Export restrictions and food crisis: Recent developments and responses Ramesh Sharma

Export restrictions and food crisis: Recent developments and responses

Ramesh SharmaTrade and Markets Division

FAO, Rome

Informal ICTSD seminar19 November 2010, Geneva

Outline/topics for discussion

1. Current food situation and outlook2. Incidence of export restrictions (countries,

products, types of measures)3. Economic and others effects4. Responses

Trade rules Other responses

1. Global food markets – recent developments and outlook (FAO Food Outlook, 17 Nov 2010)

World market price of maize (US$/ton) 2007-2010, and outlook for MY 2010/11

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Jan 07 5 9 Jan 08 5 9 Jan 09 5 9 Jan 10 5 9 2011

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Maize, US ($/t) Outlook 2011

Sup/Disapp (major Xers)9% 2010/11, vs 15% in previous two seasons

World market price of soy oil and soybeans (US$/ton) 2007-2010, and outlook for MY

2010/11

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Jan 07 5 9 Jan 08 5 9 Jan 09 5 9 Jan 10 5 9 2011

Soyb

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Soy oil

Soybeans

Outlook 2011

2011Tight market; prices firm (oils, seeds, meals)

World market price of palm oil (US$/ton) 2007-2010, and outlook for MY 2010/11

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Palm oil, ($/t) Outlook 2011

2011Tight market; prices

firm

World market price of rice (US$/ton) 2007-2010, and outlook for 2011

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Jan 07 5 9 Jan 08 5 9 Jan 09 5 9 Jan 10 5 9 2011

Thai 100% B Outlook 2011

Sup/Disapp (major Xers)17.6% 2011, vs 16.6% 2010, 21.3% 2009, 17.5% 2008

Summary1) Recent world price rises have at much faster pace than in 2007/08; 2) Unlike in 2007/08, large stocks currently, but will be drawn-down rapidly; 3) So, for 2011, depends on 2011 crops, and so considerable uncertainty

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250FAO Food Price Index

FAO Cereals Price Index

2. Incidence of export restriction measures(Based mainly on policy monitoring files at FAO

and other sources)

During 2008-2010, how many countries in a sample of 105 implemented one or more export

restricting measures? --------- export restricting sample --------- All sample

Total Countries Measures (105 countries)countries- with X Export All Total % X covered measures % restr. policies % policy restr.

Africa 42 9 21 15 44 34 142 11Asia 30 15 50 49 162 30 210 23LAC 28 5 18 15 51 29 148 10Others 5 4 80 8 25 32 28 29

Total 105 33 31 87 282 31 528 16Summary: 1) 31% countries (33 of 105) took one or more export restriction measures 2) For export restricting sample, of all measures, 31% was on export restriction 3) For all sample (105), 16% of all measures (528 total) was on export restriction 4) Export restriction meaures most common in Asia

Timeline of export restrictions - exampleIndia –Ordinary rice (non- Basmati)

9 October 2007 - Ban exports 31 October 31, 2007 - Ban lifted and replaced with MEP of $425/t

fob December 2007 - MEP raised to $500/t 5 March 2008 - MEP raised to $650/t 27 March 2008 - MEP raised to $1,000/t 1 April 2008 - Banned export September 2009 – Ban extended

(Note: India sold some rice to neighbouring countries in G-to-G deals – so it was not an absolute ban, but this was more of a STE trade)

Timeline of export restrictions - exampleArgentina – Wheat (also maize, oilseeds)

March 2008 – Export taxes since 2002 (wheat 28%, maize 25%, soybeans 35%)

March 2008 – From 12 March, sliding scale or variable export tax above 4 commodities – raised taxes on oilseeds and lowered slightly for wheat and maize

June 2008 – Announced monthly export quotas July 2008 - Sliding scale tax system abolished – fixed taxes , same rate as

on 11 March 2008 Dec 2008 - Export taxes reduced (wheat from 28 to 23%, maize 25 to

20%) Sept. 2009 - Export restrictions lifted (also for maize) after agreement

with exporters and millers to ensure adequate domestic supplies May 2010 – Quota set to allow export = at least 35% of 2010 harvest June 2010 – Quota 3 million tonnes for December 2010 onward

Timeline of export restrictions - exampleVietnam - Rice

July 2007 – Export ban for rest of 2007 January 2008 – Export target set (4.5 m t for a year) and MEPs ($385 for 5%

broken, $360 for 25% broken) [VFA informally told no sales of 25% brokn] March 2008 – Total export quota reduced and quarterly quotas set March 2008 – No new export contracts unless exporter is holding as stocks

50% of export sales June 2008 – Export ban lifted and MEP raised to $800/t for 5% broken (from

