Media Global Economy 2020.04.28
As the world was struggling to combat the COVID-19 pandemic, Qu Dongyu, Tedros Adhanom Ghebreyesus and Roberto Azevedo, directors general of the U.N. Food and Agriculture Organization, the World Health Organization and the World Trade Organization, respectively, warned in a joint statement March 31 that uncertainty about food availability could spark a wave of export restrictions, creating a shortage on the global market.
That led some people to worry about a possible impact on Japan, a major food importer whose food self-sufficiency rate is below 40 percent.
As the joint statement by the FAO, WHO and WTO shows, export restrictions face international criticism. Food shortages lead to a surge in prices, which makes it more difficult for people in poor countries to buy food. Export restrictions under such conditions will reduce food supply and cause prices to spike even higher.
In 1993, during the final phase of the Uruguay Round trade negotiations under the General Agreement on Tariffs and Trade, Japan proposed banning export curbs. I was among the negotiators who tried to get the proposal adopted at the talks in Geneva. However, it met with strong objections from the participants, including the ambassador of India, who argued that countries naturally have the right to restrict exports when they have their own trouble.
Japan's proposal was eventually adopted as Article 12 of the WTO Agreement on Agriculture, under which countries planning to introduce export curbs will notify the WTO Agriculture Committee and hold talks with food importing countries. But due to objections by India, this rule was not to be applied to developing countries that are net food importers.
In 2008, the use of corn as raw material for ethanol, a gasoline substitute, increased with a surge in crude oil prices and support from the U.S. government. As corn prices rose with the surge in demand, prices of soybeans, wheat and rice -- substitutes for corn in terms of production and demand -- increased threefold.
India then banned its rice exports. The country did not have a bad domestic harvest -- only the grain prices were surging on the international market.
But if left to free trade, more Indian grain will be shipped for export in pursuit of higher prices, which would cut domestic supplies and push up prices at home on par with the international market. That leads to hunger as poor people who spend most of their income on food will become unable to buy food if prices go up two- or threefold. India was trying to prevent that.
The question now is: Will major grain exporters like the United States, Canada and Australia curb their exports? These countries export a considerable portion of their output.
The U.S. generally exports 50 percent of its wheat, while last year Australia and Canada shipped 60 percent and 70 percent, respectively, of their crops overseas.
Even if prices go up, rich consumers in these advanced economies will be able to buy food, and there will be no need to restrict exports. Higher prices enable farmers in exporting countries to earn more. An export curb will flood the domestic market with massive volumes of the food meant for exports, resulting in a crash in domestic prices and leading farmers to go bankrupt. Export restrictions do not make economic sense.
The U.S., the world's largest agricultural exporter, introduced export curbs twice in the past. In 1973, when the nation suffered a poor catch of anchovies used for animal feed, it banned soybean exports to prioritize supply to domestic livestock farmers as a substitute.
Japan, which buys large volumes of soybeans for making miso, tofu and soy sauce, was thrown into a panic. Worried about possible future supply instability, Japan helped Brazil develop large tracts of farmland in its vast savanna regions. Brazil's soybean production has since sharply increased to quickly outperform the U.S., which used to monopolize soybean exports.
In its recent trade war with the U.S., China, the world's biggest soybean importer, restricted imports from the U.S. and instead bought more soybeans from Brazil. If the U.S. had not curbed its soybean exports in the 1973, it could have maintained its dominance of the global soybean market, and China would not have dared to raise its tariff on soybean imports from the U.S.
In 1979, the U.S. banned grain exports to the Soviet Union in economic sanctions against its invasion of Afghanistan. But the Soviet Union managed to procure grain from other countries such as Argentina, and American farmers lost the Soviet market. The U.S. lifted the export ban the following year, but serious damage had been done to its agriculture sector, leaving many farmers to go bust or quit farming.
No country can strategically use export curbs as diplomatic or political tools unless it monopolizes the export market. Having learned a lesson from the two failures, the U.S. has never again attempted to introduce export curbs.
Major exporters that have major influence over international prices like the U.S. will not impose export restrictions. In the event that a developing country like India curbs its exports, it is effectively difficult to call on it to end the restrictions. Such are the limitations of international norms on export curbs.
Article 12 of the WTO Agreement on Agriculture is effectively ignored by WTO member states. What's more important for global food security are eradication of poverty and expansion of food production in developing countries.
How was Japan affected by the surge in grain prices in 2008? While global grain prices tripled at that time, the consumer price index on foodstuffs increased by only 2.6 percent.
In Japan, imported agricultural and fishery products account for a mere 2 percent of what consumers spend on food and beverages. Domestic agricultural products account for 13 percent, while processing, distribution and food service sectors take the remaining 85 percent. A hike in prices of grain, which constitute only a part of food imports, will have little or no impact on final consumption.
Such a pattern of consumption is common in all advanced economies. Consumers are paying not for agricultural products but for processing and distribution of food, and for dining out. A food crisis like the ones that happen in the Philippines does not occur in developed economies like Japan.
There are two elements in food security. One is whether people have enough money to buy food. The other is whether people can actually secure or have access to food. These factors can be rephrased as economic access and physical access.
Poor countries may lack both. If food prices go up, people who spend most of their income on food purchases are unable to buy the food. A surge in the price of grain, which provides the calories necessary to sustain life, will have an especially serious impact. A significant decrease in income due to the COVID-19 pandemic will cause the same problem without an increase in food prices.
Even if rich nations deliver food aid to the shores of poor countries, the food will not reach the people who need it if there is no means to transport it to inland areas. The ongoing coronavirus pandemic may cause a food crisis in poorer countries due to problems in both economic and physical access.
Japan, where people's average income is high, is unlikely to face a food crisis in case of a spike in grain prices. Wheat, soybeans and corn that the nation imports mainly come from developed economies like the U.S. These countries, which export a large portion of their domestic production, will not curb exports.
Rice can be more prone to export restrictions because the major exporters are developing countries like India and Vietnam, which export only a small amount of their output. But Japan has no need to worry about a domestic supply of rice since it is even curbing its own rice acreage to keep prices high.
Thailand, another rice exporter, did not restrict rice exports in 2008 because the income level of its population is relatively high.
A food shortage may take place in Japan if the system to distribute food were to break down, preventing people from buying it even though they have the money to do so -- as happened right after the 2011 Great East Japan Earthquake and tsunami. The most serious scenario would emerge if a military conflict in the region were to cripple Japan's sea lanes and ships carrying food imports wouldn't be able to reach the country's ports.
The risk of Japan facing a food shortage in the COVID-19 pandemic is low, even if some countries curb their food exports. The risk of its sea lanes being blocked is low as well, but what if that did happen? Japan's farming organizations and bureaucrats have long used the issue of food security to justify the protection of domestic farmers. They have not even discussed what can be done if the sea lanes are imperiled.
To deal with a possible loss of sea lanes, Japan needs to seriously weigh concrete measures to ensure food security. The basic policy must include stockpiling of food over the short term and increasing food production over the medium to long term.
To expand food output, agricultural resources such as farmland must be secured in peacetime. The rice-acreage reduction policy must be abolished to bring down rice prices and rice should be exported in large amounts.
In peacetime, the nation should import wheat and beef, and export rice. In the event that the flow of goods between Japan and other countries is blocked, making imports difficult, Japan can stop exporting rice and consume it domestically.
The peacetime export of rice can function as a cost-free stockpiling of food. Expanding rice production to the point of exporting it helps maintain rice paddies, a precious agricultural resource. For the sake of food security, Japan needs to abolish the policy of curbing its rice acreage.