Ripple Effects in the Food Trade
Joshua Foust on Apr 17 2008 | Filed under: Developmental economics, Economics, Foreign affairs, regulation
Posted first at Registan.net
When last I touched on the global food crisis and how it is impacting Afghanistan and the rest of Central Asia, I noted that countries continuing to ban wheat exports would make the problem worse by restricting the global market, driving up prices even more, and limiting national coping mechanisms. One of the countries producing a glut of wheat this year was Kazakhstan, whose farmers were enjoying rather handsome profits from the wheat trade. Until now.
Kazakhstan joined other Black Sea grain exporters in curbing shipments on Tuesday, suspending wheat exports until Sept. 1 to combat double-digit inflation in Central Asia’s largest economy.
Analysts said they expected the ban, which excludes flour and will take effect 10 days from now, to cause a short-term spike in world wheat prices as supplies from Russia and Ukraine are already constrained by export limits or tariffs.
This is not insignificant. While Kazakhstan couldn’t lower world prices too much with Australia in a serious rut, an export ban not only fuels price hikes (which are affected by perception as much as supply), but is seriously bad news for poor people trying to feed their families everywhere. As friend-of-Registan.net neweurasia.net notes:
The other four Central Asian countries all import Kazakh grain, and the poor in all countries have been hit severely by recent price surges… Much of the region’s southern arable land is primarily used for growing cotton and cannot easily be converted into growing food crops.
Let’s hope that global food price inflation will come down during this year so that the Kazakh export ban really only has to last until September.
Yes, let us hope. Ben linked to some other interesting local anecdotes about how grain prices are adversely affecting quality of life in most of Central Asia, and they’re worth a read.
Kazakhstan’s behavior is confusing: though it is a much better reaction than a price freeze, an export restriction is of dubious benefit for combating inflation. Inflation is caused when money and credit increase out of proportion with an economy’s ability to produce goods and services. An export ban effectively limits the amount of goods Kazakhstan can produce by harming exporters—the Reuters report speculated it could potentially cause $800 million in losses.
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