The symbolism of Ireland’s government telling its farmers to grow more crops because of wartime shortages should be lost on no one: it recalls Irish ministers in the 1940s ordering growers to plant more grain during the second world war. This time round the programme, designed to replace imports from Russia and Ukraine, relies on cash rather than coercion. The rush across the EU to get more crops in the ground goes against the decades-long direction of European agricultural policy and subsidies. Warnings of a global food crisis are not a drill.
It’s not Covid-related general interruptions to trade that are causing soaring food prices and shortages. There was a false alarm along those lines early in the pandemic, when governments worried about shortages and export restrictions similar to those on personal protective equipment. In fact, the supply chains held up quite well. The current episode looks more like the global food crisis in 2007 to 2008. Shocks didn’t emanate from the trading system but ended up there, with countries slamming on export controls to keep produce at home.
Food prices have been rising sharply since the middle of last year, chased higher by energy costs — not mainly the diversion of crops to biofuels but the fossil-fuel intensity of modern agriculture, including the use of synthetic nitrogen fertiliser. The Ukraine war has disrupted output and exports of grain and fertiliser from two of the world’s biggest producers. There’s a historical irony here: Stalin’s insistence that Ukraine keep exporting grain in the early 1930s to pay for imports of machinery to industrialise the Soviet Union worsened the Holodomor famine, in which more than 3mn Ukrainians starved to death.
The world has had 15 years since the previous food crisis to prepare its emergency response, including agreements to minimise export controls. It hasn’t done very well. The Global Trade Alert monitoring service reports food export curbs more or less doubling since the middle of 2021. By now there’s another story every few days of governments restricting food sales abroad. It’s a global prisoners’ dilemma: it’s in everyone’s interest to keep exports flowing, but no one wants to run short by being the only country that does.
During the crisis of 2007 to 2008, India and other countries panicked and banned exports of rice despite no evidence of global shortages, resulting in huge price rises. In response, governments created the Agricultural Market Information System (Amis) to promote transparency in production. That’s fine when there are no shortfalls, but doesn’t guarantee co-operative policy reactions if there are.
Despite discussions at the World Trade Organization, there are no binding agreements between governments to eschew food export restrictions. Export bans are illegal under WTO law, but cases would almost certainly fail under the exception for temporary restrictions “to prevent or relieve critical shortages of foodstuffs or other products”, a loophole you could drive a fleet of combine harvesters through.
Governments can try stimulating output in the short term, as Ireland and the EU are doing. The US will do the same, though it’s already pumping out huge production-distorting handouts to compensate farmers for retaliation from Donald Trump’s absurd trade war with China, and US wheat is often already too expensive to compete globally.
One-off support schemes to turn unused land back to growing basic crops are worth trying if they don’t get baked into permanent production-distorting subsidies. But they should represent only a temporary reversal of the sensible longer-term direction of encouraging farmers to go up the value chain. (The EU is actually a net exporter of food, including selling wheat abroad, but it’s disproportionately high-end stuff: Brussels could put on export restrictions to keep its food at home, but even Europeans can’t live on Gorgonzola and champagne alone.)
In any case, the increase in supply is not likely to be dramatic. It’s not generally high-quality productive land that farmers have allowed to go fallow. And time is short: Ireland’s farmers had better get a move on before the barley planting season ends in a few weeks. Digging for victory isn’t a major short-term solution.
More helpful would be cutting tariffs to ensure that what grain there is ends up where it’s needed, backed up with rapid aid disbursements to developing countries to give them more purchasing power. Australia, where the government is handing out export credits to wheat exporters, has surpluses to sell, as does India.
For both substantive and signalling reasons, the EU should quickly push through the preferential trade deals with Australia and New Zealand once the French presidential election is done and Emmanuel Macron doesn’t have to strike agricultural protectionist poses any more. As well as Australia’s wheat, New Zealand’s fruit and vegetables, grown in the southern hemisphere summer, will be welcome when the northern winter comes.
Even during food crises there’s generally enough to eat in the world as a whole, but it’s in the wrong places. You can try producing more, or you can move it to the right ones. In the short term, the second of those may be politically harder but it’s more likely to be effective.
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Source: Financial Times