WEBVTT - 5 Things you need to know about food export bans | EP 5

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<v Speaker 1>Mhm

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<v Speaker 1>Hi, I'm Suna Ramesh for money. Mind today, I'm going

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<v Speaker 1>to find out five things you need to know about

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<v Speaker 1>food export bands. Will they spark a food security crisis?

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<v Speaker 1>And is there anything that consumers can do with me

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<v Speaker 1>rob Subbaraman, head of global macro research at Nomura

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<v Speaker 1>and Sonya, actor at the lee kuan Yew School of

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<v Speaker 1>Public Policy.

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<v Speaker 1>I'll pose this question to both of you. Why are

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<v Speaker 1>countries banning or restricting exports of food? Has something like

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<v Speaker 1>this even happened before? So the reason government imposed the

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<v Speaker 1>ban on exports because governments want to insulate the local

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<v Speaker 1>economy from the international food price

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<v Speaker 1>in a technical language, we call it transmission. So governments

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<v Speaker 1>wants to stop the transmission of international food price into

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<v Speaker 1>the local economy. And the second reason is that governments

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<v Speaker 1>want to ensure sufficient food availability domestically? And the third

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<v Speaker 1>reason is that food and food prices are very politically

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<v Speaker 1>sensitive issues,

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<v Speaker 1>regardless of their drivers. Citizens tend to blame the government

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<v Speaker 1>if there is a rise in food prices or there

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<v Speaker 1>is a shortage in food availability. And we have seen

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<v Speaker 1>this playing out quite strongly during the midterm election in

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<v Speaker 1>the United Kingdom and the federal election in Australia where

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<v Speaker 1>food price rise or cost of living in general played

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<v Speaker 1>a very important role. So governments don't want to lose

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<v Speaker 1>its popularity and respond

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<v Speaker 1>by at least signaling the citizens and we are doing

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<v Speaker 1>something to bring the footprint under control.

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<v Speaker 2>Do you remember the arab spring that was soon after

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<v Speaker 2>the global financial crisis where we had a big surge

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<v Speaker 2>in food and energy prices like we do now and

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<v Speaker 2>there was a wave of protectionism, it makes sense for

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<v Speaker 2>individual government because you want to protect the poor in

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<v Speaker 2>your society because when food prices and

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<v Speaker 2>energy prices go up it's a huge chunk of their

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<v Speaker 2>consumption basket that gets spent on food and energy, it's

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<v Speaker 2>necessities and so they have little income left over to

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<v Speaker 2>spend on other things which are also necessities and so

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<v Speaker 2>they end up having to get into debt and it

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<v Speaker 2>leads to a lot of problems.

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<v Speaker 1>While inflation is already at levels we haven't seen for

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<v Speaker 1>decades now isn't this just going to make things worse rob?

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<v Speaker 2>I think an important thing to understand is that the

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<v Speaker 2>weight of food in CPI baskets is much higher in

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<v Speaker 2>emerging markets than in advanced economies.

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<v Speaker 2>In emerging markets. It can be somewhere between 20 to 30%

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<v Speaker 2>of the CPI basket. In advanced economies, it's more like

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<v Speaker 2>10 to 15%. And then if very low income countries

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<v Speaker 2>it's even higher, it can be over 40% of the

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<v Speaker 2>CPI basket is food items. Food, it lives inflation with

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<v Speaker 2>the food component

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<v Speaker 2>and it's not just raw food dining out is another

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<v Speaker 2>part of the C. P. I. Basket that's affected, it

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<v Speaker 2>leads to higher inflation and the big concern central banks

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<v Speaker 2>have is that as inflation goes up, particularly in developing countries,

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<v Speaker 2>households can come to expect higher inflation

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<v Speaker 2>and then they demand higher wages

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<v Speaker 2>to compensate for higher inflation and you get what's called

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<v Speaker 2>second round effects where that leads to in itself higher

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<v Speaker 2>inflation and then you get a spiral and in a

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<v Speaker 2>way then the inflation genie is out of the bottle

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<v Speaker 2>and it's very hard to put back into the bottle.

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<v Speaker 2>So I think central banks can maybe see through a

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<v Speaker 2>short period of food

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<v Speaker 2>price inflation,

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<v Speaker 2>but if it lasts for quite a long time and

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<v Speaker 2>starts to broaden out into other components of the consumer

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<v Speaker 2>price index, they start to respond by raising interest rates.

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<v Speaker 1>Do you think this is a short term problem?

