The rapidly increasing world prices for food grains, feed grains, oilseeds, and vegetable oils caused domestic food prices at the consumer level to rise in many countries. In response to rising food prices, some countries began to take protective policy measures designed to reduce the impact of rising world food commodity prices on their own consumers. However, such measures typically force greater adjustments and higher prices onto global markets.
In the fall of 2007, some exporting countries made policy changes designed to discourage exports so as to keep domestic production within the country.
The objective was to increase domestic food supplies and restrain increases in food prices. A partial list of these policy changes follows:
Eliminated export subsidies:
• China eliminated rebates on value-added taxes on exported grains and grain products. The rebate was effectively an export subsidy that was eliminated.
Export taxes:
• China, with food prices still rising after eliminating the value-added tax rebate, imposed an export tax on a similar list of grains and products.
• Argentina raised export taxes on wheat, corn, soybeans, soybean meal, and soybean oil.
• Russia and Kazakhstan raised export taxes on wheat.
• Malaysia imposed export taxes on palm oil.
Export quantitative restrictions:
• Argentina restricted the volume of wheat that could be exported even before raising export taxes on grains.
• Ukraine established quantitative restrictions on wheat exports.
• India and Vietnam put quantitative restrictions on rice exports.
Export bans:
• Ukraine, Serbia, and India banned wheat exports.
• Egypt, Cambodia, Vietnam, and Indonesia banned rice exports. India, the world’s third largest rice exporter, banned exports of rice other than basmati, signifi cantly reducing global exportable supplies.
• Kazakhstan banned exports of oilseeds and vegetable oils. Early in 2008, importing countries also began to take protective policy measures to combat rising food prices. Their objective was to make highcost imports available to consumers at lower prices. A partial list of policy changes follows:
The following countries reduced import tariffs:
• India (wheat flour)
• Indonesia (soybeans and wheat; streamlined the process for importing wheat fl our)
• Serbia (wheat)
• Thailand (pork)
• EU (grains)
• Korea and Mongolia (various food commodities)
Subsidizing consumers:
• Some countries, including Morocco and Venezuela, buy food commodities at high world prices and subsidize their distribution to consumers.
Other decisions by importers:
• Iran imported corn from the United States, something that has occurred rarely—only when they could not procure corn elsewhere at reasonable prices.
The policies adopted by importing countries also changed price relationships in world markets. Their policy changes increased the global demand for food commodities even when world prices were already rapidly escalating. The policies adopted by exporting countries to reduce food price inflation within their own countries resulted in lower supplies available to the rest of the world. Importers who want to buy food commodities now have fewer sources. This heightened concerns among importing countries, stimulating them to buy additional supplies, even at record high prices. The combination of reduced supplies and increased demand meant that world market adjustments had to be made by the smaller number of countries trading in the world market that had not changed their trade policies. The combination of reduced supplies from traditional exporters and increased demand from importers, at a time when the global stocks-to-use ratio was unusually low, increased importers’ concerns about future availabilities to meet consumption needs. This boosted world market prices even more. These contributions to higher world prices in April 2008 exacerbated an already tight supply and demand situation.
Source: USDA ERS