Speaker 1: Mhm
Speaker 1: Hi, I'm Suna Ramesh for money. Mind today, I'm going
Speaker 1: to find out five things you need to know about
Speaker 1: food export bands. Will they spark a food security crisis?
Speaker 1: And is there anything that consumers can do with me
Speaker 1: rob Subbaraman, head of global macro research at Nomura
Speaker 1: and Sonya, actor at the lee kuan Yew School of
Speaker 1: Public Policy.
Speaker 1: I'll pose this question to both of you. Why are
Speaker 1: countries banning or restricting exports of food? Has something like
Speaker 1: this even happened before? So the reason government imposed the
Speaker 1: ban on exports because governments want to insulate the local
Speaker 1: economy from the international food price
Speaker 1: in a technical language, we call it transmission. So governments
Speaker 1: wants to stop the transmission of international food price into
Speaker 1: the local economy. And the second reason is that governments
Speaker 1: want to ensure sufficient food availability domestically? And the third
Speaker 1: reason is that food and food prices are very politically
Speaker 1: sensitive issues,
Speaker 1: regardless of their drivers. Citizens tend to blame the government
Speaker 1: if there is a rise in food prices or there
Speaker 1: is a shortage in food availability. And we have seen
Speaker 1: this playing out quite strongly during the midterm election in
Speaker 1: the United Kingdom and the federal election in Australia where
Speaker 1: food price rise or cost of living in general played
Speaker 1: a very important role. So governments don't want to lose
Speaker 1: its popularity and respond
Speaker 1: by at least signaling the citizens and we are doing
Speaker 1: something to bring the footprint under control.
Speaker 2: Do you remember the arab spring that was soon after
Speaker 2: the global financial crisis where we had a big surge
Speaker 2: in food and energy prices like we do now and
Speaker 2: there was a wave of protectionism, it makes sense for
Speaker 2: individual government because you want to protect the poor in
Speaker 2: your society because when food prices and
Speaker 2: energy prices go up it's a huge chunk of their
Speaker 2: consumption basket that gets spent on food and energy, it's
Speaker 2: necessities and so they have little income left over to
Speaker 2: spend on other things which are also necessities and so
Speaker 2: they end up having to get into debt and it
Speaker 2: leads to a lot of problems.
Speaker 1: While inflation is already at levels we haven't seen for
Speaker 1: decades now isn't this just going to make things worse rob?
Speaker 2: I think an important thing to understand is that the
Speaker 2: weight of food in CPI baskets is much higher in
Speaker 2: emerging markets than in advanced economies.
Speaker 2: In emerging markets. It can be somewhere between 20 to 30%
Speaker 2: of the CPI basket. In advanced economies, it's more like
Speaker 2: 10 to 15%. And then if very low income countries
Speaker 2: it's even higher, it can be over 40% of the
Speaker 2: CPI basket is food items. Food, it lives inflation with
Speaker 2: the food component
Speaker 2: and it's not just raw food dining out is another
Speaker 2: part of the C. P. I. Basket that's affected, it
Speaker 2: leads to higher inflation and the big concern central banks
Speaker 2: have is that as inflation goes up, particularly in developing countries,
Speaker 2: households can come to expect higher inflation
Speaker 2: and then they demand higher wages
Speaker 2: to compensate for higher inflation and you get what's called
Speaker 2: second round effects where that leads to in itself higher
Speaker 2: inflation and then you get a spiral and in a
Speaker 2: way then the inflation genie is out of the bottle
Speaker 2: and it's very hard to put back into the bottle.
Speaker 2: So I think central banks can maybe see through a
Speaker 2: short period of food
Speaker 2: price inflation,
Speaker 2: but if it lasts for quite a long time and
Speaker 2: starts to broaden out into other components of the consumer
Speaker 2: price index, they start to respond by raising interest rates.
Speaker 1: Do you think this is a short term problem?
