The LDC-specific priorities are placed in four key areas: (a) agriculture and food security, (b) fisheries subsidies, (c) decisions on graduation, and (d) paragraph 8 of the MC12 outcome document. Of these, LDC graduation is the most critical, especially for the LDCs already on the path to coming out of the category within three to five years. Bangladesh, along with Nepal and the Lao People’s Democratic Republic, will formally come out from the UN-defined category by the end of 2026. More LDCs will follow these countries. There are 45 LDCs, of which 15 are now on the path to graduation, and 10 are WTO members. Last December, Bhutan came out from the list.

In the document placed for MC13, LDCs categorically emphasised ‘the need for fresh support measures by the development partners targeted to LDCs after graduation to ensure smooth and sustainable transition.’

Five months ago, in October last, the General Council meeting of the WTO decided to encourage members of the organisations to provide a smooth and sustainable transition period for the graduated LDCs before withdrawing the unilateral tariff or duty-free and quota-free (DFQF) market access to these countries have been enjoying as LDCs. The decision becomes a big boost to the LDCs, although it is not binding. It is also unlikely that the scheduled ministerial conference will make it binding instead of keeping it voluntary or ‘best endeavour’ for the member countries. In that case, a continuation of the benefits for the LDCs after graduation will entirely depend on the willingness of the market access-providing countries. In other words, LDCs have to negotiate separately or bilaterally to enjoy the benefit for an extended period.

Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), at a proposal regarding MC13, urged the Bangladesh government to take proactive action plans to negotiate with the respective DFQF and GSP granting countries and preferential trade agreements partners for extension of all support measures for at least three years after the graduation following the European Union’s Everything But Arms (EBA) extension for three years for graduating LDCs. EU and the United Kingdom (UK) currently offer DFQF benefits for all the graduated LDCs for three additional years.

In the last ministerial conference, LDCs stressed the extension of international support measures (ISM) available under WTO in favour of graduating LDCs and proposed to phase out unilateral trade preferences granted to these countries for six years or a period determined by the preference-giving country. It was not accepted at the conference, however. The continuation of the trade-related benefits is necessary to ensure the smooth graduation and contain any abrupt disruption in trade in goods and services of the countries, as per the spirit of the UN General Assembly Resolution.

Between 2018 and 2022, LDCs’ exports of goods and services increased at an average annual rate of 7.1 per cent, according to the estimate provided by the WTO secretariat. LDCs’ share in global trade in goods and commercial services increased from 0.95 per cent in 2018 to 1.02 per cent in 2022. And LDCs’ share in global exports reached 1.23 per cent in 2022, which is far below the target set in the UN Sustainable Development Goals (SDGs). Target 17.11 of SDGs underscored doubling the least developed countries’ share of global exports by 2020. It means that LDCs’ share in global exports should be at least 1.92 per cent in 2020, which was 0.96 per cent in 2015, the year of launching the SDGs. Thus, the countries need continuous support in the multilateral trade forum.

Moreover, those advancing to become non-LDC also require support to make the transition smooth and effective. It is, however, challenging to secure support in the upcoming conference as some developed countries, mainly the United States (US), have strong reservations. Advanced developed countries like India are also less interested in backing the LDC’s demand. So, there is no alternative to persistent, tough negotiation, no matter how disappointing that is.

The LDC-specific international support measures also include exemption from the prohibition of export subsidies and an extended transition period up to 2033 for the LDCs on implementing the Trade-related Aspects of Intellectual Property Rights (TRIPS), especially for pharmaceutical products. Currently, there is no provision for a transition period, so when an LDC officially becomes a non-LDC, it will not be able to enjoy the benefits, which means it has to abolish the export subsidies immediately and face stringent IP requirements.

Developed and developing countries have already put several issues of their interests on the negotiation table and are working hectically to get some of those in the outcome documents. Decisions on prohibiting fisheries subsidies, permanent solutions on public stockholding (PSH) of foods, and reforms of the WTO’s dispute settlement system are top agendas where Bangladesh and all the LDCs can do little but watch. The withdrawal of suspension of e-commerce taxation is also critical, where Bangladesh has some interests. Then, plurilateral deals on domestic regulations on services trade and e-commerce are also proposed by some members. As the final days of the conference approaches, the temperature of intense fighting rises.

To read the full editorial as it appears on The Financial Express, click here.

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In prior periods of agricultural shortages and inflationary prices for agricultural goods, there has been significant social unrest particularly in countries where food accounts for a large part of disposable income for people. See Financial Times, ʻPeople are hungryʼ: food crisis starts to bite across Africa, June 23, 2022, https://www.y.com/content/c3336e46-b852-4f10-9716-e0f9645767c4 (“During the 2007-2008 food crisis, which was caused by a spike in energy prices and droughts in crop-producing regions, about 40 countries faced social unrest: More than a third of those countries were on the African continent.”); see also Terence P. Stewart, The Food Crisis: A Survey of Sources and Proposals for Preventing a Global Catastrophe, 2008 (copied in March 30, 2022: Food security challenges posed by the Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/03/30/foodsecurity-challenges-posed-by-the-russian-invasion-of-ukraine/)(excerpt from the summary copied below).

A recent paper from the UN Food and Agriculture Organization and the World Food Programme identifies countries in danger of starvation or acute hunger in the June – September 2022 time period. FAO, WFP, Hunger Hotspots, FAO-WFP early warnings on acute food insecurity, June to September 2022 Outlook, https://docs.wfp.org/api/documents/WFP-0000139904/download/?_ga=2.27484728.588580763.1656342884-1119086152.1656342884. The Executive Summary (page 5 of the report) is copied below.

“The Food and Agriculture Organization of the United Nations (FAO) and the World Food Programme (WFP) warn that acute food insecurity is likely to deteriorate further in 20 countries or situations (including two regional clusters) – called hunger hotspots – during the outlook period from June to September 2022.

“Acute food insecurity globally continues to escalate. The recently published 2022 Global Report on Food Crises alerts that 193 million people were facing Crisis or worse (Integrated Food Security Phase Classification [IPC]/Cadre Harmonisé [CH] Phase 3 or above) across 53 countries or territories in 2021. This increase must be interpreted with care, given that it can be attributed to both a worsening acute food insecurity situation and a substantial (22 percent) expansion in the population analysed between 2020 and 2021. In addition, an all-time high of up to 49 million people in 46 countries could now be at risk of falling into famine or famine-like conditions, unless they receive immediate life and livelihoods-saving assistance. This includes 750 000 people already in Catastrophe (IPC/CH Phase 5)

“Ethiopia, Nigeria, South Sudan and Yemen remain at the highest alert level as in the previous edition of this report. In the current report, Afghanistan and Somalia have been added to the list. These countries all have some populations identified or projected to experience starvation or death (Catastrophe, IPC Phase 5) or at risk of deterioration towards catastrophic conditions, and require the most urgent attention.

“In Afghanistan, for the first time since the introduction of IPC in the country in 2011. Catastrophic conditions (IPC Phase 5) are present for 20 000 people in Ghor due to limited humanitarian access during the March to May period. In the outlook period, acute food insecurity is projected to increase by 60 percent year-on-year.

“After projecting 401 000 people facing Catastrophic conditions (IPC Phase 5) in Tigray, Ethiopia, in 2021, only 10 percent of required assistance arrived in the region until March 2022, and local agricultural production – which was 40 percent of the average – was critical for food security and livelihoods. A recent ʻhumanitarian truceʼ remains fragile but has allowed for some convoys to reach the region. The Famine Review Committeeʼs 2021 scenarios of a Risk of Famine for Tigray might remain relevant, unless humanitarian access stabilizes.

“Although no populations were projected to be in Catastrophe (CH Phase 5) in Nigeria in the outlook period, the record-high levels of acute food insecurity are of serious concern. Importantly, the population in Emergency (CH Phase 4) is expected to reach close to 1.2 million people during the peak of the lean season from June to August 2022, including in Adamawa, Borno and Yobe where some local government areas continue to be inaccessible or hard to reach.

ʻIn Somalia, a Risk of Famine has been identified through June 2022, under a scenario where rains are significantly below average, food prices increase further, conflict and displacement increase and humanitarian assistance remains insuxicient – 81 000 people will face Catastrophe (IPC Phase 5) between April and June.

