Ukraine has announced that it will be enforcing an export ban on wheat beginning on November 15. The move comes after poor weather impacted Ukraine’s wheat harvests and follows in the wake of the US drought, which decimated that country’s wheat crop and led to sharp increases in international prices. Ukraine’s exports are expected to reach 5.3 million tons in November, a level which the Ukrainian government says will exhaust the country’s exportable surpluses. While existing contracts will be fulfilled, the government is cautioning traders against concluding any new contracts after November 15. The announcement of the ban caused a 15 cent rise in wheat prices on the Chicago Board of Trade.
The situation is reminiscent of 2010, when Russia put in place an export ban on wheat after drought and wildfire destroyed more than 20 percent of the country’s wheat crop. And like Russia in 2010, Ukraine’s move to ban exports is unnecessary and will only create further panic in the international markets. According to Maximo Torero, Division Director of the Markets, Trade and Institution Division at IFPRI, the world wheat situation is not at crisis levels, despite slightly lowered supplies. "If we look at the stocks today, the stocks are around 172 million metric tons, according to USDA and IGC, and will go down at most to 167 million metric tons, according to FAO-AMIS. This is 40-50 million metric tons above what was seen in 2007, so it is not so drastic," Torero says.
While protectionist policies such as export bans are designed to protect domestic markets from increasing global prices and declining global stocks, they also serve to put even more pressure on international prices. Such policies can create instability in the global markets and deprive net-importing countries of food supplies they desperately need. Rather than protecting food security, export bans only exacerbate existing food crises.
For further analysis of the impact of export bans on food crises, read the IFPRI Discussion Paper Economics of Export Taxation in a Context of Food Crisis.
Update :
After our initial posting, Ukraine's Agriculture Ministry softened its stance on enforcing a wheat export ban, saying now that it will consider all "necessary measures" if wheat stocks fall to a critical level in the country. Read more