Fuels, fertilisers and foods are experiencing low inventories, curtailed production and disrupted supply chains. But the G20 summit in Bali in November, with Indonesia in the chair, is an opportunity for the world’s leading economies to tackle the crisis, says this professor.
BOSTON, Massachusetts— In just over two months, the world food situation has gone from bad to worse. Calls not to panic fell on deaf ears, even as the Ukrainian military put up stiff opposition to the Russian onslaught. If Ukraine somehow wins the war, it will be decades before its economy and agricultural exports return to their previous levels.
The United States has expanded its commitment to maize-based ethanol, raising the mandated amount in gasoline supplies in order to lower the cost of driving. That maize could have been diverted to human consumption, to help substitute for wheat shortages.
Malaysia seems ready to lift its mandate to blend palm oil into diesel fuel supplies. That palm oil supply can now re-enter the global food supply chain.
Although many long-term, structural and policy problems have contributed to this crisis, the urgent need at the moment is to focus on improving the short-term situation.
Just as with the rice crisis in 2008, some outside intervention will be necessary to break the cycle of panic and “beggar thy neighbour” trade policies. In 2008, it was the Japanese prime minister’s agreement to re-export the country’s long grain rice to the Philippines, the most panicked rice-importing country during the crisis.
G20 SUMMIT OFFERS OPPORTUNITY FOR COORDINATION
The current crisis is more diffuse – it involves fuels, fertilisers and foods, especially wheat and vegetable oils. At the same time, the crisis is now more acute. All of these commodities are experiencing low inventories, curtailed production and disrupted supply chains.
It will not be easy to stop this crisis, much less return to more normal trade patterns. Coordination among the world’s leading economies will be needed to make progress.
Fortunately, an opportunity for such coordination is on the horizon, the forthcoming Group of Twenty (G20) summit meeting in Bali in November. With Indonesia in the chair, there is an opportunity for that country and for the Association of Southeast Asian Nations (ASEAN), as a major regional trade organisation, to get a formal commitment from G20 members to focus on food security and roll back 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 that is possible, the elements of a “G20 Bali Commitment on Trade Normalisation” are fairly straightforward.
It will require a firm pledge to avoid any further export restrictions on critical commodities, especially wheat, vegetable oils and fertilisers. Leaders will also have to agree to reduce, and eventually eliminate, export restrictions on these critical commodities. Individual countries can be given considerable leeway to time their actions in accordance with their local political circumstances.
To ensure commitment, it is important to establish a small secretariat, with Indonesia in the chair, to monitor and publish the details of implementing the commitments. Transparency is the best enforcement mechanism.
Sadly, neither the United Nations nor the World Trade Organization can play a credible role here. But other organisations, such as the Agricultural Market Information System and the International Food Policy Research Institute, could help fill the gap.
TAKING THE FIRST STEP OF GOOD FAITH
Several “good faith” actions can be taken by the United States and European Union to set the stage for broader agreement at the G20 meeting itself. The European Union has already made a good start by mobilising to coordinate wheat exports to countries most in need.
The United States should follow suit by reversing its boost to ethanol production and announcing guidance on how maize supplies can be redirected to human consumption. Efforts to conserve wheat consumption in favour of other carbohydrates, especially maize and potatoes, should be promoted.
It seems unlikely that China will be an enthusiastic participant in either early good faith efforts or in joining the G20 commitment itself. Again, diplomatic efforts need to be brought to bear to avoid forcing China into a box and to encourage its engagement with this proposed Indonesian and ASEAN-led initiative.
Although the United States or Australia are unlikely to be able to play constructive roles in this diplomacy, the European Union could be quite influential.
Now is not the time for timid actions. Millions of lives are at stake if the global food supply chain continues to malfunction and if policymakers respond by restricting food exports in the face of severe shortages.
It is understandable that individual countries are safeguarding their local populations with food produced on their own soil, but this exacerbates the rise in international food prices.