“In South Sudan, a Famine Likely situation, which was present in some areas in 2021, was averted by improved coordination of humanitarian assistance, and hence the projected number of people in Catastrophe (IPC Phase 5) was reduced slightly, to 87 000 between April and July. That said, the situation remains of highest concern.

“In Yemen, the food security situation deteriorated significantly compared to last year, including a strong increase in the number of people in Catastrophe (IPC Phase 5), which are projected to reach 161 000 over the outlook period. There is also a Risk of Famine projected for some areas.

“The Democratic Republic of the Congo, Haiti, the Sahel region, the Sudan and the Syrian Arab Republic remain countries of very high concern, as in the previous edition of this report. In this edition, Kenya is added to the list. This is due to the high number of people in critical food insecurity coupled with worsening drivers expected to further intensify life-threatening conditions. Sri Lanka, West African coastal countries (Benin, Cabo Verde and Guinea), Ukraine and Zimbabwe have been added in the list of hotspot countries compared to the January 2022 edition of this report. Angola, Lebanon, Madagascar and Mozambique remain hunger hotspots.

“Organized violence and conflict remain the primary drivers for acute hunger, with key trends indicating that conflict levels and violence against civilians continued to increase in 2022. Moreover, weather extremes such as tropical storms, flooding and drought remain critical drivers in some regions.

“Ripple effects of the war in Ukraine have been reverberating globally against the backdrop of a gradual and uneven economic recovery from the COVID-19 pandemic, steadily increasing food and energy prices, and deteriorating macroeconomic conditions. Disruptions to the Ukrainian agricultural sector and constrained exports reduce global food supply, further increase global food prices, and finally push up already high levels of domestic food price inflation. Additionally, high fertilizer costs are likely to affect yields and therefore the future availability of food. Adding to the economic instability, civil unrest could emerge in some of the most affected countries in the upcoming months. Finally, humanitarian organizations are seeing sharp cost increases for their operations and reduced global attention risking to translate into increasing funding shortages. (emphasis added)

“Targeted humanitarian action is urgently needed to save lives and livelihoods in the 20 hunger hotspots. Moreover, in six of these hotspots – Afghanistan, Ethiopia, Nigeria, Somalia, South Sudan and Yemen – humanitarian actions are critical to preventing starvation and death. This report provides country-specific recommendations on priorities for emergency response as well as anticipatory action to address existing humanitarian needs and ensure short-term protective interventions before new needs materialize.”

The report at page 12 provides a chart showing the number of people in acute food insecurity in hotspot countries. The page is copied below.

The Financial Times article referenced earlier notes that there have already been signs of social unrest in a number of countries — Chad, Uganda, and Kenya. See Financial Times, ʻPeople are hungryʼ: food crisis starts to bite across Africa, June 23, 2022, https://www.y.com/content/c3336e46-b852-4f10-9716-e0f9645767c4. Similarly, the Economist has flagged social unrest from rising food and energy prices in two recent articles. See The Economist, Costly food and energy are fostering global unrest, June 23, 2022, https://www.economist.com/international/2022/06/23/costly-food-and-energy-are-fostering-global-unrest (“All around the world, inflation is crushing living standards, stoking fury and fostering turmoil. Vladimir Putinʼs invasion of Ukraine has sent prices of food and fuel soaring. Many governments would like to cushion the blow. But, having borrowed heavily during the pandemic and with interest rates rising, many are unable to do so. All this is aggravating pre-existing tensions in many countries and making unrest more likely, says Steve Killelea of the Institute for Economics and Peace (iep), an Australian think-tank.”); The Economist, A wave of unrest is coming. Hereʼs how to avert some of it, June 23, 2022, https://www.economist.com/leaders/2022/06/23/a-wave-of-unrest-is-coming-heres-how-to-avert-some-of-it (“Jesus said that man does not live by bread alone. Nonetheless, its scarcity makes people furious. The last time the world suffered a food-price shock like todayʼs, it helped set ox the Arab spring, a wave of uprisings that ousted four presidents and led to horrific civil wars in Syria and Libya. Unfortunately, Vladimir Putinʼs invasion of Ukraine has upended the markets for grain and energy once again. And so unrest is inevitable this year, too.”). The Economist, in the first referenced article, forecasts the likelihood of increase in serious outbreaks of unrest over the next twelve months. Much of Africa, various countries in Asia and the Middle East and parts of Central and South America show increases from 25% to 100% over the prior 12 months. The article also reviews challenges in Turkey, Pakistan, Sri Lanka, Kazakhstan, Kyrgyzstan, Tunisia, Peru, Uganda, Turkmenistan and South Africa.

Major countries and multilateral organizations have been taking actions to try to address some of the challenges presented from the price inflation on food, fertilizer and energy. Some countries that are able are providing assistance to their people with tax reductions or monetary grants. See, e.g., Reuters, Malaysia plans record $18 billion subsidy spend in inflation fight, June 25, 2022, https://www.reuters.com/markets/asia/malaysia-plans-record-18-bln-subsidy-spend-inflation-fight-2022-06-25/ (“Malaysia is projected to spend 51 billion ringgit on consumer subsidies including for fuel, electricity, and food, assuming that commodity market prices remain at current levels, Finance Minister Tengku Zafrul Aziz said in a statement. The government will also distribute 11.7 billion ringgit in cash aid, and 14.6 billion ringgit in other subsidies, he said.”). Other countries provide economic assistance to those in need in other countries. See, e.g., European Commission, Food security: EU to step up its support to African, Caribbean and Pacific countries in response to Russiaʼs invasion of Ukraine, June 23, 2022, https://ec.europa.eu/commission/presscorner/detail/en/IP_22_3889

Prices for wheat and sunflower oil have spiked since the war as Ukraineʼs large volumes that are normally exported have been trapped in Ukraine by Russiaʼs blockade of Black Sea ports, destruction of grain and sunflower seed silos by Russian missiles, by the they of Ukrainian product by the Russians and limitations on Ukrainian farmers being able to work their land during the war. See, e.g., NPR, Russia has blocked 20 million tons of grain from being exported from Ukraine, June 3, 2022, https://www.npr.org/2022/06/03/1102990029/russia-has-blocked-20-million-tons-of-grain-from-beingexported-from-ukraine; Center for Strategic & International Studies, Spotlight on Damage to Ukraineʼs Agricultural Infrastructure since Russiaʼs Invasion, June 15, 2022, https://www.csis.org/analysis/spotlight-damage-ukraines-agricultural-infrastructure-russias-invasion (“Russia is taking advantage of the transportation bottlenecks caused by port blockades to target Ukraineʼs food storage facilities. According to Ukraineʼs ministry of defense, Russian forces have attacked (https://observers.france24.com/en/europe/20220506-russian-attacks-on-farms-and-silos-deliberately-tryingto-destroy-the-ukrainian-economy) grain silos across the country and stolen an estimated 400,000-500,000 metric tons of grain (https://apnews.com/article/russia-ukraine-health-middle-eastf980a51dab3412aba611277821e2822b) from occupied regions to increase Russian competitive advantage in the export market (https://www.washingtonpost.com/world/2022/05/05/ukraine-grain-they-russia-hungerwar/).”).

Efforts have been being made by the UN, by Turkey and others to get Russia to stop its blockade of Ukrainian ports to permit the export of grain and other agriculture products. See, e.g., Reuters, Russia, Turkey to pursue talks on Ukraine grain exports, June 23, 2022, https://www.reuters.com/world/russia-turkey-agree-moreconsultations-grain-exports-ukraine 2022-06-22/ (https://www.reuters.com/world/russia-turkey-agree-moreconsultations-grain-exports-ukraine-2022-06-22/) (“Ukraine is one of the top global wheat suppliers, but shipments have been halted by Russiaʼs invasion, causing global food shortages. The United Nations has appealed to both sides, as well as maritime neighbour Turkey, to agree to a corridor.”)

