By Peter Timmer*
In just over two months, the global food situation has gone from bad to worse. Pleas not to panic fell on deaf ears, even as the Ukrainian military fiercely opposed the Russian onslaught. If Ukraine somehow wins the war, it will be decades before its economy and agricultural exports return to previous levels.
Many countries panicked over global shortages. China banned the export of agricultural chemicals, Indonesia banned the palm oil export and India banned the export of wheat. The United States has expanded its commitment to corn-based ethanol, increasing the mandatory amount of gasoline supply to reduce the cost of driving. This maize could have been diverted for human consumption, to help replace wheat shortages. Malaysia appears ready to lift its mandate to blend palm oil into diesel fuel supply. This palm oil supply can now re-enter the global food supply chain.
Although many long-term structural and political issues have contributed to this crisis, there is an urgent need at this time to focus on improving the situation in the short term.
As with the rice crisis in 2008, outside intervention will be needed to break the cycle of panic and “beg your neighbor” trade policies. In 2008, it was the Japanese prime minister’s deal to re-export the country’s long-grain rice to the Philippines, the most panicked rice-importing country during the crisis.
The current crisis is more diffuse — it is fuels, fertilizers and foods, especially wheat and vegetable oils. At the same time, the crisis is now more acute. All of these products are experiencing low inventories, reduced production and disrupted supply chains. Stopping this crisis, let alone returning to more normal business models, will not be easy. Coordination among the world’s major economies will be needed to make progress.
Fortunately, the opportunity for such coordination is on the horizon, the next G20 Summit meeting in Bali in November 2022. With Indonesia in the chair, there is an opportunity for that country and for ASEAN, as a major regional trade organization, to secure a formal commitment from G20 members to focus on food security and reduce trade restrictions.
Russia’s possible participation in the G20 will complicate this agenda, but there is room for active diplomacy, ideally led by Indonesia, to circumvent this problem. If at all possible, the elements of a “G20 Bali Commitment on Trade Normalization” are quite simple.
This will require a firm commitment to avoid any further restrictions on the export of key commodities, especially wheat, vegetable oils and fertilizers. Leaders will also have to agree to reduce, and eventually eliminate, export restrictions on these essential products. Each country can have considerable leeway to plan its actions according to its local political situation.
To ensure the commitment, it is important to establish a small secretariat, with Indonesia at the helm, to monitor and publish the details of the implementation of the commitments. Transparency is the best enforcement mechanism. Unfortunately, neither the United Nations nor the World Trade Organization can play a credible role here. But other organizations, such as the Agricultural Market Information System and the International Food Policy Research Institute, could help fill this gap.
Several “good faith” actions can be taken by the United States and the European Union to prepare the ground for a broader agreement at the G20 meeting itself. The European Union has already made a good start by mobilizing to coordinate wheat exports to the countries most in need. The United States is expected to follow suit by reversing its push for ethanol production and announcing guidance on how corn supplies can be redirected to human consumption. Efforts to conserve wheat consumption in favor of other carbohydrates, especially corn and potato, should be encouraged.
It seems unlikely that China will enthusiastically participate in the first “good faith” efforts or in joining the G20 commitment itself. Again, diplomatic efforts must be made to avoid forcing China into a box and to encourage its engagement in this initiative proposed by Indonesia and ASEAN. Although the United States or Australia may not be able to play a constructive role in this diplomacy, the European Union could be quite influential.
Now is not the time to act timidly. Millions of lives are at stake if the global food supply chain continues to malfunction and policymakers respond by restricting food exports in the face of severe shortages. It is understandable that some countries are backup their local populations with food produced on their own soil, but this exacerbates the rise in international food prices. Future prosperity crucially depends on reliable international trade and all countries must accept their role in sustaining it. A further retreat into autarky would be disastrous for global food security.
*About the author: Peter Timmer is Thomas D Cabot Emeritus Professor of Development Studies at Harvard University.
Source: This article was published by East Asia Forum