By Brian Monteith – 6 minute read
AS THE Governor of the Bank of England has pointed out, food prices are rising dramatically in some particular markets and this is a global phenomenon.
As prices rise to record levels some governments have chosen to clamp down on the export of grains, cooking oils, etc. from their countries, believing hoarding will prevent shortages and therefore rising prices. Yet the reality is that competition drives down prices and protectionism helps maintain false high prices.
According to the UN’s Food & Agriculture Organization (FAO) its Food Price Index has increased by 71% in the last 24 months. Vegetable oil prices are the key reason having increased 193% during the same time. Other key commodities like cereals and dairy prices have increased 70% and 54% respectively.
Surging inflation and consequential social unrest have led to an increase in major producer countries to ban exports or put-up other restrictions like taxes and quotas. There is a domino effect of these protectionist policies as more and more countries look to review their exports.
Last month, Indonesia became the latest country to announce an export ban on palm oil, the most traded vegetable oil in the world. Lately, the EU and the UK supermarkets have been rationing cooking oils for customers. Earlier, the Russia-Ukraine war impacted on sunflower oil exports – both countries contributing to more than 70% of global sunflower exports. Meanwhile, India is contemplating banning wheat exports as concerns about the country’s domestic supply have increased over the last few weeks.
Yet few are aware of the role the EU plays in distorting food markets, causing widespread misery and hardship. The EU should stop complaining about rising prices and food protectionism given it has the most protectionist trade policies – generally known as “Fortress Europe”. The simple truth is the EU is witnessing highest ever inflation since its creation 20 years ago and it cannot blame anyone but itself for it.
Poor farmers from developing countries are being systematically locked out of the world’s largest and richest consumer market by EU protectionism. The bloc forces developing countries to open-up to its goods and services, including automobile and other manufacturers, and in return dumps highly subsidised agricultural products onto their domestic markets, while blocking access to its own markets through a range of tariff and non-tariff barriers.
By locking out competition from viable cost-effective alternatives to shield its own highly protected farming sector the EU’s policies give its farmers a massive advantage in global markets at a direct cost to other farmers and all consumers. The EU effectively builds-in poverty from the soil up.
Ironically, EU countries are impacted more than most countries – according to an IFPRI report the EU is 2 times more impacted than the median.
Previously, under the guise of environmentalism and its climate impact policies, the EU introduced its utterly protectionist Farm-to-Fork strategy that promotes national agri-food products and discourages competitive imported products. This bakes-in greater scarcity and shuts out lower-priced providers. According to a report by the United states department of Agriculture (USDA), as a result of the EU’s F2F strategy, the number of people suffering from food insecurity globally would rise by 22 million. Additionally, developing countries will struggle to comply with the new EU standards.
How the Palm Oil sector demonstrates the EU’s problem
The palm oil industry is a case in point. Persecuted more than any other sector because of its past links to deforestation – even though 90% of palm oil imported in the EU is sustainable and does not cause deforestation – the EU has constantly created barriers for farm holders from south-east Asia to protect its local vegetable industry.
Brussels-based policymakers in the EU have always ignored the fact palm oil is way more sustainable than any other vegetable oil. Oil yields for palm per hectare are almost 6-10 times that of other oilseeds such as rapeseed, soybean, olive, or sunflower.[1] To replace palm oil would mean nine times more land allocation to produce a similar amount of oil from these alternative crops – that would mean escalating forest clearance, not containing it. Yet banning sustainable palm oils is the road the EU is going down – making the cooking oil shortage far, far worse.
Evidence comes from people like David Laborde, a senior research fellow at the Washington DC-based International Food Policy research Institute (IFPR)I, who said the export restrictions had created a domino effect, reducing world supply to those who needed it. “You end up undermining the world trade system,” Laborde said, adding that by limiting access to international markets, such restrictions also reduced incentives for farmers to grow crops. “You hurt your own farming system and your own food supplies.”
The shift to double down on protectionism is no surprise, for it is all part of the EU’s modus operandi, it is its business model after all.
Closer to home, Beata Javorcik, chief economist at the European Bank for Reconstruction and Development, warned protectionism would only artificially boost prices, already at record levels, fuelling global food insecurity. “This is going to increase global poverty rates. And in extreme situations, it may induce authoritarian regimes to become more oppressive,” she said.
