On Saturday, India announced a ban on wheat exports, leading to a new all-time high in wheat prices. Are protectionist steps by exporting countries to be feared? Let John Plassard talk you through this.
***
Good morning and welcome to Weekly Insights with John Plassard.
India announced on Saturday that it would ban wheat exports in the face of declining production, due in particular to extreme heat waves. The G7 was immediately alarmed by a decision that will "worsen the crisis" of grain supply with the war in Ukraine.
As a result of this decision, the price of wheat hit a new all-time high.
Second largest wheat producer in the world, India has decided to ban exports of this commodity, except with special permission from the government, to ensure "food security" for its 1.4 billion people.
Until Saturday, India had expressed its willingness to help world markets in case of supply problems.
This context raises fears of protectionist measures by exporting countries: at the end of April, Indonesia, the world's largest palm oil producer, banned exports in order to contain soaring prices on the domestic market and shortages.
The move by the leading palm oil exporter has meant that, together with Ukrainian and Russian sunflower oil, more than 40 per cent of supplies on the international vegetable oil market have become difficult to access.
Soaring food prices and, in some cases, the threat of social unrest have led to an increase in exporters banning overseas sales or putting in place other restrictions such as taxes or quotas.
These protectionist steps have only driven up the food import bill further for countries dependent on international markets for important food commodities, hitting some of the poorest in the world.
The share of restricted products in the world food trade measured in calories was 17 per cent, the same level seen during the 2007-08 food and energy crisis.
This food protectionism will increase in the coming quarters and feed an already high inflation. Unfortunately, the decisions of central banks have no effect on this phenomenon.
Have a great week, stay safe and keep on winning.
