Mhm Hi, I'm Suna Ramesh for money. Mind today, I'm going to find out five things you need to know about food export bands. Will they spark a food security crisis? And is there anything that consumers can do with me rob Subbaraman, head of global macro research at Nomura and Sonya, actor at the lee kuan Yew School of Public Policy. I'll pose this question to both of you. Why are countries banning or restricting exports of food? Has something like
this even happened before? So the reason government imposed the ban on exports because governments want to insulate the local economy from the international food price in a technical language, we call it transmission. So governments wants to stop the transmission of international food price into the local economy. And the second reason is that governments
want to ensure sufficient food availability domestically? And the third reason is that food and food prices are very politically sensitive issues, regardless of their drivers. Citizens tend to blame the government if there is a rise in food prices or there is a shortage in food availability. And we have seen this playing out quite strongly during the midterm election in the United Kingdom and the federal election in Australia where food price rise or cost of living in general played
a very important role. So governments don't want to lose its popularity and respond by at least signaling the citizens and we are doing something to bring the footprint under control.
Do you remember the arab spring that was soon after the global financial crisis where we had a big surge in food and energy prices like we do now and there was a wave of protectionism, it makes sense for individual government because you want to protect the poor in your society because when food prices and energy prices go up it's a huge chunk of their consumption basket that gets spent on food and energy, it's necessities and so they have little income left over to
spend on other things which are also necessities and so they end up having to get into debt and it leads to a lot of problems.
While inflation is already at levels we haven't seen for decades now isn't this just going to make things worse rob?
I think an important thing to understand is that the weight of food in CPI baskets is much higher in emerging markets than in advanced economies. In emerging markets. It can be somewhere between 20 to 30% of the CPI basket. In advanced economies, it's more like 10 to 15%. And then if very low income countries it's even higher, it can be over 40% of the
CPI basket is food items. Food, it lives inflation with the food component and it's not just raw food dining out is another part of the C. P. I. Basket that's affected, it leads to higher inflation and the big concern central banks have is that as inflation goes up, particularly in developing countries, households can come to expect higher inflation and then they demand higher wages to compensate for higher inflation and you get what's called
second round effects where that leads to in itself higher inflation and then you get a spiral and in a way then the inflation genie is out of the bottle and it's very hard to put back into the bottle. So I think central banks can maybe see through a short period of food price inflation, but if it lasts for quite a long time and starts to broaden out into other components of the consumer price index, they start to respond by raising interest rates.
Do you think this is a short term problem?
Unfortunately, I don't, I think it's going to be quite a sustained rise in food prices, a few reasons for that. So firstly Russia, Ukraine war does not look like it's going to end quickly. Russia and Ukraine are huge global exporters of wheat, corn bali fertilizers as well, which is a very important input to making food.
Secondly, we have global warming, we're having more and more extreme weather events, whether it's droughts or floods all these events affecting the production of food, particularly in emerging markets. And then the third one is when food prices rise, we start to see more trade protectionism around food, which might make sense for an individual country, looking at the
situation for themselves. But when many countries do that, it restricts the supply of food even more and causes food prices to go even higher.
But again, there are other countries like Australia, for example, which is expecting a bumper crop of wheat this year, and they also signal that they're going to increase their export to some countries are also using this as an opportunity to expand their market share. And those countries that are banning their export, they are
at risk of losing their international market share. So maybe sometimes these bands are very temporary because they don't even think that this is actually causing our farmers a lot of damage or economy, a lot of damage. So they might lift this ban quite quickly. Like Indonesia has done, they imposed this ban on palm oil, but that ban was very shortly rob. What are the options do governments have? Besides just resorting to protectionism,
There's many other things governments can do. For instance, they can provide subsidies, food subsidies, or energy subsidies that lower the costs of food for households, they can lower the taxes, say excise taxes on certain items. That also helps lower the prices, or they could even enforce price ceilings, which really puts the cost then on the food manufacturers or energy suppliers. So there's many things they can do, but the cost has to be borne by someone.
And if the government is trying to reduce the costs on the private sector, then they bear the costs. And that shows up in a larger fiscal deficit?
And Sonia, does this all point to a need for us to perhaps rethink our consumption patterns. So when chicken becomes more expensive and we don't have enough supply of chicken, we can switch to plant based protein, for example, lentil tofu and also for carbohydrate, we can add more diverse sources of carbohydrates to our diet instead of relying too much on rice and wheat. Other sources of carbohydrate could
be cassava and bananas. So then that makes our diet more diverse and we are not so vulnerable of rising food prices or lack of availability of a particular type of food. So buckle up for the long haul as countries around the world put up food protectionism barriers in response to domestic political concerns that's going to worsen inflation around the world, experts aren't optimistic that the food security crisis will ease anytime soon.
So prepare for higher prices and it might do you good to rethink consumption patterns as well. I've been speaking with rob Subbaraman from Nomura and Sonya, actor from the lee kuan yew school of public policy and that's the top five things you need to know about the food crisis. Money. Mind airs every saturday at 10 30 PM on mediacorp C N. A. You can also catch us online at CNN dot asia on Youtube