Speaker 2: Unfortunately, I don't, I think it's going to be quite
Speaker 2: a sustained rise in food prices, a few reasons for that.
Speaker 2: So firstly Russia, Ukraine war does not look like it's
Speaker 2: going to end quickly. Russia and Ukraine are huge global
Speaker 2: exporters of wheat, corn
Speaker 2: bali
Speaker 2: fertilizers as well, which is a very important input to
Speaker 2: making food.
Speaker 2: Secondly, we have global warming, we're having more and more
Speaker 2: extreme weather events, whether it's droughts or floods all these
Speaker 2: events affecting the production of food, particularly in emerging markets.
Speaker 2: And then the third one is when food prices rise,
Speaker 2: we start to see more trade protectionism around food, which
Speaker 2: might make sense for an individual country, looking at the
Speaker 2: situation for themselves. But when many countries do that, it
Speaker 2: restricts the supply of food even more and causes food
Speaker 2: prices to go even higher.
Speaker 1: But again, there are other countries like Australia, for example,
Speaker 1: which is expecting a bumper crop of wheat this year,
Speaker 1: and they also signal that they're going to increase their
Speaker 1: export to some countries are also using this as an
Speaker 1: opportunity to expand their market share.
Speaker 1: And those countries that are banning their export, they are
Speaker 1: at risk of losing their international market share. So maybe
Speaker 1: sometimes these bands are very temporary because they don't even
Speaker 1: think that this is actually causing our farmers a lot
Speaker 1: of damage or economy, a lot of damage. So they
Speaker 1: might lift this ban
Speaker 1: quite quickly. Like Indonesia has done, they imposed this ban
Speaker 1: on palm oil, but that ban was very shortly rob.
Speaker 1: What are the options do governments have? Besides just resorting
Speaker 1: to protectionism,
Speaker 2: There's many other things governments can do. For instance, they
Speaker 2: can provide subsidies, food subsidies, or energy subsidies that lower
Speaker 2: the costs of food for households,
Speaker 2: they can lower the taxes, say excise taxes on certain items.
Speaker 2: That also helps lower the prices, or they could even
Speaker 2: enforce price ceilings, which really puts the cost then on
Speaker 2: the food manufacturers or energy suppliers. So there's many things
Speaker 2: they can do, but the cost has to be borne
Speaker 2: by someone.
Speaker 2: And if the government is trying to reduce the costs
Speaker 2: on the private sector, then they bear the costs. And
Speaker 2: that shows up in a larger fiscal deficit?
Speaker 1: And Sonia, does this all point to a need for
Speaker 1: us to perhaps rethink our consumption patterns. So when chicken
Speaker 1: becomes more expensive and we don't have enough supply of chicken,
Speaker 1: we can switch to plant based protein, for example, lentil
Speaker 1: tofu and also for carbohydrate, we can add more diverse
Speaker 1: sources of carbohydrates to our diet instead of relying too
Speaker 1: much on rice and wheat. Other sources of carbohydrate could
Speaker 1: be cassava and bananas. So then that
Speaker 1: makes our diet more diverse and we are not so
Speaker 1: vulnerable of rising food prices or lack of availability of
Speaker 1: a particular type of food.
Speaker 1: So buckle up for the long haul as countries around
Speaker 1: the world put up food protectionism barriers in response to
Speaker 1: domestic political concerns that's going to worsen inflation around the world,
Speaker 1: experts aren't optimistic that the food security crisis will ease
Speaker 1: anytime soon.
Speaker 1: So prepare for higher prices
Speaker 1: and it might do you good to rethink consumption patterns
Speaker 1: as well.
Speaker 1: I've been speaking with rob Subbaraman from Nomura and Sonya,
Speaker 1: actor from the lee kuan yew school of public policy
Speaker 1: and that's the top five things you need to know
Speaker 1: about the food crisis. Money. Mind airs every saturday at
Speaker 1: 10 30 PM on mediacorp C N. A. You can
Speaker 1: also catch us online at CNN dot asia on Youtube