$400) July 2008 – Progressive export tax $30/t for export price of $600/t and

maximum tax of $175/t for price =>$1,300/t April 2009 – MEPs reduced 25% broken rice to $350/t August 2010 – MEPs raised three times by $50/t ($450 for 5%, $410 for 25%) October 2010 - MEPs unchanged at $475/t for 5% broken and $445/t for 25%

broken, and again reduced

Timeline of export restrictions - exampleUkraine – Wheat

Oct 2006 - July 2008 – Export quotas varying between 3,000 t and 1.2 million t

May 2007 – Export quotas abandoned July 2007 – Export quotas reintroduced (for next 12 months, wheat

export quotas were very low, thus export was essentially quasi-banned)

Oct 2007 – Quota increased for the period until March 2008 May 2010 – Removed quota restrictions on grain exports August 2010 – Announced a plan for export caps but postponed the

decision several times as harvest continued October 2010 – In media, three versions of plans from different

authorities, confusing traders – in two versions, sharply differing amounts of quotas on maize, wheat and barley, and the 3rd version denied that plans have been made

Timeline of export restrictionsAdditional illustrations (small exporters)

Chad - Export ban on female cattle (Feb 2010) Ethiopia – Export ban cereals (May 2008, removed July 2010) Guinea - Export ban on agricultural products (April 2008) Kenya – Banned maize export (Oct 2008) Malawi - Export ban on maize removed (Sept 2009) Tanzania– Cereal export ban (imposed Jan 2008, lifted April 2010) Zambia – Maize export ban (March 2008, lifted Oct 2009) Bolivia – Export ban on soya and sunflowers oil, raw and refined (May

2008); lifted ban on maize export (Oct 2008); ban on maize and sorghum export (Feb 2010); ban on sugar export (Feb 2010)

Ecuador – Ban on rice export (June 2006, lifted March 2009) Honduras – Export ban lifted on beans and maize (October 2010)

Many forms of export restrictions used

Export tax Fixed Variable Differential

Export quota Export license State Trading Enterprise (and government to government or

G-to-G) Minimum Export Price (=> variable export tax) Export ban

Two illustrations of sliding scale or variable export tax

Indonesia palm oil Argentina, Wheat, March 2008Reference fob band $/t Tax (%) price $/t Tax (%)

< 700 0 < 200 20% 801 - 850 4.5 201-300 20% to 24% 951-1,000 10 301-400 24% to 30% 1,051 – 1,100 15 401-600 30% to 46% 1,151 – 1,200 20 > 600 46% > 1,251 25

3. Impact/consequences (trade flow, prices, food security, overall economic

welfare etc)

Types of analyses linking export restriction to impacts (such as on trade flow, world price, domestic price)

100s of op-eds and newspaper articles, but very few good studies (unlike the rich literature on import measures)

Only 3-4 model-based analyses found (IFPRI/CGE wheat, Argentina soy, FAO COSIMO wheat) – elasticity etc needed, and so divisive

Some disagreement over the role of export restriction – does it also initiate the spike or just fuels the process

Some analysts link policy to price movements graphically (2 examples below)

Economic model for analysing the impact of export restrictions

Exporter RoW Exporter RoW

Impact of X tax – small country case Impact of X tax – LARGE country case(world price does not change) (world price changes – rises)

RoW excess demand

Excess S

Impact/effects of export restriction Small country case (small exporter, cant change Pw)Impact on home market Prevent price rise (arguments - food security, consumers) If raw material, benefit processors, (infant industry, DET) Revenue (rather easily) (also, to fund commodity programs) Economy wide effects – income distribution, influence output mix

through incentives Resource allocation costs (static and dynamic) Economic welfare – always negative (Sum of PS, CS, Rev) Terms of Trade gain (Pw rises and so more revenue) Optimum Export Tax argument (not because of a crisis, but purely

for revenue reason) Economic welfare – can be positive (Sum of PS, CS, Rev)

Impact/effects of export restriction - negatives Large exporter case (can raise Pw) Impacts on home market – same as for small countryOthers Terms of Trade gain (Pw rises and so more revenue) Optimum Export Tax argument (tax not because of a crisis, but

purely for revenue reason) Economic welfare – can be positive (Sum of PS, CS, Rev) But collateral damages (not measured above)

“Beggar-thy-neighbour” – hurt trading partners, lose them to other exporters, invite retaliation

Undermined trust in trading system => protectionist policies, increased production, self-sufficiency goals

WTO disputes

Thai 100% B rice price movement ($/ton) and key policy measures, 2007 and 2008

(it says - both export ban/tax and aggressive demand played a role)

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VTNMbans

India bans

VTNMbans

Philippines tender >$700

Philippines tender >$1 100

US Oks Japan re-X of stocks

VTNM endsexport bans re-X of stocks

Illustration of an attempt to link policies to price World wheat prices (total world export: 111-116 Mt pa)

Red (with solid vertical line) denotes policy changes that reduce export and Blue denotes policy changes that should increase export. Source: Nicolas Brown, Judith Laffan and Mike Wight (2008), DFAT, Australia.

