As Russia’s invasion of Ukraine helped push global agricultural prices to soaring heights, some Asian governments restricted the export of products they viewed as essential to domestic food security.
For Indonesia it was cooking oil. For India, wheat. And for Malaysia, chickens.
The bans have a political logic: Leaders do not want to be blamed for allowing staple commodities to be sold abroad at the expense of low-income consumers at home.
But the bans risk hurting farmers and producers, and one concern is that the current cycle of protectionism could lead to restrictions on other food exports — including rice, a primary food for more than half the world’s population. That concern was amplified last month, when an official from Thailand said the country was considering setting up a rice price pact with Vietnam, another major rice exporter, to help the two nations boost their “bargaining power.”
“That’s the problem with this stuff: Once someone starts closing a border, other countries think, ‘Oh, maybe we need to close our borders, too,’ and the whole flow of food stops,” said Richard Skinner, a Singapore-based food security specialist for the accounting firm PwC.
“And when the flow of food stops,” he added, “it actually makes the initial problem worse.”
The bans’ effects are already being felt by consumers.In Singapore, the government urged residents to switch to alternative meats and frozen chicken in response to the ban in neighboring Malaysia. But that was scant consolation for the owners of Ah Five Hainanese Chicken Rice, a hawker stall that sells Malaysian chicken.
For now, the stall’s owners have raised their prices and expanded into other dishes, but they have a “shaky feeling” about the near future, said one of them, Natalie Lee.
“Switching to a new menu also means entering into a new market that we are unsure of,” Ms. Lee, 30, said in a Facebook message.
Global food supplies have been disrupted by not only the war in Ukraine, but also by the coronavirus pandemic, recent bouts of extreme weather, and rising energy and fertilizer prices. In the Asia Pacific region, those pressures threaten hundreds of millions of poor people who spend a high percentage of their incomes on basic commodities like rice and wheat.
In April, Indonesia, the world’s largest producer of palm oil, suspended exports of the crop to try to ease rising prices of cooking oil at home. Prices of vegetable oils globally had surged after the war caused Ukraine’s sunflower oil exports to crater. The Indonesian government reversed its ban less than a month later.
Understand the Supply Chain Crisis
- The Origins of the Crisis: The pandemic created worldwide economic turmoil. We broke down how it happened.
- Explaining the Shortages: Why is this happening? When will it end? Here are some answers to your questions.
- A New Normal?: The chaos at ports, warehouses and retailers will probably persist through 2022, and perhaps even longer.
- A Key Factor in Inflation: In the U.S., inflation is hitting its highest level in decades. Supply chain issues play a big role.
Last month, India banned wheat exports, with some exceptions, in the wake of an extraordinary heat wave that had severely damaged the domestic wheat harvest. The Commerce Ministry said the ban was necessary because a spike in the crop’s price, “arising out of many factors,” was threatening India’s food security.
This month, Malaysia suspended chicken exports, much of which go to Singapore. Officials said last month it was an effort to give domestic prices and farmers’ production costs — which had been driven up by the price rise in corn and soybeans — a chance to stabilize.
“The government’s priority is our own people,” Prime Minister Ismail Sabri Yaakob of Malaysia said at the time.
Such export bans sometimes help reduce domestic prices of the commodities in question, analysts say. They may also make political sense to leaders concerned about the public backlash from price surges that pinch the budgets of low-income city dwellers.
But the bans also have clear downsides, and it’s not clear that they help in the long run. One obvious risk is that export bans by countries that rely heavily on food imports could prompt neighbors to retaliate, analysts say. Another is that a country that imposes an export ban could be blocking domestic farmers from accessing lucrative export markets.
India’s wheat ban, for example, was welcomed by urban consumers as a check on rising food prices, but was unpopular with farmers who lost the opportunity to cash in further on record-high wheat prices, according to a recent analysis by Cullen S. Hendrix, a professor of international studies at the University of Denver.
In Indonesia, President Joko Widodo is almost certainly aware that the price of cooking oil has figured prominently in public surveys of his performance, said Bhima Yudhistira Adinegara, the director of the Center of Economic and Law Studies, a think tank in the capital, Jakarta. So his export ban made sense for “political reasons.”
