India’s introduction of a ban on wheat exports sent further shocks through grain markets this week.

The ban comes amid a heat wave, with temperatures of up to 45°C, which raised concerns about crop yields. The government cut its wheat output forecast and introduced the ban to protect domestic supply and price.

India’s move follows that of other countries which have restricted exports of agricultural products in an attempt to contain rising domestic food prices.

Disruption to global food supply chains has been significantly compounded by Russia’s war with Ukraine. However, decisions to restrict agricultural exports have further exacerbated the problem.

Restrictive trade measures typically only serve to further perpetuate the cycle – limiting food stocks further, pushing prices higher and ultimately driving more vulnerable people into hunger.

The main risk from export restrictions is increased prices and reduced supply which disproportionately impacts import dependent countries.

As food price hikes often fuel civil unrest, many governments have acted in haste. There is now a real fear of contagion in markets and that more countries will apply export restrictions which would fuel this cycle.

Extent of export restrictions

By mid-April, 23 countries had introduced some form of export restriction of agricultural products with 18 banning exports altogether. This accounts for 17% of globally traded calories.

Wheat, maize and vegetable oils are among the most impacted crops. Almost 36% of wheat exports, 17% of maize exports, 78% of sunflower oil exports and 55% of palm oil exports are currently subject to export restrictions, according to the Agricultural Market Information System.

These products constitute a significant proportion of food consumption in low and middle income countries.

The combination of price and supply challenges is sounding alarm bells among global policy institutions and governments who are committed to policy and financial responses.

History repeats itself

This dynamic is not new, it was one of the factors that drove prices in 2007-2008.

In 2008, almost 35% of countries had introduced export restrictions accounting for 20% of calories traded.

Commodity prices may well be sustained at higher levels for longer than originally thought

Research indicates that the impact of export restrictions at that time contributed to 40% of the increase in agricultural prices over that period.

Impact

In normal market conditions, high prices would stimulate increased production and prices would moderate.

However, increased fertiliser and energy prices together with the prospect of increased interest rates may well stymie a farmer response.

As a result, commodity prices may well be sustained at higher levels for longer than originally thought.

However, the wave of food protectionism that has taken hold may be difficult to break.

Irish farmers are benefiting from high prices even though input prices are eroding margins.

The current dynamic, however, makes for a fragile and volatile market. In middle-income countries there will be reduced consumption of meat and dairy and substitution is likely to take hold.

While world grain stocks have been declining since 2017, possibly more worrying has been the increasing proportion of stocks held by China and India which are largely unavailable.

Together, they currently account for 68% of global grain stocks compared to 41% in 2008. The current scramble to manage food stocks should weigh on the minds of the architects of our climate response.

Those who have the natural resources, financial and political stability to produce food surely cannot sacrifice production.