At the same time, the European Union and United States have been working to help Ukraine export wheat and other agricultural products by alternative routes, though the volume that can be so moved is only a small percentage of what Ukraine normally exports. See, e.g., European Commission, Commission to establish Solidarity Lanes to help Ukraine export agricultural goods, 12 May 2022, https://ec.europa.eu/commission/presscorner/detail/en/ip_22_3002; Politico, Biden races against time to unlock Ukraineʼs trapped grain, June 17, 2022, https://www.politico.com/news/2022/06/17/biden-ukrainetrapped-grain-00040640 

Multilateral organizations like the World Bank, IMF and World Trade Organization have been offering assistance within their zones of competence. For example, the World Bank has a variety of programs that have been started or utilized to help with the growing food insecurity. See World Bank, Food Security Update | Rising Food Insecurity in 2022, June 23, 2022, https://www.worldbank.org/en/topic/agriculture/brief/foodsecurity-update#  (lists 14 projects including “The $2.3 billion Food Systems Resilience Program for Eastern and Southern Africa (https://www.worldbank.org/en/news/press-release/2022/06/21/world-bank-approves-2-3-billion-programto-address-escalating-food-insecurity-in-eastern-and-southern-africa), approved on June 21, 2022, helps countries in Eastern and Southern Africa increase the resilience of the regionʼs food systems and ability to tackle growing food insecurity.”). The World Bankʼs update on food insecurity is embedded below.

The WTO during the 12th Ministerial Conference which concluded on June 17, 2022 did address food security concerns both by agreeing not to block exports to the World Food Programme and by agreeing to transparency on actions taken and exorts to minimize use of export restraints on agricultural products. See June 17, 2022: WTOʼs 12th Ministerial Conference — some successes after a difficult five plus days,https://currentthoughtsontrade.com/2022/06/17/wtos-12th-ministerial-conference-some-successes-ayer-adixicult-five-plus-days/.

In addition, the U.S., European Union and other allies coordinating actions to help Ukraine and hold Russia accountable, have been working to address access to food products, energy products and to increase availability of fertilizers. These actions have been announced by major players unilaterally as well as through various groupings, including the current G-7 meeting in Germany, U.S.-chaired Global Food Security Ministerial Meeting, and the recently concluded Summit of the Americas Agriculture Producers Declaration. See, e.g., The White House, Summit of the Americas Agriculture Producers Declaration, June 13, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/06/13/summit-of-americasagriculture-producers-declaration/; U.S. Department of State, Chairʼs Statement for Global Food Security — call to Action, June 24, 2022, https://www.state.gov/chairsstatement-roadmap-for-global-food-security-call-to-action-2/; European Commission, Commission acts for global food security and for supporting EU farmers and consumers, 23 March 2022, https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1963; U.S. Department of State, Secretary Antony J. Blinken During the Uniting for Global Food Security Conference, June 24, 2022, https://www.state.gov/secretary-antony-j-blinken-during-the-uniting-for-global-food-security-conference/. These four documents are embedded below.

A few thoughts

The major efforts underway by various countries to reduce the global effect of the Russian war on food security are extensive and will have positive effects, some immediately, others over time (e.g., increasing production of fertilizers or improving efficiencies of fertilizers). However, for the poorest countries and those reliant on food imports from Ukraine and Russia, the internal pressures will continue to mount as limited financial resources and high food and energy prices push more and more people into food insecurity situations of increased severity. Social unrest in a number of countries is likely.

While Russia has exacerbated the food insecurity by its actions on Ukraineʼs agricultural products and by other actions restricting its own exports (when sanctions do not cover agricultural goods or fertilizers) and has the ability to end the challenges it has created, it seems highly unlikely that any serious progress will be made in getting Ukrainian agricultural goods out through Black Sea ports while hostilities continue. EU and U.S. efforts are helping some but are not perceived to be a viable short-term solution to moving Ukrainian goods to export markets at affordable prices.

Some short-term steps the private sector can take to help alleviate the damage to at-risk countries is to increase funding to the World Food Programme (its June report cited earlier is this post reflect that with higher prices and challenges in getting funding, the WFP is being forced to reduce assistance in various countries). While most funding for WFP comes from governments, the private sector can contribute and should actively participate. Obviously, there is need for more funding by governments as well, but the multiple crises at least make it questionable how much more governments will do in fact in 2022.

Moreover, with the large number of low and middle-income countries facing potential debt crises, there is a need for at least selective debt relief where the challenges faced flow simply from the rapid increase in inflation.

None of the proposals for action by those looking to lessen the pressures on global markets has involved increasing the percent of the worldʼs grain that goes to human consumption during the current crisis. See The Economist, Most of the worldʼs grain is not eaten by humans, June 23, 2022, https://www.economist.com/graphic-detail/2022/06/23/most-of-the-worlds-grain-is-not-eaten-by-humans. Presumably the challenges flow from the large percentage of grains that are fed to animals and the reduction in the worldʼs pasturelands which make alternative feeding of livestock less likely to increase in the short term. A small percentage (10%) of grains goes to biofuels and would be unlikely to be shifted in the short term as the use of grains in biofuels reduces the volume of petroleum products otherwise needed.

In challenging times, it is important for key countries to step forward and show leadership. There has been extensive leadership shown by the U.S., the EU and many of the other countries involved in supporting Ukraine and holding Russia to account for its unprovoked war with Ukraine. Continued coordination and adoption of bold actions by those currently engaged and an expanded group of willing participants will be needed to reduced the damage to low- and middle-income countries and limit the amount of social unrest that will yet unfold in 2022 and 2023.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.

To read the full commentary from Current Thoughts on Trade, please click here.

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Russia’s invasion of Ukraine and the subsequent disruption of agricultural exports from both countries has had an unwelcome corollary: a surge in export restrictions on agricultural commodities around the world. This casts dark clouds over future food price developments and food supply in net-food-importing countries, especially in a context of global food prices that were at a record high already in the wake of COVID-19. Fear of famine and social unrest is starting to grip the most immediately affected economies in the Middle East, Africa and beyond.

These fears are not unfounded. Together, Russia and Ukraine annually exported 12% of the calories traded globally. The food price shock induced by Russia’s invasion of Ukraine has already resulted in export restrictions covering more than 16% of internationally traded calories, having surpassed the highest level of restrictions adopted during the food price crisis of 2007-2008 in March of this year already.

Examples of this bulk of new export measures include, for instance, India’s ban on wheat exports and a government proposal in Slovakia to implement a national export authorisation scheme for cereals and oilseeds. The Indian ban resulted in a wheat world market price increase of 6% within 24 hours of its announcement, despite India being only the eighth largest wheat exporter globally. It is an indication of the severity of the current supply crunch and market volatility.

Slovakia’s proposal, meanwhile, could spark a chain reaction involving export restrictions from other EU countries, that may disrupt EU internal market trade flows and, in turn, EU exports to third countries.

The logic behind, and pitfalls of, agricultural export restrictions

As in the food crises of 2007-2008 and 2011, governments have political incentives to restrict food and fertiliser exports to insulate domestic food prices from international price shocks. The short-term strategy is to prevent high global food prices from reaching the vulnerable, in order to avoid hunger, social unrest and political instability.

Empirical evidence suggests that these policies are effective in achieving such national objectives. During the 2007-2008 food crisis, governments that imposed export duties or bans were significantly more successful than non-intervening governments in preventing domestic prices from rising.

But food and fertiliser export bans, quotas, taxes or licenses function as beggar-thy-neighbour policies: the more effective the instrument is in shielding domestic consumers, the more it will further increase world market and consumer prices in third countries, and the more similar policies will be triggered. From 2006-2008, changes in countries export restrictions caused international prices to be 40% higher for rice, 19% for wheat and 10% for maize – transforming critical contingencies into a full-scale crisis.

World Trade Organization rules on agricultural export restrictions

Effective international disciplines limiting the use of export restrictions would, all things being equal, drive international commodity prices down and increase trade volumes. Current WTO rules, however, tend to disadvantage net food-importing countries. Export restrictions remain vastly underregulated at the global level.

The WTO’s General Agreement on Tariffs and Trade (GATT) contains a general prohibition of quantitative restrictions on imports and exports (Article XI:1 GATT 1994). However, it does not apply to “export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting” member country (Article XI:2(a) GATT). Given the broad and vague scope of this exemption, it appears impracticable from the outset to challenge its invocation. In any case, exporting countries remain free to impose export duties and charges that are high enough to render exports economically unviable. The WTO Agreement on Agriculture (AoA) includes a consultation and notification requirement for WTO members that impose new export prohibitions or restrictions on foodstuffs. The imposing government, moreover, must give “due consideration to the effects of such prohibition or restriction on importing members’ food security” (Article 12 AoA). These obligations, however, do not apply to developing countries unless they are net exporters of the commodity concerned.

