Disruptions to food trade hold bleak lessons for importers

THERE was an air of inevitability about India’s decision to restrict exports of most grades of rice. Domestic prices of the staple had been rising just as the election cycle was starting to heat up. Up until the ban in late July, India was the biggest player in the global rice market, accounting for nearly 40 per cent of the traded commodity. As a result of Delhi’s decision, the world price has risen by about 20 per cent. But worse may follow as Thailand, Vietnam and Pakistan, which collectively account for another 30 per cent of the global rice trade, also look to restraining exports.

All these rice producers fear the El Nino weather phenomenon has returned after an absence of seven years. El Nino is caused by warming of surface waters in the eastern Pacific that leads to extraordinary amounts of rainfall, resulting in floods in some regions and droughts in others. The fear is that a major weather event may push up domestic food prices even further. Prices are already under pressure from shortfalls of other food grains because of the Ukraine war.

High food prices have the potential to cause political disruption, and every government rationally seeks to pre-empt potential problems. Unfortunately, all this means that the food-importing countries, especially those in Africa that hold no buffer stocks, are going to suffer. They depend on imports to feed their populations.

Rice is the staple for more than half the world’s population. Any disruption to the food trade will in turn flow on to the prices of wheat, soya beans and corn, which are rice substitutes, both for human consumption and in animal feed. Eventually, this spillover will affect prices for every other food product.

But it would be wrong to single out just the rice exporters for disruptions to the food trade. Earlier this year, the World Trade Organization (WTO), for instance, called on the Group of 20 nations to end all export restrictions on food, feed and fertilisers, as the curbs compromise the predictable flow of food through the international market system and keep prices low. As the WTO points out, many restrictions were introduced at the onset of the Covid-19 pandemic, but still remain in place. Other food export restraints were imposed following the outbreak of the Ukraine war. There was further damage to the global flow of food supplies with the collapse of United Nations-initiated Ukrainian grain shipments via the Black Sea. Indeed, such are the distortions in the food commodity trade that the European Union ended the curbs on food imports from Japan only in July – these were imposed after the Fukushima nuclear disaster in 2011.

India has enjoyed large surpluses of rice production in recent years. It usually produces about 135 million tonnes of rice yearly, which is more than enough to meet local consumption of 100 million to 105 million tonnes. For the moment, Delhi has a comfortable rice stockpile of more than 40 million tonnes and can afford to release some of that into the domestic market to drive down prices if necessary. Other rice exporters can also be assumed to have their own stockpiles and can act likewise.

This means food importers are very much on their own. The bleak lesson for them must be that in these days of erratic weather and international strategic instability, one can’t entirely depend on the smooth functioning of the multilateral trade system for vital food supplies.