In times of crisis, good intentions often prevail. This is what happened in India, the second largest wheat producer in the world, which decided to ban the export of this vital grain for many sections of the population.
Posted at 7:00 am
India’s Prime Minister Narendra Modi pledged last May to supply wheat to countries supplied by Ukraine and Russia before the war.
But lo and behold, he’s changed his mind due to an acute drought that threatens to reduce expected production and threaten the food security of India’s 1.2 billion people.
Before India, Indonesia, the world’s largest producer of palm oil, decided to keep its oil to itself. The country’s President, Joko Widodo, quoted in the media, said his priority was to ensure supplies to his people and lower the price of oil.
Several other countries, including Argentina and Hungary, have recently decided to ban, limit or limit the export of their basic products.
Such decisions by governments that want to ensure the well-being of their people exacerbate price increases in countries that have to source from the international market.
The price of palm oil and all alternative oilseeds has skyrocketed since Russia invaded Ukraine. Wheat, corn and other grains also cost more because supplies are limited.
According to the International Food Policy Research Institute, which tracks food production around the world, the number of countries that have restricted their food exports has risen from 3 to 16 since Russia began invading Ukraine on February 24.
The organization fears that this number will rise further, because the Ukraine conflict does not seem to be abating.
The domino effect
This self-reflection, seen in any crisis, often has a knock-on effect, and other countries are encouraged to do the same. Not only food is affected by export restrictions.
Even before invading Ukraine, China had restricted its fertilizer exports to ensure supplies to its local market.
If the market disruptions continue, other products could be targeted. The temptation to protectionism is great when a product’s price increases and its availability decreases. Even here in Quebec, when treated lumber was reaching historic highs during the pandemic, there were people demanding that we keep our lumber at home instead of exporting it to the American market.
Voices are already being raised in the USA criticizing the increase in liquefied natural gas exports to Europe. Democrats, led by Elizabeth Warren, are critical of the impact of LNG exports on American wallets. Firms are also concerned about rising prices for one of their most important inputs.
In just a few years, since 2015, US LNG exports have grown from 0 to 360 billion cubic feet, notes National Bank analyst Angelo Katsora. Currently, 75% of these exports are destined for Europe, which is trying to rid itself of Russian gas.
Not so long ago, natural gas was a regional market. It can now be transported across continents more easily than LNG, and its price tends to reflect global supply and demand. This is where it hurts Americans who are used to cheap natural gas. The price, which hovered around $3 per million BTU for 10 years, has tripled since the invasion of Ukraine and a surge in European demand for American LNG.
Natural gas is used to generate electricity, and the increase in its price has a direct impact on American households’ electricity bills.
It’s another problem for the Biden administration, which faces midterm elections and has vowed to help Europe shake its grip on Russian gas.
There is currently no question that the United States will limit its natural gas exports to Europe, but we can bet the protectionists’ arguments will gain ground in the United States or elsewhere over the next few months.
- Wheat prices have risen for a year
Source: Food and Agriculture Organization of the United Nations