Export restrictions within the EU market

The EU single market is the most integrated transnational market in the world. Yet, as the moves in Slovakia suggest, EU countries have a degree of freedom to restrict exports individually. Analogous to the world market, a food or fertiliser export restriction in an EU country could trigger similar restrictions by other EU countries. As a result, supply dries up in the internal market, and, in turn, decreases EU exports to third countries.

The Treaty on the Functioning of the EU (TFEU) generally prohibits import and export restrictions among EU countries (Articles 34 and 35 TFEU). However, an exception is made for various non-economic objectives, including public security and health protection. Export bans and other restrictions pursuing such objectives must not “constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States” (Article 36 TFEU).

At the beginning of the pandemic in 2020, for instance, several EU countries imposed and justified export bans on protective personal equipment (PPE) with reference with Article 36 TFEU, temporarily jeopardising trade flows and supply within the internal market, as well as EU exports to third countries.

The Court of Justice of the EU (CJEU) has interpreted Article 36 TFEU narrowly. A member state imposing a restriction on EU-internal cross-border trade must limit the measure to what is strictly necessary to achieve the objective of human, animal or plant life protection, and must provide evidence of necessity. The European Commission response to the Slovakian export authorisation scheme proposal, calling for any measure to be “necessary and strictly proportionate”, should be understood in this context.

The criteria can lead to measures being rejected. In March 2020, the Romanian government imposed restrictions on EU-external exports of wheat and corn. The Commission objected, stating that the measures “appear to be not proportionate”, and it had not received “any information, which indicates that Romania is facing or will soon face shortages of agricultural products intended for human consumption”. In mid-April 2020, Romania’s government announced it had removed the restrictions.

Export restrictions at the EU customs border

The EU’s exclusive competence for common commercial policy (Article 207 TFEU) – the EU term for external trade and investment policy – includes export policy. The Common Rules for Exports regulation (Regulation (EU) 2015/479) stipulates that exports to third countries shall not be subject to quantitative restrictions unless otherwise permitted by the regulation (Article 1). The regulation empowers the Commission to make exports subject to authorisation in order “to prevent a critical situation from arising on account of a shortage of essential products, or to remedy such a situation” (Article 5.1). The Commission may also give EU countries the right to impose export authorisation requirements to protect human health or life (Article 5.3). As with Article 36 TFEU, however, such measures must be proportionate: a lack of evidence of an imminent or current shortage of agricultural products intended for human consumption would violate the proportionality requirement (Article 10).

To counter the detrimental dynamics of export restrictions in the area of PPE trade, in response to (legally justified, because proportional) restrictions imposed by EU countries in early 2020, the Commission decided to impose a monitoring and authorisation scheme applicable to EU exports to third countries. This was to reassure member states that the Commission would intervene in case of critical supply shortages within the single market. It convinced the governments of France, Germany, and others to dismantle their own export restrictions. The scheme effectively prevented EU internal trade and supply disruptions and, as a result, de facto led to virtually no reduction of EU external trade in PPE, once the EU authorisation measure came into force. A similar second-best solution may be suitable and in fact necessary to calm EU internal political and internal market dynamics in regard of food and fertiliser trade, too, in case member states face critical shortages and start acting upon them at the national level. To be sure, such an EU measure should remain a last resort.

Conclusions

The dangerous dynamic threatened by food and fertiliser export restrictions around the globe will be met with little to no legal disciplines from WTO rules and litigation. EU law, however, can prevent member state and EU governance failures induced by the prisoner’s dilemma logic of agricultural export restrictions. Monitoring and export authorisation requirements at EU level, as a last resort, can help maintain internal market functionality and EU export flows to third countries. In addition, export restrictions should be monitored, and governments that impose them should be named and shamed to raise awareness of the magnitude of the problem. Important transparency work in this field is done by the Global Trade Alert initiative and IFPRI’s food and fertiliser export restrictions tracker. From the trade policy toolkit, unilateral food tariff reduction and elimination can be highly conducive to decreasing prices for domestic consumers and enhance market functionality.

The current global food price crisis, however, will likely only be brought under control if the roots of the problem are targeted, including by taking on the herculean task of facilitating millions of tons of Ukrainian wheat exports through a large-scale and internationally coordinated operation as well as by unblocking Ukrainian ports. Logistical and infrastructural export facilitation, and supply chain and stock monitoring and surveillance initiatives have been commenced at EU level, through cooperation via the Transatlantic Trade & Technology Council (TTC) and the G7. Time will tell if these measures will provide much needed relief.

David Kleimann (PhD) is a trade expert with 15 years of experience in law, policy, and institutions governing EU and international trade. His current work focuses on the climate and trade policy nexus as well as legal and diplomatic challenges arising from transatlantic and international climate and trade cooperation.

To read the full commentary from Bruegel, please click here.

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“Sanctions

“4. The European Council is committed to intensify pressure on Russia and Belarus to thwart Russia’s war against Ukraine. The European Council calls on all countries to align with EU sanctions. Any attempts to circumvent sanctions or to aid Russia by other means must be stopped.

“5. The European Council agrees that the sixth package of sanctions against Russia will cover crude oil, as well as petroleum products, delivered from Russia into Member States, with a temporary exception for crude oil delivered by pipeline.

“6. The European Council therefore urges the Council to finalise and adopt it without delay, ensuring a well-functioning EU Single Market, fair competition, solidarity among Member States and a level playing field also with regard to the phasing out of our dependency on Russian fossil fuels. In case of sudden interruptions of supply, emergency measures will be introduced to ensure security of supply. In this respect, the Commission will monitor and report regularly to the Council on the implementation of these measures to ensure a level playing field in the EU Single Market and security of supply.

“7. The European Council will revert to the issue of the temporary exception for crude oil delivered by pipeline as soon as possible.”

 “II. FOOD SECURITY

“19. The European Council strongly condemns the destruction and illegal appropriation by Russia of agricultural production in Ukraine. The Russian war of aggression against Ukraine is having a direct impact on global food security and affordability. The European Council calls on Russia to end its attacks on transport infrastructure in Ukraine, to lift the blockade of Ukrainian Black Sea ports and to allow food exports, in particular from Odesa. The European Union is taking active measures to facilitate Ukraine’s agricultural exports and to support Ukraine’s agricultural sector in view of the 2022 season. In this regard, the European Council invites Member States to accelerate work on “Solidarity Lanes” put forward by the Commission, and to facilitate food exports from Ukraine via different land routes and EU ports.

“20. The European Council calls for effective international coordination to ensure a comprehensive global food security response. In this respect, it welcomes the Food and Agriculture Resilience Mission (FARM) – based on the three pillars: trade, solidarity and production – which aims to mitigate consequences for price levels, production and access to and supply of grain. It also supports the UN Global Crisis Response Group, the upcoming G7 initiative establishing a Global Alliance for Food Security (GAFS) and other EU and multilateral actions and initiatives. It reiterates its commitment to keep global trade in food commodities free of unjustified trade barriers, enhance solidarity towards the most vulnerable countries and increase local sustainable food production so as to reduce structural dependencies. The European Council invites the Commission to explore the possibility of mobilising reserves from the European Development Fund to support the most affected partner countries. The European Union welcomes the commitment and support of its partners and of international organisations.

“21. The European Council underlines the importance of the Common Agriculture Policy (CAP) in the EU’s contribution to food security and calls for the swift adoption of the CAP Strategic Plans.

“22. In view of the ongoing fertiliser shortages in the global market, the European Council calls for more concerted efforts to work with international partners to promote a more efficient use of and alternatives to fertilisers.”

It has been clear since the beginning of Russia’s war with Ukraine that the most challenging sanctions for the EU would be on banning Russian oil and gas. The EU has put in place sanctions on Russian coal and will be adding oil on a transitional basis by the end of the year for some 90% of oil imports from Russia with a carve out for oil delivered by pipeline — a carve out needed to address Hungary’s concerns and that of several other Central European countries.

