Can COVID-19 cause a global food crisis? As the virus spreads throughout the world, there is concern that global food security could be under pressure (Laborde et al. 2020, Martin and Glauber 2020, Torero 2020). Food production is currently high, but can be negatively impacted by increased labor morbidity, disruptions in the supply chain, and containment measures. Government efforts to limit food exports to meet domestic needs can make things worse.
In a new paper (Espitia et al. 2020a), we analyze how world trade in food can be affected by COVID-19 and increase export restrictions. We calculate the initial shocks due to a pandemic assuming that products that are more labor-intensive in production are more affected through morbidity and worker detention policies. We then use the logic of the multiple effects of trade policy to estimate how increasing export restrictions to protect the domestic food market can increase initial shocks.
The initial conditions in the global food market are good
Back in 2006-2007 and again in 2008-2011 a series of shocks created a gap between global demand and global food supply, which led to a sharp rise in food prices (Figure 1). Many governments intervene to impose export restrictions that contribute to reducing global supply, which leads to higher food prices. Today’s situation is partly different: the level of production of key staples has been above the average of the past five years, oil prices are low, and the level of inventories relative to main grain consumption is 70-100% higher than in the late 2000s (Voegele 2020 ). Global food prices have been relatively stable in recent years and remained low in the first months of 2020.
Picture 1 Food Price Index (January 2000 – February 2020)
Source: Prices of Primary Commodities for International Monetary Funds (January 2000-February 2020).
Note: Food Price Index, 2016 = 100, including Cereals, Vegetable Oils, Meat, Seafood, Sugar, and Other Foods (Apple (non-citrus fruit), Banana, Chana (nuts), Fish Meal, Peanuts, Milk (milk), Tomato (Vegetables)).
But COVID-19 can have a negative impact on global food export supplies
The countries most affected by the COVID-19 pandemic are major exporters of food products.1 New World Bank database (Espitia et al. 2020b) show that the top 50 countries most affected by COVID-19 represent an average of 66% of the world’s export supply of food products. Their share of world exports increased from 38% in stimulant plants to more than 75% in vegetable and animal oils, fresh fruits, and meat (Figure 2). Major staple exports such as corn, wheat and rice are highly concentrated among the top 50 countries most affected by COVID-19.
Figure 2 World imports from the top 50 countries most affected by COVID-19
Source: Espitia et al. (2020b), “COVID-19 trade flow database and policies”.
We give the first assessment of the initial shock that COVID-19 has on the world food market. We assume that the initial shock in supply increases proportionately with the weight of the low skilled labor in the total value added in exports. Intuitively, labor morbidity and the need for social distance will more strongly influence the supply of more labor-intensive products, such as rice, or the supply of products that have important labor-intensive stages, such as fish processing.3 In our basic scenario, we use data from Chinese food exports in January and February 2020 to inform potential shocks for the 50 most affected countries.
Under these assumptions, we found that in the quarter following the outbreak of the pandemic, the global food export supply could decline between 6% and 20% (Figure 3). Many important staples, including rice, wheat, and potatoes can have a reduction in export supply of more than 15%. Given the substantial uncertainty about the current level of the health crisis, we also consider the up and down scenario, where initial export supply shocks are 10% higher and lower respectively than the observed decline in Chinese food exports.
Increasing export restrictions will increase the initial shock by a factor of three
By the end of April, more than 20 governments had imposed some restrictions on food exports – this was far less than the restrictions on COVID-19 relevant medical products (EUI-GTA-WB 2020). But when food prices rise due to the initial COVID-19 shock, the government may be tempted to use trade policies to stabilize domestic prices. Intuitively, although restrictions reduce pressure on the domestic food market, they reduce supply on world markets, thereby raising prices. In response, other governments will likely retaliate by imposing new export restrictions, which lead to multiple effects (Giordani et al. 2020).
Figure 3 Food export supply and COVID-19 price effects in various trade policy scenarios
Source: Espitia et al. (2020a).
Under the baseline scenario (such as China) for the initial shock, we found that an increase in export restrictions would cause a decline in global food export supplies by an average of 40.1% in the quarter after the outbreak of a pandemic while global food prices would increase by an average of 12, 9%. Prices of key staples such as fish, wheat, vegetables and wheat and meslin will increase by 25% or more. In the downward and upward scenario, the supply of global food exports under uncooperative trade policies will decrease between 21% and 55.4% during the quarter after the pandemic outbreak. Food prices will increase on average between 6.6% and 17.9% (Figure 3).
Countries that depend on imported food will be the most affected
The negative effects of COVID-19 and export restrictions on the food market will mainly be felt by the poorest countries. We find that countries that are most dependent on food imports include Tajikistan, Azerbaijan, Egypt, Yemen, and Cuba, which will experience an increase in food prices on average ranging between 15% and 25.9% (Figure 4). For cereals, countries that are dependent on imported and least-developed food imports will see price increases of up to 35.7%. While today several factors can contribute to mitigating rising food prices (higher buffer stocks for staple foods, lower oil prices), poverty can increase as a result of a crisis that makes smaller food price increases a threat to food security in developing countries.
Figure 4 Increase in food prices for countries that depend on imported food, a retaliation scenario
Source: Espitia et al. (2020a).
Important policy choices
The government can avoid this negative result. Restrictions on exports are basically your beggars’ policies, which is why they encourage retaliation rather than cooperation. The first best approach will consist of actions aimed at minimizing disruptions to food supply, such as ensuring that workers in the food sector can continue to produce under good and safe health conditions, eliminate congestion that damages the food supply chain, and ensure that trade is a key input in food production can smoothly flow across borders. This approach, by increasing domestic food supply, will reduce global supply shortages and reduce price spikes, thus having a positive overflow effect on other countries.
Editor’s note: The views expressed in this column are those of the authors and their views do not represent the views of the World Bank Group.
Aguiar, A, M Chepeliev, E Funnel, R McDougall and D van der Mensbrugghe (2019), “GTAP Database: Version 10”, Journal of Global Economic Analysis 4 (1): 1-27.
Espitia, A, N Rocha and M Ruta (2020a), “Covid-19 and Food Protectionism: The Impact of the Pandemic and Export Restrictions on the World Food Market ”World Bank working paper.
Espitia, A, N Rocha and M. Ruta (2020b), “Database of trade flows and COVID-19 policies“, Washington DC: World Bank.
EUI-GTA-WB (2020), “Covid-19 Trade Policy Monitoring: Food and Medical Products”
Giordani, P, N Rocha and M Ruta (2016), “Food prices and the multiple effects of trade policy”, Journal of International Economics 101: 102-122.
Laborde, D, W Martin and R Vos (2020), “Poverty and food insecurity can grow dramatically when COVID-19 spreads”, International Food Policy Research Institute, April 16.
Martin W and J Glauber, (2020), “Trade policy and food safety”, in R Baldwin and S Evenett (eds), COVID-19 and Trade Policy: Why Reviving the Inner Will Not Work, London: CEPR Press.
Torero Cullen, M (2020), “Coronavirus, food supply chain under pressure: what to do?”, Food and Agriculture Organization, March 24.
Voegele, J (2020), “Three imperatives to keep food moving in times of fear and confusion”, World Bank Voices, April 3.
1 The most affected countries are defined based on information from the World Health Organization about the total number of confirmed cases.
2 To explain this heterogeneous effect across countries and products, we rely on country-product-level data on the share of low-skilled workers in total value added in exports (Auguiar et al. 2019).
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