Restrictions and tariffs imposed by China on two major commodities – manure and pork – have caused prices to rise worldwide.
Deng Gang | Visual China Group | Getty pictures
Russia is guilty of creating a food security crisis and higher energy prices through the war with Ukraine, but China has ̵[ads1]1; under the radar – also taken action in three areas that exacerbate inflation worldwide, said the Peterson Institute for International Economics.
“Russia’s war in Ukraine has taken a shocking toll on the region,” wrote PIIE analysts Chad Bown and Yilin Wang. “It has also contributed to a global food crisis, as Russia blocks important fertilizer exports needed by farmers elsewhere, and Ukraine’s role as a breadbasket for Africa and the Middle East is destroyed.”
“But there is another, unforeseen risk to global food security,” they wrote in a note last week.
Analysts pointed to restrictions and tariffs imposed by China on two main products – manure and pork.
China’s curbs have stretched beyond food. The Asian giant, one of the world’s largest steel producers, has also imposed restrictions on the material, the Washington-based think tank noted.
All of these measures have led to higher prices elsewhere, even though they benefited China’s own people, according to the report.
“The problem with China is that it continues to behave like a small country. Political policies often have the desired effect at home – for example, reducing input costs to industry or one set of Chinese farmers or by increasing returns to another,” analysts wrote.
“But they can also be begging-your-neighbors, with China choosing the policy that solves a domestic problem by passing on the costs to people elsewhere,” they added.
Fertilizer prices in China and around the world began to rise last year, as a result of strong demand and higher energy prices, but has since pushed even higher after the war between Russia and Ukraine.
In July last year, the authorities ordered large Chinese companies to stop the export of fertilizers “to ensure the supply of the domestic market for chemical fertilizers,” the PIIE noted. In October, as prices continued to rise, the authorities began to demand further scrutiny of exports.
The curbs have continued through this year, and are set to last at least after the end of the summer, Reuters reported.
“This combination of non-tariff barriers led to a sharp drop in Chinese fertilizer exports. With more production at home, Chinese fertilizer prices leveled off and have since even begun to fall,” analysts wrote.
This was in stark contrast to the situation around the world, where fertilizer prices continued to rise more than twice as much as a year earlier, the think tank said.
China’s share of global fertilizer exports was 24% for phosphates, 13% for nitrogen and 2% for potassium chloride – before the restrictions, according to the PIIE.
PIIE analysts said China’s decision to take fertilizer supplies from world markets only “shifts the problem onto others.”
When there is less fertilizer, less food is grown, and it “could hardly come at a worse time” given that the Russia-Ukraine war is already threatening the global food supply, they added. Russia and Ukraine are major exporters of crops such as wheat, barley, maize and sunflower oil.
“At such a critical moment, China must do more – not less – to help overcome the potential humanitarian challenge that is likely to arise in many poor countries that import fertilizers and food,” the report said.
In order to bring down rising domestic prices, the authorities last year lifted a ban on the import of steel scrap. They also carried out some rounds of export restrictions, and increased export duties on five steel products.
In March this year, China’s steel prices were 5% lower than before the restrictions.
“But as in the case of fertilizers, these declines came at the expense of the rest of the world, with prices outside China remaining higher,” said PIIE analysts. “The concern is the widening of the wedge between world and Chinese steel prices that has emerged since January 2021.”
The story of higher pork prices globally began in 2018, when China – which then produced half of the world’s pork supply – saw the pig population hit by a major outbreak of African swine fever.
It forced the country to drop 40% of the herd, which led to pork prices more than doubling by the end of 2019. World prices followed, jumping by 25% as China imported more pork and withdrew supplies from markets, according to PIIE .
“China reduced domestic price pressures from 2019 onwards by taking advantage of imports before closing them recently. These guidelines affected the rest of the world,” wrote PIIE analysts.
Beijing also cut tariffs on pork imports in 2020, which is likely to lead to consumers elsewhere suffering higher prices as a result as supply fell, the think tank said.
However, the authorities raised these tariffs again this year as the problem of swine fever became less.
“A potential unintended benefit will be reaped if, in the current environment of high global meat prices, China’s tariffs unexpectedly release world supplies and help alleviate the pressure on pork prices faced by consumers outside China,” the report said.