Moreover, on May 31st, the EU and the U.K. agreed to ban insuring ships carrying Russian oil which will likely significantly affect Russia’s ability to export crude oil by ship. See Financial Times, UK and EU hit Russian oil cargoes with insurance ban, May 31, 2022, https://www.ft.com/content/10372dd3-be3c-42b9-982b241a38efcc88.

The insurance ban is one of several other sanctions that the EU is including in its sixth package. See European Commission statement, Opening remarks by President von der Leyen at the joint press conference with President Michel following the special meeting of the European Council of 30 May 2022 Brussels, 31 May 2022, https://ec.europa.eu/commission/presscorner/detail/en/statement_22_3382 (“Indeed, we had a very good discussion tonight. And I am very glad that the Leaders were able to agree in principle on the sixth sanctions package. This is very important. Thanks to this, the Council should now be able to finalise a ban on almost 90% of all Russian oil imports by the end of the year. This is an important step forward. We will soon return to the issue of the remaining 10% of pipeline oil. I want to note that other elements in the package are also important. It is the de-SWIFTing of the Sberbank. The Sberbank is the biggest Russian bank, with 37% of the Russian banking sector. So this is good that we now de-SWIFT the Sberbank. There is a ban on insurance and reinsurance of Russian ships by EU companies; a ban on providing Russian companies with a whole range of business services. And, very important, there is the suspension of broadcasting in the European Union of three further Russian state outlets that were very typically spreading broadly the misinformation that we have witnessed over the last weeks and months.”).

The actions by the EU and the UK are resulting in higher oil prices at least for the present. Russia is also expanding the countries it is choosing not to supply gasl to. See Financial Times, Dutch and Danish set to be cut off by Russia over gas payment dispute, May 30, 2022, https://www.ft.com/content/6715e4e9-d315-4594-8d57-80ce88613685; CNBC, Oil prices
jump after EU leaders agree to ban most Russian crude imports, May 30, 2022,
https://www.cnbc.com/2022/05/31/oil-prices-eu-russian-crude.html 

So there is little question but that the sanctions imposed by the U.S., EU, UK, Canada, Japan, Australia and others are being ratcheted up and will present increased challenges for Russia and continued pain at the pump for many global consumers and businesses.

By contrast, the efforts of the EU and others to address the growing food crisis caused by the disruption of Ukrainian agricultural exports, while continuing and being supported by multilateral organizations, seem unlikely to result in significant movement of Ukrainian wheat and other products in the coming months. The EU has been working hard to develop alternative export routes for Ukrainian goods as is reflected in the European Council’s conclusions from the May 30-31 meeting. See also Financial Times, EU steps up effort to bring millions of tonnes of grain out of Ukraine, May 30, 2022, https://www.ft.com/content/0e0f6cd9-03f0- 4150-b330-62032f9a86ad.

However, a recent Politico article reviews the serious challenges to being able to make a significant dent in the exports of Ukrainian agricultural products with the Black Sea effectively closed. See Politico, Only black Sea ships will allow Ukraine to feed the world again, The EU plan to export grain by road and rail will barely move a fifth of regular food supplies, May 31, 2022, https://www.politico.com/news/2022/05/31/only-blacksea-ships-will-allow-ukraine-to-feed-the-world-again00035970#:~:text=The%20EU%20plan%20to%20export,fifth%20of%20regular%20food%20supplies.

Time will tell what options those opposing Russia’s invasion of Ukraine or who are suffering from food shortages caused by the war are able to implement to address the food security challenges that will likely harm tens of millions of people around the world. See May 24, 2022: How severe is the food security challenge?, https://currentthoughtsontrade.com/2022/05/24/how-severe-is-the-food-security-challenge/

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.

To read the full commentary from Current Thoughts on Trade, please click here.

The post European Council May 30-31, 2022 Meeting — Finally EU Sanctions on Most Russian Oil; Food Security from Russian invasion of Ukraine Remains Problematic appeared first on WITA.

EC President von der Leyen’s statement at Davos is copied in part below (section dealing with food security) and includes both the EU view on the challenges being faced as well as steps the EU is taking to try to reduce the severity of the food insecurity crisis. See European Commission, Special Address by President von der Leyen at the World Economic Forum, Davos, 24 May 2022, https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_3282.

“We are witnessing how Russia is weaponising its energy supplies. And indeed, this is having global repercussions. Unfortunately, we are seeing the same pattern emerging in food security. Ukraine is one of the world’s most fertile countries. Even its flag symbolises the most common Ukrainian landscape: a yellow field of grain under a blue sky. Now, those fields of grain have been scorched. In Russian-occupied Ukraine, the Kremlin’s army is confiscating grain stocks and machinery. For some, this brought back memories from a dark past – the times of the Soviet crop seizures and the devastating famine of the 1930s. Today, Russia’s artillery is bombarding grain warehouses in Ukraine – deliberately. And Russian warships in the Black Sea are blockading Ukrainian ships full of wheat and sunflower seeds. The consequences of these shameful acts are there for everyone to see. Global wheat prices are skyrocketing. And it is the fragile countries and vulnerable populations that suffer most. Bread prices in Lebanon have increased by 70%, and food shipments from Odessa could not reach Somalia. And on top of this, Russia is now hoarding its own food exports as a form of blackmail – holding back supplies to increase global prices, or trading wheat in exchange for political support. This is: using hunger and grain to wield power. 

“And again, our answer is and must be to mobilise greater collaboration and support at the European and global level. First, Europe is working hard to get grain to global markets, out of Ukraine. You must know that there are currently 20 million tons of wheat stuck in Ukraine. The usual export was 5 million tons of wheat per month. Now, it is down to 200,000 to 1 million tons. By getting it out, we can provide Ukrainians with the needed revenues, and the World Food Programme with supplies it so badly needs. To do this, we are opening solidarity lanes, we are linking Ukraine’s borders to our ports, we are financing different modes of transportation so that Ukraine’s grain can reach the most vulnerable countries in the world. Second, we are stepping up our own production to ease pressure on global food markets. And we are working with the World Food Programme so that available stocks and additional products can reach vulnerable countries at affordable prices. Global cooperation is the antidote against Russia’s blackmail.

“Third, we are supporting Africa in becoming less dependent on food imports. Only 50 years ago, Africa produced all the food it needed. For centuries, countries like Egypt were the granaries of the world. Then climate change made water scarce, and the desert swallowed hundreds of kilometres of fertile land, year after year. Today, Africa is heavily dependent on food imports, and this makes it vulnerable. Therefore, an initiative to boost Africa’s own production capacity will be critical to strengthen the continent’s resilience. The challenge is to adapt farming to a warmer and drier age. Innovative technologies will be crucial to leapfrog. Companies around the world are already testing high-tech solutions for climate-smart agriculture. For example, precision irrigation operating on power from renewable; or vertical farming; or nanotechnologies, which can cut the use of fossil fuels when producing fertilisers.

“Ladies and Gentlemen,

“The signs of a growing food crisis are obvious. We have to act urgently. But there are also solutions, today and on the horizon.

“This is why – again, an example of cooperation – I am working with President El-Sisi to address the repercussions of the war with an event on food security and the solutions coming from Europe and the region. It is time to end the unhealthy dependencies. It is time to create new connections. It is time to replace the old chains with new bonds. Let us overcome these huge challenges in cooperation, and that is in the Davos spirit.”

The New York Times article provides excerpts from Mr. Beasley’s comments. “’It’s a perfect storm within a perfect storm,’ said David Beasley, the executive director of the World Food Program, a United Nations agency. ‘If we don’t get the port of Odesa open, it will compound our problems.’ Calling the situation ‘absolutely critical,’ he warned, ‘We will have famines around the world.’”

The UN World Food Programme has a press release on its webcite that addresses the food security crisis caused by the war in Ukraine. See UN World Food Programme, Failing to open Ukrainian ports means declaring war on global food security, WFP Chief warns UN Security Council, 19 May 2022, https://www.wfp.org/news/failing-open-ukrainian-ports-means-declaring-war-global-food-security-wfpchief-warns-un. The release is copied below.

