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COVID-19 and food protectionism

Could COVID-19 lead to a global food crisis?

Could COVID-19 lead to a global food crisis?
As the virus spreads around the world, there are concerns that global food security could come under pressure (Laborde et al. 2020, Martin and Glauber 2020, Torero 2020). Food production is currently high, but it could be negatively impacted by increased workers’ morbidity, disruption in supply chains, and containment measures. Governments’ attempts to restrict food exports to meet domestic needs could make things much worse.

In a new paper (Espitia et al. 2020a), we analyse how world trade in food could be affected by COVID-19 and escalating export restrictions. We quantify the initial shock due to the pandemic under the assumption that products that are more labour intensive in production are more affected through workers’ morbidity and containment policies. We then use the logic of the multiplier effect of trade policy to estimate how escalating export restrictions to shield domestic food markets could magnify the initial shock.
Initial conditions in global food markets are good

Back in 2006-2007 and then again in 2008-2011 a series of shocks created a gap between global demand and global supply of food, leading to sharp increases in food prices . Many governments intervened implementing export restrictions that contributed to reduce global supply, leading to even higher food prices. The situation today is in part different: production levels of major staples are above the average of the past five years, oil prices are low, and stock levels relative to consumption for major grains are 70-100% higher than in the late 2000s (Voegele 2020). Global food prices have been relatively stable in recent years and they have remained low in the first months of 2020.

Countries most affected by the COVID-19 pandemic are top exporters of food products.1 A new World Bank database (Espitia et al. 2020b) shows that top 50 countries most affected by COVID-19 represent on average 66% of world export supply of food products. Their share of world exports goes from 38% in stimulant crops to more than 75% in vegetable and animal oils, fresh fruits, and meat . Exports of key staples such as corn, wheat, and rice are highly concentrated among top-50 countries most affected by COVID-19.

We provide a first assessment of the initial shock that COVID-19 could have on world food markets. We assume that the initial shock in supply proportionally increases with the weight of low skill labour in total value added in exports. Intuitively, workers’ morbidity and the need for social distancing will more strongly affect the supply of products that are more labour intensive, such as paddy rice, or the supply of products that have crucial labour-intensive stages, such as the processing of fish.3 In our baseline scenario, we use data from Chinese food exports in January and February 2020 to inform the potential shock for the 50 most affected countries.

Under these assumptions, we find that in the quarter following the outbreak of the pandemic, the global export supply of food could decrease between 6% and 20% . Many important staple foods, including rice, wheat and potatoes could have drops in export supplies of over 15%. Given the substantial uncertainty about the extent of the current health crisis, we also consider an upward and a downward scenario, where initial export supply shocks are respectively 10% higher and lower compared to the observed declines in China’s food exports.
Escalating export restrictions would magnify the initial shock by a factor of three

As of end of April, over 20 governments have imposed some form of restrictions on food exports – this is substantially less than the restrictions on COVID-19 relevant medical products (EUI-GTA-WB 2020). But as food prices increase due to the initial COVID-19 shock, governments may be tempted to use trade policy to stabilise domestic prices. Intuitively, although restrictions mitigate pressures on domestic food markets, they reduce supplies in the world market, thus driving prices up. In response, other governments would likely retaliate by imposing new export restrictions, leading to a multiplier effect (Giordani et al. 2020).
Under the baseline (China-like) scenario for the initial shock, we find that escalation in export restrictions would lead to a decline in the world food export supply by 40.1% on average in the quarter following the outbreak of the pandemic while global food prices would increase by 12.9% on average.