The sad reality is despite the limited reforms to the EU Common Agricultural Policy (CAP) and some reduction in tariffs, the EU still imposes substantial tariff rates on many agricultural markets. The aim is to increase prices to benefit domestic European farmers in order to increase their income.
The outcome – for which the EU takes no responsibility or shows any compassion – is that Africa has been devastated by the CAP, as countries on the continent are plied with subsidised EU-sourced food to the demise of native farmers who struggle to compete with the low prices. [2]
Other commodities suffer too – rice, sugar, coffee, cocoa
There has been a long history of protectionism against southeast Asian countries to protect specific producers in EU member-states, such as the European Commission ‘safeguard clause’ used to protect Italian rice from Cambodian exporters. [3]
In 2017, the EU ended its long-standing policy on sugar quotas after a negative World Trade Organisation ruling found that import rules gave unfair advantages to local producers. Typically the policy inflated sugar prices by reducing competition with EU free trade partners all over the world.
Another way poorer continents like Africa remain impoverished is by the EU placing low tariffs on commodities such as the coffee or cocoa bean, but much higher tariffs on food processed from them. It is for this reason that Germany makes greater profits from processing coffee than the whole of Africa makes from growing it.
Meanwhile the environment suffers
The EU’s brash approach also punishes industry efforts to improve production processes. An NGO, Global Canopy, has singled out palm oil supply chains as doing a much better job than others when it comes to this: 72% of companies in that sector have made a deforestation commitment, which is much higher than competitors in the “pulp and paper (49%), soy (40%), beef (30%) and leather (28%)” sectors. In the future, industries may wonder why they bother to improve their ways, when imports into the EU are then blocked in a non-targeted manner.
University of Bath[4] scientists showed recently in Nature Sustainability that banning palm oil could drive greater rates of deforestation, by switching demand to less efficient edible oils like sunflower or rapeseed which use more land, water and fertiliser. Deforestation from palm oil has fallen to a four-year low: deforestation in Indonesia, Malaysia, and Papua New Guinea attributed to the development of oil palm plantations has tumbled to its lowest level since 2017 according to satellite analysis published from Chain Reaction Research (CRR), a risk analysis group.
And according to Global Forests Report 2020 by Carbon Disclosure Project[5], palm oil companies have the highest levels of rigorous no-deforestation commitments (20%), comprehensive risk assessments (25%) and integration of forest-related issues into all parts of their long-term strategic business plans (57%). Global Forest Watch reports primary forest loss in Malaysia decreased by almost 70% between 2014 and 2020. According to the WRI, 2020 is the fourth straight year that palm oil deforestation has been trending down.
Pull down Fortress Europe
The answer to rising food prices is for the EU to abandon Fortress Europe, open up its markets to foreign farmers who can provide cheaper produce – and remove the tariff premiums it places on foods processed outside its customs union.
It needs to reward countries such as Malaysia that make their palm oil industry sustainable rather than strike poses as the saviour of the world when it is in fact a threat by encouraging farmers to shift to crops with lower yields and requiring greater land – thus creating more cooking oil scarcity that drives prices up.
At the moment the EU is the problem, not the solution and only the EU can change that with a change of heart and a change of policy.
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Brian Monteith has worked in public relations for nearly forty years, initially in the City, then Scotland and finally as an international consultant in Africa, the Caribbean and Asia. A former member of the European and Scottish parliaments, he is now managing editor of brexit-watch.org and ThinkScotland.org.
Image of palm oil fruit by nopparat from Adobe Stock
[1] https://theconversation.com/palm-oil-scourge-of-the-earth-or-wonder-crop-42165
[2] https://www.express.co.uk/news/world/1496884/eu-news-german-coalition-greens-pile-on-pressure-spd-angela-merkel-spt
[3] https://www.trtworld.com/opinion/how-the-european-union-s-protectionism-is-hurting-developing-economies-26771
[4] https://www.nature.com/articles/s41893-020-0487-8
[5] https://www.cdp.net/en/research/global-reports/global-forests-report-2020