“NEW YORK – The UN World Food Programme (WFP) Executive Director, David Beasley, addressed the United Nations Security Council today on the impact of the war in Ukraine on global food security. Here are selected highlights from his remarks:

“’We truly are in an unprecedented crisis. Food pricing is our number one problem right now, as a result of all this perfect storm for 2022. But by 2023 it very well will be a food availability problem. When a country like Ukraine that grows enough food for 400 million people is out of the market, it creates market volatility, which we are now seeing

“’In 2007 and 2008, we all witnessed what happened when pricing gets out of control. There were over 40 nations with political unrest, riots and protests. We’re already seeing riots and protesting taking place as we speak. Sri Lanka, Indonesia, Pakistan, Peru… We’ve seen destabilizing dynamics already in the Sahel from Burkina Faso, Mali, Chad… these are only signs of things to come. And we have enough historical experience to understand the consequences when we failed to act. When a nation that is the breadbasket of the world becomes a nation with the longest bread lines of the world, we know we have a problem.

“’As the Secretary General clearly spoke, we’re now reaching about 4 million people inside Ukraine. In fact, we’re scaling up to 900,000 on cash-based transfers as we speak. That will put liquidity back into the marketplace, but that does not solve the problem outside of Ukraine. That’s why we’ve got to get these ports running. We’ve got to empty the silos so that we can help stabilize the food crisis that we’re facing around the world.

“’Truly, failure to open those ports in Odesa region will be a declaration of war on global food security. And it will result in famine and destabilization and mass migration around the world.

“’Leaders of the world, it’s time that we do every possible thing that we can to bring the markets to stability because things will get worse, but I do have hope. We averted famine. We averted destabilization over the past many years because many of you in this room stepped up and we delivered. And we can do that again. But we’ve got things that have to happen. Getting the ports open, stabilizing the markets, increasing production around the world. We’ll get through this storm, but we must act and we must act with urgency.’”

See also, reliefweb, War in Ukraine: WFP renews call to open Black Sea ports amid fears for global hunger, originally posted on May 20, 2022, updated May 22, 2022, https://reliefweb.int/report/world/war-ukraine-wfp-renews-call-open-black-sea ports-amid-fears-global-hunger#:~:text=The%20World%20Food%20Programme%20(WFP,of%20lives%20%E2%80%93%20around%2 0the%20world (“In impassioned pleas to the specially convened ‘call to action’ group on 18 May, attended by US Secretary of State Antony Blinken and the UN Secretary-General António Guterres, Beasley added: ‘The silos are full. Why are the silos full? Because the ports are not operating … It is absolutely essential that we allow these ports to open because this is not just about Ukraine, this is about the poorest of the poor around the world who are on the brink of starvation as we speak’”.). 

As reviewed in earlier posts, there are production issues on grains in a number of other countries flowing from heat or draught or low inventories. Challenges in other countries are complicating the ability to substitute products from other countries for the large volumes not being shipped from Ukraine. See May 16, 2022: Wheat prices spike following Indian export ban, https://currentthoughtsontrade.com/2022/05/16/wheatprices-spike-following-indian-export-ban/; May 15, 2022: India bans exports of wheat, complicating efforts to address global food security problems posed by Russia’s war in Ukraine, https://currentthoughtsontrade.com/2022/05/15/india-bans-exports-of-wheat-complicating-efforts-toaddress-global-food-security-problems-posed-by-russias-war-in-ukraine/; April 19, 2022: Recent estimates of global effects from Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/04/19/recentestimates-of-global-effects-from-russian-invasion-of-ukraine/; April 19, 2022: Recent estimates of global effects from Russian invasion of Ukraine,
https://currentthoughtsontrade.com/2022/04/19/recent-estimates-of-global-effects-from-russian-invasionof-ukraine/.

While many countries are expressing the desire to help out in the crisis and while the WTO and other multilateral organizations are taking or talking about some actions that are available to them, the crisis is likely to significantly worsen in the coming months as there is little likelihood that Russia will permit the reopening of the Black Sea ports to Ukrainian wheat and other products. The crisis will likely exceed the level of the challenges from the 2007-2008 period and will reduce global GDP growth, including forcing some areas into recession, will increase starvation and malnourishment and result in increased political instability in a number of countries around the world. Expect larger parts of the global community to view Russia as a pariah state. While trade is an important part of the answer, the war started by Russia is not controllable by global trade rules in fact. We are in for a challenging period with much of the harm born by those least able to handle the harm being inflicted.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.

To read the full commentary from Current Thoughts on Trade, please click here.

The post How Severe is the Food Security Challenge? appeared first on WITA.

Rising price volatility poses a distinct threat, as it induces greater market uncertainty, which affects production decisions, and can spur speculative behavior. Both would fan further food price inflation. What is driving the current price volatility, and what are its implications for markets and food security?

The dangers of high price volatility

Tracking food price volatility provides a temperature check on global food markets. When prices fluctuate, it is more difficult for farmers to make decisions about what to produce and how; businesses are more reluctant to invest in food and agriculture; and ultimately consumption decisions are affected through higher prices and/or lesser availability, particularly in rural areas that heavily depend on agriculture and among low-income households who spend most of their income on food.

Volatility was high during the 2007-2008 and 2010-2011 global food price crises. Prices of staple foods rose quickly, followed by a period of high price variability that created major uncertainty in food markets. The excessive price variability tool was developed precisely to provide early warnings of unusual price movements to market actors, including farmers, traders, investors, and policymakers.

The current situation compared to early pandemic period

Food prices were already high before the war. Poor harvests in South America, strong global demand, and pandemic-related supply chain issues had reduced grain and oilseed inventories and drove prices to their highest levels since 2011-2013. Prices of key energy-intensive inputs such as fertilizer were and continue to be at near-record levels. Then came the invasion, which is creating major market disruptions. Russia and Ukraine account for 30% of global wheat exports and supply millions of tons of wheat to food import-dependent developing countries in the Middle East and North Africa (MENA), South Asia, and sub-Saharan Africa. An ongoing war will certainly drive prices higher still and erode food security for hundreds of millions of people.

Looking back, most staple food prices also showed excessive volatility in the aftermath of the global food price and financial crises until 2012 (Figure 1). World market prices for basic staples were then calm for the most part until the recent rise in volatility.

^{Source: Excessive Food Price Variability Early Warning System, Food Security Portal, facilitated by IFPRI.}

Among the major staples, prices of rice and wheat became very volatile following the onset of COVID-19 lockdowns, driven in part by export restrictions imposed by some major producing countries. Russia and Kazakhstan, for example, imposed export bans on wheat and Viet Nam imposed a short-lived ban on rice exports. In contrast to the 2007-08 global food price crisis, which led many countries to imposing prolonged trade restrictions, most of these more limited recent measures were retracted by mid-2020 and staple food markets returned to lower, “normal” levels of volatility. This period of relative calm lasted only through the first part of 2021, as the deepening of pandemic-related supply chain disruptions mixed with strong demand driven by the global economic recovery.

Price volatility has continued to intensify since reaching excessive levels for wheat, maize and soybeans in the final months of 2021. Markets for wheat and soybeans have remained volatile since, while that for maize returned temporarily to calmer waters. Following the invasion of Ukraine, however, maize prices again turned highly volatile, as did rice prices, so prices for all four staple foods are now in that state. Here is the situation for each:

• Wheat: Drought in many wheat-producing regions, including North America and the MENA region, and strong import demand from China, has created concerns over adequacy of supplies, while shipping disruptions and grain export policy in Russia pre-war added to the uncertainty in global wheat markets. The invasion has exacerbated supply concerns, intensifying price volatility.
• Maize: Conflict-related supply concerns have also stoked price volatility in global maize markets. Ukraine is the world’s fourth-largest maize exporter, and the war is putting the next harvest and the country’s capacity to export in jeopardy.
• Soybeans: Drought in Brazil and Paraguay sharply lowered production prospects for soybeans, driving price volatility starting late in 2021. Market dynamics of other major oilseeds have also contributed to soybean price volatility. Increasing concerns over palm oil supply—particularly due to damage caused by typhoon-related flooding in Malaysia—has led to increased demand and higher prices for soybean oil, a palm oil substitute for food and fuel. Similarly, the conflict in the Black Sea region, an area that accounts for well over half of the world’s supply of sunflower seed oil, has sent buyers scrambling for alternatives—also contributing to the excessive price volatility seen in soybean markets.
• Rice: The war has increased feed demand for rice on the heels of supply concerns in maize and wheat, pushing rice prices into excessive volatility territory.