4. Responding to the food crisisa) Strengthened trade rules

b) Other proposals for curbing volatility

Disciplining food export restrictionsProposals in WTO agricultural negotiations

Export taxProhibit export tax (Korea)Tariffy export restriction – and bind it (Japan 2000) – bind at 0%

(Switzerland)Export prohibitionEliminate all export restrictions on agricultural products

(Switzerland)Assure some export (quota)For taxed products, establish tax-exempt quotas for a certain

amount (based on some X/Q ratio) (Japan 2000)

Disciplining food export restrictionsProposals in WTO agricultural negotiations (2)

Strengthening Article 12 along the current line (Cairns, /AG/NG/93) Preserve AoA Article 12.2 Provide additional S&D provisions to address legitimate needs of

developing countries (comment - “like what?”)U.S (G/AG/NG/W/15) - objectives To strengthen substantially WTO disciplines on export restrictions

to increase the reliability of global food supply. To prohibit use of export taxes, including DETs, for competitive

advantage or supply management purposes. [Comment - Not clear – is it strengthening Art 12 along current line

(notifications etc), or also some kind of prohibition. The 2nd point also not clear (the terms used, and when a tax is not prohibited).]

What we have now? 2008 Modalities Part V C - Export prohibitions and restrictions

To strengthen Article XI. 2 (a) of GATT 1994, modify AoA Art. 12 to include following (six) elements

Para 162 - Art XI.2 (a) measures to be notified within 90 days Para 163 – exporter to give notice of reasons for the measures Para 164 – AoA CoA to provide annual notification update Para 165 – any Member can bring counter notification Para 166 – Eliminate existing restrictions by end of 1st year Para 167 - New restrictions normally not > 12 months (and >18

months only with agreement of affected importing Members). [Comment – Only 166 and 167 appear somewhat concrete]

Some proposals after the 2006-08 food crisis(led by Japan and Switzerland, informal paper April 2008)

These do not call for prohibitions and bans, but strengthened disciplines

Essentially constraining ability to restrict food exports and making them more responsible (conduct sound analysis of impact on importers)

Justification to be based on data (production, stocks, and domestic consumption etc)

Notifications required before taking the measure, explaining nature, duration and reasons

Mandatory consultation and mandatory explaining If differences unresolved, even refer to binding arbitration by a

“standing committee of experts.”

SUMMARY – on disciplining export restrictions

Fading appetite among negotiators for prohibition of export taxes, or their binding, or prohibiting quotas, MEPs and export bans

[Comment – without binding, tariffication alone will not work ] Instead, open to strengthening Art 12 along present lines[Comment – given the record on notifications, will this ever work?][Comment – likewise, how effective will be analyses of impact and

consultations based on that?]One concrete proposal (Japan 2000) - similar to the TRQ on import

side – require maintaining some level of export, based on historical X/Q ratio

Also, define objectively terms like “temporary” (e.g. 2 months), to prevent market panic as in 2008 and 2010

Proposals/responses to curb price volatility

National policies/responses Policies and programmes for increased food self-sufficiency Expanding food reserves (emergency and price stabilizing) Looking for bilateral/RTA Membership with net food exporters Government to government deals/STEs are more active Some looking for leasing lands far away

Comment – Some consider all these to be collateral damages from reduced confidence on world food markets?

Global responses – proposals (1)

Globally coordinated food reserves maintained at regional/national locations, including funds (UN meeting at Dublin May 2010, IATP – call for studies)

IFPRI proposal from 2008 - Physical and virtual global food reserves (some physical reserves, but importantly fund to curb excessive price movement in futures markets)

Regulating speculation in food commodities and over-the-counter derivatives (Olivier De Schutter, the UN Special Rapporteur, France, G20, UNCTAD TDR 2009)

Global responses – proposals (2) France-Brazil joint position “price volatility and food security”

– Actions (Oct 2010) Monitoring global cereal stocks for transparency, avoid panics,

informed national responses (FAO, others should do) Encouraging creation of national and regional stocks Encouraging creation of innovative financial mechanisms to protect

family farmers from price volatility, including through the use of price guarantee mechanisms;

Improving the regulation of agricultural commodity derivative markets; and

Attenuating the effect of price volatility on the most underprivileged

Global responses – proposals (2) Extraordinary session of the IGGs on rice and grains

24 Sept. 2010, FAO, RomeProblems identified and where solutions have to be found Lack of reliable/up-to-date info on crop S-D, stocks and

export availability Insufficient market transparency at all levels (also in futures

markets) Growing linkage with and impact of “financialization” on

futures markets Unexpected changes triggered by national food security

situations Panic buying and hoarding

In conclusion High volatility + high food prices more frequent (no longer a 25-

75 feature of 1970-2004 – it is becoming 40-60) Export restrictions by large exporters did play a role in volatility

– but cant conclude what share Spikes and restrictions undermining trust in world food markets As a result, increased attention to response measures

Global - better information/data to reduce panic (as in recent months)

Global -new instruments (reserves, futures) National – reserves, self-sufficiency etc

Some of these can be costly for long run (collateral damage) How much can trade rules contribute to?