policy also led to the growth of illegal trade.
Lowering import tariffs is too expensive
When grain prices rise, a country can also respond by reducing import tariffs. Although this policy improves food security in the country concerned, it is a costly move due to the loss of tax income. For this reason, the measure is too expensive for the poorest wheat-importing countries. They will need support to find alternative sources of government income. It could otherwise prove difficult to meet the basic needs of their inhabitants.
Coordinated action required
Trade measures can be compared with members of a crowd standing up during a sports match. If one person stands up, he or she has a better view, but this action prompts others to stand up too. In order to ensure that everyone ‘remains seated during the match,’ a joint, coordinated effort will be required through the World Trade Organization (WTO).
Less sharp price increases through liberalisation
In a liberalised world, in which all import tariffs and export restrictions on wheat have been abolished, wheat prices will increase less sharply following a reduction in wheat yields, and the welfare level in the world will be higher. Further liberalisation in future Doha Rounds could therefore lead to a reduction in price peaks.