The importance of monitoring food price volatility in the near term

Some conditions that contributed to price volatility following the initial COVID-19 lockdowns remain relevant now. Supply chain disruptions continue to be a factor, and tracking export restrictions is again important since such policies could lead food prices to spiral even higher.

One difference between the two periods is the scale of the disruptions in staple food markets. While the period of initial pandemic lockdowns saw some isolated volatility, the Russia-Ukraine war is affecting all major food staples. In addition, fertilizer prices are a greater factor now than at the beginning of the pandemic. Already at extremely high levels before the war began, fertilizer prices could continue rising as potash exports from major producer Belarus are cut off and Russia, another important fertilizer producer, is considering an export ban. High prices for natural gas, a feedstock for nitrogen-based fertilizers such as urea and ammonia, have boosted fertilizer prices as well.

Higher fertilizer prices could depress production, leading to less grain on the market in 2022 and putting further upward pressure on already-high food prices. With the conflict still unfolding and outcomes highly uncertain, monitoring food price volatility is more relevant now than at any time since the food price crises of 2007-08 and 2010-11—with the food security of millions at stake.

Brendan Rice is a research analyst in IFPRI’s Markets, Trade, and Institutions Division where he works on the Food Security Portal.

Manuel Hernández and Joseph Glauber are MTID Senior Research Fellows

Rob Vos is the Director of the Markets, Trade, and Institutions Division (MTID) at IFPRI

To read the full commentary by the International Food Policy Research Institute, please click here.

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The United Nation’s Food and Agriculture Organization (FAO) released an updated evaluation of risks on food security both for Ukrainians and for the world from the ongoing conflict last week (March 25), See FAO, Information Note, The importance of Ukraine and the Russian Federation for global agricultural markets and the risks associated with the current conflict, 25 March 2022 Update. The Executive Summary (pages 1-4) is copied below.

“Executive Summary

“1. Market structure, trade profiles and recent price trends

“1.1 Market shares

“• The Russian Federation and Ukraine are among the most important producers of agricultural commodities in the world. Both countries are net exporters of agricultural products, and they both play leading supply roles in global markets of foodstuffs and fertilisers, where exportable supplies are often concentrated in a handful of countries. This concentration could expose these markets to increased vulnerability to shocks and volatility.

“• In 2021, either the Russian Federation or Ukraine (or both) ranked amongst the top three global exporters of wheat, maize, rapeseed, sunflower seeds and sunflower oil, while the Russian Federation also stood as the world’s top exporter of nitrogen fertilizers, the second leading supplier of potassium fertilizers and the third largest exporter of phosphorous fertilizers.

“1.2 Trade profiles

“• Many countries that are highly dependent on imported foodstuffs and fertilizers, including numerous that fall into the Least Developed Country (LDC) and Low-Income Food-Deficit Country (LIFDC) groups, rely on Ukrainian and Russian food supplies to meet their consumption needs. Many of these countries, already prior to the conflict, had been grappling with the negative effects of high international food and fertilizer prices.

“Risk analysis: Assessing the risks emanating from the conflict

“2.1 Trade risks

“• In Ukraine, the escalation of the conflict raises concerns on whether crops will be harvested and products exported. The war has already led to port closures, the suspension of oilseed crushing operations and the introduction of export licensing requirements for some products. All of these could take a toll on the country’s exports of grains and vegetable oils in the months ahead. Much uncertainty also surrounds Russian export prospects, given sales difficulties that may arise as a result of economic sanctions imposed on the country.

“2.2 Price risks

“• FAO’s simulations gauging the potential impacts of a sudden and steep reduction in grain and sunflower seed exports by the two countries indicate that these shortfalls might only be partially compensated by alternative sources during the 2022/23 marketing season. The capacity of many exporting countries to boost output and shipments may be limited by high production and input costs. Worryingly, the resulting global supply gap could raise international food and feed prices by 8 to 22 percent above their already elevated baseline levels.

“• If the conflict keeps crude oil prices at high levels and prolongs the two countries’ reduced global export participation beyond the 2022/23 season, a considerable supply gap would remain in global grain and sunflowerseed markets, even as alternative producing countries expand their output in response to the higher output prices. This would keep international prices elevated well above baseline levels.

“2.3 Logistical risks

“• In Ukraine, there are also concerns that the conflict may result in damages to inland transport infrastructure and seaports, as well as storage and processing infrastructure. This is all the more so given the limited capacity of alternatives, such as rail transport for seaports or smaller processing facilities for modern oilseeds crushing facilities, to compensate for their lack of operation.

“• More generally, apprehensions also exist regarding increasing insurance premia for vessels destined to berth in the Black Sea region, as these could exacerbate the already elevated costs of maritime transportation, compounding further the effects on the final costs of internationally sourced food paid by importers.

“2.4 Production risks

“• Although early production prospects for 2022/23 winter crops were favourable in both Ukraine and the
Russian Federation, in Ukraine, the conflict may prevent farmers from attending to their fields and harvesting and marketing their crops, while disruptions to essential public services could also negatively affect agricultural activities.

“• Current indications are that, as a result of the conflict, between 20 and 30 percent of areas sown to winter crops in Ukraine will remain unharvested during the 2022/23 season, with the yields of these crops also likely to be adversely affected. Furthermore, considerable uncertainties surround Ukrainian farmers’ capacity to plant crops during the fast approaching spring crop cycle.

“• The conflict is also likely to affect the ability of Ukraine to control its animal disease burden, significantly increasing the risk of proliferation of animal diseases, notably of African swine fever (ASF), within Ukraine and in neighbouring countries.

“• In the case of the Russian Federation, although no major disruption to crops already in the ground appears imminent, uncertainties exist over the impact that the international sanctions imposed on the country will have on food exports. Any loss of export markets could depress farmer incomes, thereby negatively affecting future planting decisions.

“• Economic sanctions imposed on the Russian Federation could also disrupt its imports of agricultural inputs, notably pesticides and seeds, on which the country is highly dependent. This could result in less plantings, lower yields and lower qualities, exposing the Russian agricultural sector and global food supplies, at large, to non-negligible risks.

“2.5 Humanitarian risks

“• The conflict is set to increase humanitarian needs in Ukraine, while deepening those of millions of people that prior to its escalation were already displaced or requiring assistance due to the more than eight-year conflict in the eastern part of the country. By directly constraining agricultural production, limiting economic activity and raising prices, the conflict will further undercut the purchasing power of local populations, with consequent increases in food insecurity and malnutrition.

“• Humanitarian needs in neighbouring countries, where displaced populations are seeking refuge, are also set to increase substantially.

“• Globally, if the conflict results in a sudden and prolonged reduction in food exports by Ukraine and the Russian Federation, it will exert additional upward pressure on international food commodity prices to the detriment of economically vulnerable countries, in particular. FAO’s simulations suggest that under such a scenario, the global number of undernourished people could increase by 8 to 13 million people in 2022/23, with the most pronounced increases taking place in Asia-Pacific, followed by sub-Saharan Africa, and the Near East and North Africa. If the war lasts, impacts will go well beyond 2022/23.

“2.6 Energy risks

“• The Russian Federation is a key player in the global energy market. As a highly energy-intensive industry, especially in developed regions, agriculture will inevitably be affected by the sharp increase in energy prices that has accompanied the conflict.

“• Agriculture absorbs high amounts of energy directly, through the use of fuel, gas and electricity, and indirectly, through the use of agri-chemicals such as fertilisers, pesticides and lubricants.

“• With prices of fertilizers and other energy-intensive products rising as a consequence of the conflict, overall input prices are expected to experience a considerable boost. The higher prices of these inputs will first translate into higher production costs and eventually into higher food prices. They could also lead to lower input use levels, depressing yields and harvests in the 2022/23 season, thus giving further upside risk to the state of global food security in the coming years.

“• Higher energy prices also make agricultural feedstocks (especially maize, sugar and oilseeds/vegetable oils) competitive for the production of bio-energy and, given the large size of the energy market relative to the food market, this could pull food prices up to their energy parity equivalents.

