KANSAS CITY, MISSOURI, US — Global agriculture trade faces a more costly and complicated future as more countries make use of protectionist measures to gain greater control over their domestic supplies and prices.
Actions have ranged from import/export bans, such as Turkey’s ban on wheat imports and India’s ban on non-basmati rice exports, to tariffs and stringent sanitary and phytosanitary rules. Outside of agriculture, multiple countries have placed high tariffs on Chinese electric vehicles, and US presidential candidate Donald Trump has promised 60% tariffs for Chinese imports, all of which could lead to retaliatory actions against agriculture, industry observers note.
Multilateral agreements are being replaced with bilateral and regional policies resulting in a fragmented patchwork of rules that have countries pulling in different directions. A global leader that could rebuild consensus has yet to emerge.
“I don’t remember quite this serious of a protectionist phase in my career,” said Stephen Nicholson, executive vice president, global sector strategist-grains and oilseeds, Rabobank. “It just complicates trade, and it hurts some countries, and it benefits others. You get winners and losers rather than more winners.”
A combination of factors is creating conditions that lead to these protectionist measures, including memories of supply chain shocks due to the COVID-19 pandemic, rising inflation, geopolitical unrest, backlash against globalization, and political uncertainty with elections taking place this year in countries that are home to nearly half of the world’s population.
Multilateral agreements are being replaced with bilateral and regional policies resulting in a fragmented patchwork of rules that have countries pulling in different directions.
While agriculture products continue to be traded and moved around the world, these measures, taken together, have convoluted trade, making it more costly and adding uncertainty.
“In agriculture, that’s all fine and good until something goes wrong, like a supply shock,” Nicholson said. “Then you have a lot more volatile price fluctuations, and that’s on top of the fact that you’re raising prices because it’s a more costly supply chain.”
Policy reform to reflect how the world is developing would require a leader to make that happen. In the meantime, it’s likely more protectionist measures are on the way as nations navigate the increasing uncertainty.
“There’s something else I’m sure is coming that we have no idea about,” said Tanner Ehmke, lead economist for grains and oilseeds at CoBank. “Something else will pop up on trade protectionism. Then again, another country will lower its trade barriers. I can’t say we’re completely in an age of anti-trade, but I’d say it’s an age of general uncertainty.”
Rising protectionism
Most products are operating under the rules and access conditions that were developed decades ago, and trade is continuing as it has for years and years, said Steve Verheul, principal with GT and Company Executive Advisors and Canada’s Chief Trade Negotiator from 2017-21.
“It’s only an issue when a product gets more political and attracts more attention that we see the protections we are seeing,” he said. “I think it is a unique time. I think the world has been on a fairly consistent trajectory toward freer trade and stronger trade rules since the end of World War II. I think that has seen quite a dramatic change in just the last number of years.”
While the reasons for protectionist measures vary from country to country, there are common threads, including the supply chain shocks brought on by the COVID-19 pandemic. The world moved from a just-in-time to a just-in-case supply chain, Ehmke said.
“There’s an incentive to maintain an inventory, just in case,” Ehmke said. “There’s going to be a natural tendency to stockpile on the individual level or government level.”
Then inflation started increasing and nations took measures to hold down food prices for their people, such as stopping exports, Nicholson said.
For example, in July 2023, India banned exports of non-basmati white rice and later imposed a 20% duty on exports of parboiled rice. Currently, Indian ministers are deciding on the rice export ban and were considering lifting its 40% import tax on wheat.
“They want to rebuild their state reserves and take advantage of cheap global wheat prices so that’s a lowering of trade restrictions,” Ehmke said, but it’s also an indication that India is probably not going to move on export restrictions. “Right now, they’re having some weather issues and food inflation is still a problem.”
Geopolitical issues, such as Russia’s invasion of Ukraine in February 2022, have raised the temperature and skepticism of trade, Ehmke said. EU restrictions on Ukrainian grain were a direct result of the invasion. Grain had to find other routes, and ended up in Poland, Slovakia, Hungary and Romania, creating a glut that lowered prices and hurt local farmers.
Turkey also is looking to protect its farmers from price decreases, following back-to-back Russian wheat crops that were near record large, Ehmke said, by stopping wheat imports from June 21 through mid-October.
“There’s a lot of skepticism about free trade but it doesn’t mean that it’s stopped,” Ehmke said. “What it means is a lot of supply chains got rerouted. Grain doesn’t stop; it just becomes more costly.”
