KANSAS CITY — The roster of countries employing export bans of specific commodities to protect domestic markets is growing and will further disrupt supply chains striving to recover from lockdowns incurred during the worst of the COVID-19 pandemic. If more countries embrace these strategies, the situation may devolve from mere supply chain disruptions into a threat to global trade and economic growth that will push costs higher around the world.
The most recent action occurred in Indonesia, which banned the export of palm oil beginning April 28 due to surging domestic prices. As the world’s largest producer and exporter of palm oil, the effect of the ban was immediate. But no less significant has been Russia’s banning of fertilizer, some grains and sugar exports in response to sanctions imposed, because of that country’s invasion of Ukraine; China’s banning of fertilizer exports; and Turkey’s halt in the export of beef, butter, corn, goat, lamb and vegetable oils.
In all, more than 40 countries have implemented export bans of some sort since the military action in Ukraine began, according to Global Trade Alert, a foundation that tracks global trade trends. Individually, these actions may pose manageable challenges for food companies, but combined they represent a threat, particularly if more countries take similar actions.
The World Trade Organization has revised its 2022 global gross domestic product forecast rate of growth down to 2.7% from 4.1%. The WTO’s global trade volume forecast also was revised down from 4.7% in 2022 to 3%, with much of both revisions based on the hostilities in Ukraine, but also lockdowns in China implemented following outbreaks of COVID-19.
Domestically, food and beverage manufacturers as well as just about every other business sector is facing higher costs for raw materials. The March Producer Price Index showed an 11.2% year-over-year rise, the largest increase on record. On a monthly basis, the PPI rose 1.4%, outpacing economists’ expectations of 1.1%.
The dramatic rise in costs also may be seen in Food Business News’ Food Ingredient Indexes. The indexes are based on ingredient costs using standard industry formulas. The devil’s food cake index surged to 415.8 on April 29, up from 183 a year ago; the cake donut index hit 394.3, up 95% over the previous year; the frozen apple pie index reached 320.4 from 229.7 a year ago; and the vanilla ice cream index rose 42% to 177.4.
The current inflationary environment reflects a combination of recovery from the supply chain disruptions caused by the pandemic and the immediate effects of the war in Ukraine. It is reaching into every aspect of food manufacturing, but what has yet to take hold are the acute global effects of the war.
Ngozi Okonjo-Iweala, the World Trade Organization’s director general, recently noted history has taught that dividing the world economy into rival blocs has neither led to prosperity nor peace. Those blocs may form and harden as the conflict in Ukraine drags on and portends even greater challenges as the year progresses.