“The government has to do something or it will be seen as dysfunctional,” he said.
Still, the ban was widely seen as misguided and ineffective, and it did not calm prices, as Mr. Joko’s government had promised it would.
How the Supply Chain Crisis Unfolded
The pandemic sparked the problem. The highly intricate and interconnected global supply chain is in upheaval. Much of the crisis can be traced to the outbreak of Covid-19, which triggered an economic slowdown, mass layoffs and a halt to production. Here’s what happened next:
A reduction in shipping. With fewer goods being made and fewer people with paychecks to spend at the start of the pandemic, manufacturers and shipping companies assumed that demand would drop sharply. But that proved to be a mistake, as demand for some items would surge.
Demand for protective gear spiked. In early 2020, the entire planet suddenly needed surgical masks and gowns. Most of these goods were made in China. As Chinese factories ramped up production, cargo vessels began delivering gear around the globe.
Then, a shipping container shortage. Shipping containers piled up in many parts of the world after they were emptied. The result was a shortage of containers in the one country that needed them the most: China, where factories would begin pumping out goods in record volumes.
Demand for durable goods increased. The pandemic shifted Americans’ spending from eating out and attending events to office furniture, electronics and kitchen appliances – mostly purchased online. The spending was also encouraged by government stimulus programs.
Strained supply chains. Factory goods swiftly overwhelmed U.S. ports. Swelling orders further outstripped the availability of shipping containers, and the cost of shipping a container from Shanghai to Los Angeles skyrocketed tenfold.
Labor shortages. Businesses across the economy, meanwhile, struggled to hire workers, including the truck drivers needed to haul cargo to warehouses. Even as employers resorted to lifting wages, labor shortages persisted, worsening the scarcity of goods.
Component shortages. Shortages of one thing turned into shortages of others. A dearth of computer chips, for example, forced major automakers to slash production, while even delaying the manufacture of medical devices.
A lasting problem. Businesses and consumers reacted to shortages by ordering earlier and extra, especially ahead of the holidays, but that has placed more strain on the system. These issues are a key factor in rising inflation and are likely to last through 2022 — if not longer.
Eceu Titi, 50, a street vendor in Jakarta, said that the price of cooking oil in her neighborhood was about 14,000 Indonesian rupiah, or about 96 cents, per liter before the export ban took effect, and has been nearly double that ever since, even though the ban ended last month.
Ms. Eceu has raised the prices of her fried snacks as a result, and she tries to make the same amount of oil last longer in her fryer, she said. But when some customers complained about her recent price increase, she agreed to reinstate her old price for them, at a loss.
“I don’t have the heart to insist on selling at the new price,” she said. “We are in this together, and they are my regulars.”
Now a primary concern is that the region’s food export restrictions will multiply and spill over into other commodities, including rice, the food stock of the world’s poor. Some say the current situation carries echoes of 2008, a year when some of the world’s largest rice exporters, including India and Vietnam, restricted their exports, sending consumers panicking and prices soaring.
That crisis, which followed spikes in wheat, corn and other major agricultural commodities, had not been caused by a rice crop failure or even a shortage of the grain. Still, for a few weeks, it prompted fears of civil unrest. At one point, President Gloria Macapagal Arroyo of the Philippines, Asia’s leading rice importer at the time,deployed armed soldiers to supervise government rice sales.
Peter Timmer, an emeritus professor of development studies at Harvard University who helped the United States government respond to the 2008 crisis, said he worried that the current shortages of wheat and corn would push India and Vietnam to reprise their rice restrictions.
Last month, a spokesman for the Thai government, Thanakorn Wangboonkongchana, told Reuters that Thailand and Vietnam “aim to raise rice prices, increase farmer income and increase bargaining power” in the global rice market. The chairman of the Vietnam Food Association, Nguyen Ngoc Nam, told the news agency that the two countries would meet in June but did not aim to control prices.
Whatever happens, Mr. Timmer said, it’s clear that the current pressures on food supply chains, which include energy and fertilizer shortages, are already far more complex than they were 14 years ago.
“But what is common to the 2008 situation is that we can make this really complicated, difficult situation much, much worse if countries start putting up the trade barriers,” he said.
Muktita Suhartono contributed reporting.