NCPA - National Center for Policy Analysis

FARMERS DOOMED TO PAY PRICE FOR EXPORT RESTRICTIONS

April 21, 2008

Surging prices for agricultural commodities -- and the fear of shortages at home -- have prompted some countries to impose restrictions on exports.  But their moves threaten to prolong the current global food crisis -- and even exacerbate it, says the Financial Times.

Countries such as Argentina, Kazakhstan, India and Vietnam have stopped their farmers selling crops abroad or taxed exports heavily in an effort to keep local markets well-supplied and local prices for those crops low:

  • This means the farmers in these countries are not benefiting from record international prices.
  • At the same time, these farmers are facing higher costs in the shape of higher prices for diesel, seed and fertilizers.
  • The result is that some farmers are cutting their acreage.

The export bans and other tax increases can potentially hinder investment and supply growth, which is much needed to solve the structural imbalance in global agriculture due to strong demand growth in recent years, says Ruifang Zhang, an agricultural analyst at Goldman Sachs in London:

  • In Argentina, the world's third largest soybean exporter and the sixth largest wheat exporter, local wheat prices are about half the level of the international market.
  • The result is that Argentina's farmers could sow up to 15 per cent less wheat this season because of the impact of export tariffs and continued uncertainty about when the government will permit exports, according to traders and farmers.

It's unfortunate that just as the price of wheat is rising on world markets, we can't take advantage of it, says Alicia Urricariet at the economic research institute of the Sociedad Rural, one of Argentina's largest producer associations.

Source: Jude Webber and Javier Blas, "Farmers Doomed To Pay Price for Export Restrictions," Financial Times, April 18, 2008.

 

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