Verheul noted that the benefits provided by open trade rules have not been equally distributed, causing backlash as some nations saw negative impacts on their economies and the loss of jobs.
“There’s the perception perhaps that the move toward freer trade went too far as a result of some complaints that there are uneven benefits to trade liberalization,” he said. “I think it’s more a failure of domestic policy to manage the adjustment and distribute the benefits of freer trade more effectively.
“Also, it’s been found that the rules haven’t been that effective in addressing unfair practices, in particular coming out of China, including over production and subsidization.”
Trade policy also has failed to address some of the newer issues, in particular climate change, Verheul said, as well as labor standards. Producers in countries addressing climate change face certain restrictions and regulatory requirements that likely make their product more expensive. They must compete against imports that don’t have the same restrictions and are therefore cheaper, he said.
Political motivation is also a factor in some of the protectionist measures, industry analysts agreed. At least 70 countries have national elections taking place in 2024.
“There’s a sense that this is fundamentally unfair and is going to undermine any efforts to address climate change over the longer term,” he said. “There’s been a lot of work going on about how to address this, whether its protection at the border against products that are less environmentally friendly or tighter regulations on what is able to be imported. There’s a lot of different efforts going on about how the playing field could be leveled.
“These efforts are very uneven with the US, EU and Canada looking at different things. There’s no real effort to get countries together to try to find a solution to this that would work more broadly.”
Political motivation is also a factor in some of the protectionist measures, industry analysts agreed. At least 70 countries have national elections taking place in 2024.
“A lot of political uncertainty during a time of heightened geopolitical tensions is going to raise the risk of trade protectionism,” Ehmke said.
Election results, and new leaders’ view on trade, will determine the impact on trade. The most concerning outcomes relate to leaders who may feel that they should be imposing more barriers against imports and not favor any kind of effort to address these issues, Verheul said.
“If we see more protectionists coming to power, then it’s going to be a very bad signal for moving forward on trade,” he said.
New leadership in Mexico could be good news for an ongoing trade dispute between the United States and Canada and Mexico over a ban on imports of genetically modified corn. The United States and Canada had opened a dispute with the WTO saying the ban imposed by President Andres Manuel Lopez Obrador violated the trade agreement requirement that parties use science-based principles when implementing measures.
Mexico President-elect Claudia Sheinbaum comes from a scientific background and already has said she will not pursue current President Lopez Obrador’s goal of reducing yellow corn imports.
But a second Trump US presidential term could be the most difficult challenge from a trade perspective, Verheul said. Trump has outlined plans for a 10% universal tariff on all imports and a 60% tariff on Chinese goods.
“If he was to do that, there would be retaliatory and counter retaliatory measures,” he said. “We could go down a slippery slope. The difficulty in imposing across-the-board tariffs is it opens that whole prospect of other countries reacting to the US. I think we’re in a fairly dangerous period if those policies were to be put in place.”
China is talking about taking action on agriculture products against the new barriers the EU and others have imposed on electric vehicles. It would likely do the same against any tariffs enacted by Trump, Verheul said.
“It’s a very strong possibility that the kind of environment we’re increasingly getting into would mean a lot of retaliation and counter retaliation,” he said. “Agriculture products tend to be the products that countries choose to put pressure on. They’re usually at the top of the list.”
In addition to China, ongoing geopolitical issues surrounding Russia could likely manifest into other trade protectionist measures down the road, Ehmke said.
Argentina is another country to watch, Nicholson said, because it’s always trying to raise money or move product.
“These populist measures are hard to predict,” Ehmke said. “Something that’s more based on the market is a little easier to predict. But when it comes to political measures, you really don’t know where they’re going to come from. Any country that has a large production or importing/exporting capabilities, you have to keep an eye on.”
Credit: ©NORINUT - STOCK.ADOBE.COMFar-reaching impacts
For countries that control large supplies of commodities, protectionist policies are going to have a major global impact, Ehmke said. When Turkey banned wheat imports, that moved the market, and when it re-enters the market, that’s going to affect prices.
“Conceivably, we’re going to have a depletion of stocks and that could result in a big spike in demand, causing a shock to prices,” he said.
Following India’s rice export ban, prices increased more than 20%, and African nations, which heavily relied on India for rice, were scrambling to find new suppliers. Madagascar’s rice imports dropped 44% in 2023, while Kenya saw its rice imports drop to zero after the ban. Prior to that, it had imported 817,000 tonnes, almost 70% from India.