“2.7 Exchange rate, debt, and growth risks

“• The Ukrainian hryvnia reached a record low against the United States dollar (USD) in early March 2022, with likely repercussions for Ukrainian agriculture, including a boost to its export competitiveness and curbs on its ability to import.

“• Although their extent remains unclear at this stage, conflict-induced damages to Ukraine’s productive capacity and infrastructure are expected to entail very high recovery and reconstruction costs.

“• The economic sanctions imposed on the Russian Federation have also led to a significant depreciation of the Russian rouble. Although this should make Russian exports of agricultural commodities more affordable, a lasting rouble depreciation would negatively affect investment and productivity growth prospects in the country.

“• Weakening economic activity and a depreciated rouble are also expected to have serious effects on countries in Central Asia through the reduction of remittance flows, as for many of these countries remittances constitute a significant part of gross domestic product (GDP)

“• The current conflict may also have global spillovers. While its impact on the global economy remains uncertain at this stage and will depend on several factors, the most vulnerable countries and populations are expected to be hit hard by slower economic growth and increased inflation, at a time when the world is still attempting to recover from the recession triggered by the COVID-19 pandemic.

“• Agriculture is the backbone of the economies of many developing countries, the majority of which rely on the United States dollar for their borrowing needs. As such, a lasting appreciation of the USD vis-à-vis other currencies may have negative significant economic consequences for these countries, including for their agrifood sectors. Moreover, the potential reduction of GDP growth in several parts of the world will affect global demand for agrifood products with negative consequences for global food security. Lower GDP growth will also likely reduce the availability of funds for development, especially if global military expenses increase.

“Policy recommendations

“• In order to prevent or limit the conflict’s detrimental impacts on the food and agricultural sectors of Ukraine and the Russian Federation, every effort should be made to keep international trade in food and fertilizers open to meet domestic and global demand. Supply chains should be kept fully operational, including by protecting standing crops, livestock, food processing infrastructure, and all logistical systems.

“• In order to absorb conflict-induced shocks and remain resilient, countries that depend on food imports from Ukraine and the Russian Federation will need to find alternative export suppliers for their food needs. They should also rely on existing food stocks and enhance the diversity of their domestic production bases.

“• The food security impacts of the conflict on vulnerable groups necessitate timely monitoring and well-targeted social protection interventions to alleviate the hardship caused by the conflict and to foster a fast recovery from it. To assist the internally displaced people, refugees and groups directly affected by the conflict, the reach of Ukraine’s national social protection system should be expanded by registering additional population groups within the Unified Social Information System.

“• In countries hosting refugees, access to existing social protection systems and job opportunities should also be eased by lifting legal access barriers and, where needed, by increasing the capacity of host countries’ social protection systems to absorb additional caseloads.

“• Countries affected by potential disruptions ensuing from the conflict must carefully weigh measures they put in place against their potentially detrimental effect on international markets including over the longer term. Particularly, export restrictions must be avoided. They exacerbate price volatility, limit the buffer capacity of the global market, and have negative impacts over the medium term.

“• The spread of African swine fever (ASF) and other animal diseases must be contained by improving biosecurity and good husbandry practices at all geographical levels, by taking steps to facilitate early detection, timely reporting and rapid disease containment, and by implementing measures that support virus detection, such as surveillance schemes and targeted sampling of animals.

“• Market transparency and policy dialogue should be strengthened, as they play key roles when agricultural commodity markets are under uncertainty and disruptions need to be minimised to ensure that international markets continue to function properly and that trade in food and agricultural products flows smoothly.”

Figure 15 of the paper (page 10) identifies countries largely dependent on Ukraine and Russia for wheat.

The FAO’s latest Food Price Index (released March 4, 2022, shows agricultural products already at all time highs.

As reviewed in a prior post, countries imposing sanctions on Russia, including the G-7 and the EU, are working to minimize the food security issues. March 26, 2022:  Blockage of Accession of Belarus to WTO, additional sanctions on Russia and other recent developments. More immediately, President Putin’s war places global food security under increased pressure. We recall that the implementation of our sanctions against Russia takes into account the need to avoid impact on global agricultural trade. We remain determined to monitor the situation closely and do what is necessary to prevent and respond to the evolving global food security crisis. We will make coherent use of all instruments and funding mechanisms to address food security, and build resilience in the agriculture sector in line with climate and environment goals. We will address potential agricultural production and trade disruptions, in particular in vulnerable countries. We commit to provide a sustainable food supply in Ukraine and support continued Ukrainian production efforts. 18. We will work with and step up our collective contribution to relevant international institutions including the World Food Programme (WFP), in parallel with Multilateral Development Banks and International Financial Institutions, to provide support to countries with acute food insecurity. We call for an extraordinary session of the Council of the Food and Agriculture Organization (FAO) to address the consequences on world food security and agriculture arising from the Russian aggression against Ukraine. We call on all participants of the Agriculture Markets Information System (AMIS) to continue to share information and explore options to keep prices under control, including making stocks available, in particular to the WFP. We will avoid export bans and other trade-restrictive measures, maintain open and transparent markets, and call on others to do likewise, consistent with World Trade Organization (WTO) rules, including WTO notification requirements.’”).

The issue is taking center stage at the WTO as reviewed in a recent press notice from the WTO on the Director-General’s comments at an informal meeting of the General Council. Some of the news release is copied below.

“’For dozens of poor countries and tens of millions of people, basic food security is in danger,” she warned. “These countries already have been some of the slowest economic recoveries from the pandemic, and international cooperation on trade is necessary to help mitigate risks of poverty, hunger, even famine and social unrest.’

“The Director-General noted that the UN Secretary-General has set up a three-tiered steering committee involving heads of government, heads of international organizations and technical experts to deal with the issue of surging energy and food prices. 

“The WTO is also expected to play a key role in finding solutions to the food crisis, the Director-General noted. The chair of the WTO’s agriculture negotiations, Ambassador Gloria Abraham Peralta of Costa Rica, is planning a food security conference that will take place at the end of April.  WTO Secretariat staff have also been carrying out analysis on food security issues which will be shared with members shortly.

“’We at the WTO have a solid basis on which to consider workable solutions to the present crisis,” the DG declared.

“In the near-term, international cooperation on trade will be needed to minimize the impact of supply crunches for key commodities where prices are already high by historical standards and to keep markets functioning smoothly, the Director-General said. While only 12 members have imposed export restrictions on food to date, coordinated government action is needed to avoid a repeat of the cascading export restrictions that exacerbated the rise of food prices in the crisis of 2008-2010.

“In addition, countries with buffer stocks that can afford to share could coordinate the release of wheat, barley, other cereals and grains and oils into international markets, thereby alleviating the supply squeeze.  Countries such as the United States, Canada, Australia, Argentina, and France could increase wheat cultivation while others such as China, Germany, Morocco, Saudi Arabia, Egypt, and Nigeria could increase global supply of fertilizer. Africa, with plentiful land and other resources, can also take steps to produce more food itself by using more adaptable varieties of wheat, maize and other crops.

“Trade facilitation measures could also be brought into play to ease the free flow of goods, while efforts should be made to allow the UN’s World Food Programme full access to humanitarian purchases. Prompt notification and information sharing regarding food supplies and stockpiles can help the international community better manage the situation and keep markets functioning more smoothly.”

WTO Members have a poor track record of not retreating from sharing core commodities during periods of shortages, which actions result in increased price volatility and significant harm to food importing nations. The transparency exercise as part of the COVID-19 pandemic on actions on both medical goods and agricultural products has improved the ability to understand actions being taken. But to date, Members continue to take actions to restrict exports when internal food security concerns arise.

I have written with former colleagues a number of papers in the past looking at the food security problems during earlier periods in the last fifteen years and the risks of social unrest that arise for many countries when core commodities become unaffordable. They are imbedded below.

Let’s hope that the focus of the G-7, EU and agricultural exporting countries and the attention being given to the issue at the WTO will result in a minimization of increased food insecurity to people around the world in the coming months.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.

To read the full commentary from Current Thoughts on Trade, please click here. 

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To read the full commentary by the Center for Strategic and International Studies, please click here.

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