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<v Speaker 2>Unfortunately, I don't, I think it's going to be quite

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<v Speaker 2>a sustained rise in food prices, a few reasons for that.

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<v Speaker 2>So firstly Russia, Ukraine war does not look like it's

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<v Speaker 2>going to end quickly. Russia and Ukraine are huge global

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<v Speaker 2>exporters of wheat, corn

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<v Speaker 2>bali

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<v Speaker 2>fertilizers as well, which is a very important input to

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<v Speaker 2>making food.

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<v Speaker 2>Secondly, we have global warming, we're having more and more

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<v Speaker 2>extreme weather events, whether it's droughts or floods all these

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<v Speaker 2>events affecting the production of food, particularly in emerging markets.

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<v Speaker 2>And then the third one is when food prices rise,

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<v Speaker 2>we start to see more trade protectionism around food, which

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<v Speaker 2>might make sense for an individual country, looking at the

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<v Speaker 2>situation for themselves. But when many countries do that, it

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<v Speaker 2>restricts the supply of food even more and causes food

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<v Speaker 2>prices to go even higher.

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<v Speaker 1>But again, there are other countries like Australia, for example,

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<v Speaker 1>which is expecting a bumper crop of wheat this year,

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<v Speaker 1>and they also signal that they're going to increase their

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<v Speaker 1>export to some countries are also using this as an

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<v Speaker 1>opportunity to expand their market share.

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<v Speaker 1>And those countries that are banning their export, they are

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<v Speaker 1>at risk of losing their international market share. So maybe

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<v Speaker 1>sometimes these bands are very temporary because they don't even

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<v Speaker 1>think that this is actually causing our farmers a lot

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<v Speaker 1>of damage or economy, a lot of damage. So they

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<v Speaker 1>might lift this ban

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<v Speaker 1>quite quickly. Like Indonesia has done, they imposed this ban

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<v Speaker 1>on palm oil, but that ban was very shortly rob.

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<v Speaker 1>What are the options do governments have? Besides just resorting

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<v Speaker 1>to protectionism,

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<v Speaker 2>There's many other things governments can do. For instance, they

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<v Speaker 2>can provide subsidies, food subsidies, or energy subsidies that lower

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<v Speaker 2>the costs of food for households,

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<v Speaker 2>they can lower the taxes, say excise taxes on certain items.

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<v Speaker 2>That also helps lower the prices, or they could even

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<v Speaker 2>enforce price ceilings, which really puts the cost then on

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<v Speaker 2>the food manufacturers or energy suppliers. So there's many things

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<v Speaker 2>they can do, but the cost has to be borne

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<v Speaker 2>by someone.

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<v Speaker 2>And if the government is trying to reduce the costs

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<v Speaker 2>on the private sector, then they bear the costs. And

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<v Speaker 2>that shows up in a larger fiscal deficit?

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<v Speaker 1>And Sonia, does this all point to a need for

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<v Speaker 1>us to perhaps rethink our consumption patterns. So when chicken

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<v Speaker 1>becomes more expensive and we don't have enough supply of chicken,

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<v Speaker 1>we can switch to plant based protein, for example, lentil

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<v Speaker 1>tofu and also for carbohydrate, we can add more diverse

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<v Speaker 1>sources of carbohydrates to our diet instead of relying too

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<v Speaker 1>much on rice and wheat. Other sources of carbohydrate could

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<v Speaker 1>be cassava and bananas. So then that

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<v Speaker 1>makes our diet more diverse and we are not so

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<v Speaker 1>vulnerable of rising food prices or lack of availability of

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<v Speaker 1>a particular type of food.

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<v Speaker 1>So buckle up for the long haul as countries around

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<v Speaker 1>the world put up food protectionism barriers in response to

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<v Speaker 1>domestic political concerns that's going to worsen inflation around the world,

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<v Speaker 1>experts aren't optimistic that the food security crisis will ease

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<v Speaker 1>anytime soon.

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<v Speaker 1>So prepare for higher prices

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<v Speaker 1>and it might do you good to rethink consumption patterns

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<v Speaker 1>as well.

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<v Speaker 1>I've been speaking with rob Subbaraman from Nomura and Sonya,

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<v Speaker 1>actor from the lee kuan yew school of public policy

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<v Speaker 1>and that's the top five things you need to know

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<v Speaker 1>about the food crisis. Money. Mind airs every saturday at

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<v Speaker 1>10 30 PM on mediacorp C N. A. You can

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<v Speaker 1>also catch us online at CNN dot asia on Youtube