Protectionist measures in the short term may achieve the goals hoped for, but in the long term it could lead to unintended consequences, Nicholson said.
“You might think you’ve solved the problem for the moment, but the reality is it’s going to hurt in the long term,” he said. “If you try to protect a domestic sector, in the long term the economy is going to figure out that’s not a low-cost producer or a reliable producer because it’s propped up by government policy, and that can change.”
It took the United States a long time from an agriculture perspective to be viewed as a reliable supplier following embargoes in the 1970s, Nicholson said. The same thing has happened with soybean exports following the US-China trade war from 2018-20.
Protectionist measures also produce regional trading partners instead of global trade rules.
“Soybean exports really have not come back from that,” he said. “Trade with China continued to increase (during that time) but not with the US. How did we come out better? How did this help us in the long run? I think the answer to that is usually it doesn’t. What it does is fuel more insecurity, it fuels more conflict, and it helps some economies but hurts others. In the long run, I think the consumer at the bottom gets hurt. I don’t think that’s where governments want to go, when it’s all said and done.”
Over the last 40 years, the United States has seen its agricultural export share fall to 21% from 60%, Nicholson said, partly because of increased competition with nations such as Brazil, Russia and Ukraine, but also because of tariffs and resulting retaliatory actions.
Rising tensions between the United States and China, the two largest economies in the world, will be far reaching, Verheul said.
“Going back and forth and increasing restrictions and retaliating, the economic damage that’s going to cause will affect all of us,” he said.
Protectionist measures also produce regional trading partners instead of global trade rules, he said.
“There’s individual rules across these bilateral or trilateral trade agreements so everyone has different rules,” Nicholson said. “It makes it more complicated, which makes it more costly.”
Future trade
The era of large trade agreements is probably over for the time being at least, Verheul said, given the policy differences between countries and some of the concerns about freer trade and its benefits.
“I think we’re not only going to look at more agreements that are bilateral or regional but also agreements that are in part value based, rather than simply economic,” he said. “The US partly has been promoting its trade efforts as trying to build alliances with other countries that have similar values.”
Multi-lateral agreements are the ideal solution because trade is happening as would be expected – the most competitive producers are going to be the most successful, and countries will specialize in products where they have the greatest likelihood of success, he said.
“The kinds of agreements we’re likely to see in the near term are going to be a distant second best,” Verheul said. “It’s not going to be a very promising future for trade given all the other pressures that are out there. We need to think about how trade policy needs to change to catch up to how the world has been developing.”
Effort must be made to find a way to deal with countries that are trading unfairly and make them adhere with the rules in the first place.
Trade policy is in a rut, doing the same kinds of things that were done 10 years ago, he said.
“There’s a real imperative that trade policies and trade rules and agreements have to change to catch up to this new reality if they’re going to be effective,” Verheul said. “If not, countries will increasingly ignore trade rules and do what they want to do, which is the last thing we’d like to see.”
Some changes will be more difficult than others, he said. Effort must be made to find a way to deal with countries that are trading unfairly and make them adhere with the rules in the first place.
The problem is the world is lacking a leader to tackle this change. From the 1950s to the early 2000s, the United States was the leader in promoting free trade. If an agreement was going to be achieved, that was largely the result of the United States pushing to make that happen, he said.
“The US has abandoned that role and moved further toward protectionism than most other countries,” Verheul said. “There does need to be some countries, or a group of countries, that need to step in to try to show some leadership if any change is going to happen.”
The EU isn’t suited to this role because of international challenges, nor are other big players like China. It falls to the mid-size countries that are heavily reliant on trade, such as Canada.
“These countries need to start developing some ideas that can be passed along to broader groups as they develop,” he said. “I think that’s where it’s got to start.”
Farmers and grain companies want to feed the world, Nicholson said. It’s good for their businesses and it’s a calling they want to fulfill.
“This move to protectionism doesn’t accomplish that, and that’s troubling,” he said. “People won’t be able to get the food they need for whatever policy or political reason. The food will be there, but these measures don’t allow that to happen or make it affordable. It’s frustrating to see this happen, because I know it can be better.”
Rule-based trade has been beneficial to agriculture, Nicholson said.
“You’ve lifted people out of poverty, people have more food availability, incomes have risen around the world,” he said. “I don’t see why that is a bad thing, and to go backwards concerns me both from a humanitarian and public policy perspective, and as an agriculturalist.”
