While people over the last week were scratching their heads over whether cryptocurrencies are a scam with the implosion of the third largest crypto exchange FTX, the world is facing REAL problems. Exports of an estimated 20% of the world’s calories are currently restricted. Food protectionism and nationalism are on the rise. An investigation into this dangerous trend and a new research report due for my Premium Members, on Saturday.
It seems that the world has entered a vicious cycle of reckless and never ending government spending, unsustainable public debt, many economies going down the toilet, simultaneously multi decade-high inflation accompanied by high energy prices, war, weather extremes and – if this already weren’t enough – trade restrictions by vital grain-producing countries.
On top of that, fertilizer prices have skyrocketed. For many farmers this is the kiss of death. It should not be a big surprise that next year’s harvest could be lower worldwide due to lower planting. All the above factors have lead to shocks in agricultural production. The result is a tightness in the market and thus upward pressure on prices.
Around three billion people on earth cannot afford a healthy, balanced diet. In many countries this figure even exceeds unbelievable 90% (see here, more on that later)! For these people, it is not a question of whether it now costs them double to fill the gas tank or if they can still heat their sauna – it is a question of whether there’s enough food on the table to feed the family.
Since everything is somehow complexly interwoven, it is at least safe to say that export restrictions pose a big threat to global food security.
Export bans or limitations are often imposed by governments primarily to secure food supplies for their own populations (and to prevent uprisings), often paid for with massive taxpayer-founded subsidies.
In this latest episode on my blog, I am going to first introduce you to the overall topic of trade restrictions and protectionism, because it is not a new phenomenon. Then, we’ll have a look at worldwide food producing, exporting and importing countries as well as overall food distribution, followed by what happened in the rice-crisis of 2008 to get a feeling for what may repeat (or rhyme, as the saying goes…).
Finally, I will describe the developments over the last three years, concluding with an outlook. Fasten your belts.
My Premium Members will receive a fresh new research report on Saturday with a stock idea that could massively benefit from the current developments (spoiler: no, it is neither Nestlé (ISIN: CH0038863350, Ticker: NESN) nor any other company that is on everyone’s lips).
What is protectionism?
(See here, here, here and here for sources)
Protectionism is an aggressively debated topic between opposing political and economical views. Everyone has arguments on their side, however, there’s objectively no denying that proponents tend to be left-leaning (seeing themselves as “social” or “fair” re-distributers), while the other side comes from the free-market spectrum (nowadays called “right-wing” or even “populist”).
Everyone can make up their own definitions.
Throughout history, a tendency can be observed that during periods of prosperity a more free-trade approach is pursued, while in times of economic hardship, recessions, job losses, of course wars or just due to having lost to more innovative or cheaper competition, the mostly populist calls (just meaning: “appealing to the people” – nothing else, see here) for protectionism sprout from the ground like mushrooms.
Check-mate. When you point on someone with your index finger, chances are high three other ones are pointing in your direction.
That’s just definition and the way it is.
The sales pitch by governments is almost always to promise to improve domestic economic activity by protecting one sector or industry, creating or holding domestic jobs and fending off allegedly evil, unfairly acting foreign competition – whether this is actually the case or not. At least, it is unlikely that the working class will say “yes, let’s outsource and offshore our jobs!”.
That’s the fishing for votes.
Side-note: Before I get categorized myself: I am against any party-politics and carreer-politicians, no matter the label and the unfulfilled promises.
What they don’t tell you, however, are the disadvantages, but more on that later. There are always two sides to a coin (or fence).
There are also cases where protectionism is used to ensure certain quality standards, to protect the domestic economy being flooded with too cheap products that could bankrupt it (that indeed would be “unfair”) or due to security and strategic reasons, like military or for securing domestic food supply.
It could also be used to protect a young, growing industry.
But seldom is protectionism limited to these use cases.
All in all, with protectionism we are talking about a toolbox of measures that influence and restrict international trade.
There are several levers governments can pull up their sleeves to enhance protectionism, in ascending order of effects and importance:
- government (taxpayer) subsidies are financial means for companies or industries to enhance their financial budgets. Not necessarily only limited to direct cash payments, these can also include tax breaks or interest-free loans.
- product specifications, standardizations or licenses needed ensure that a foreign exporter has to accustom to certain regulations as to the product itself. This can, however, positively improve quality standards.
- import-quotas are artificial limitations of the amount of a product that is allowed to be imported.
- tariffs, or import tariffs, being surcharges on the price the exporter has to pay as a tax to the importing government. In the end, the customer pays the higher price due to higher product costs. There can be tariffs on countries, sectors or products. Tariffs can also be a response to another country striking first.
All these types of restrictions create barriers that make the flow of goods between two sides more difficult. This way, supply and demand are influenced and the market prevented from finding its own equilibrium as to price and quantity.
Not surprisingly, the results often are inefficient allocation of resources and of course higher consumer prices.
Don’t forget the extra-boost to government’s coffers with this attractive and — once implemented – nearly effortless side-hustle!
On further note, critics argue that protectionism tends to even slow down economic growth instead of benefiting it. Short-term gain, but long-term pain – or so. Despite all the benefits that were promised!
The main reasons for the “side-effects” are price inflation and less innovation due to being “protected” from competition. One such example is U.S. Steel (ISIN: US9129091081, Ticker: X), I already briefly touched upon in my article “The massive power of monopolies – and why Warren Buffett likes them” (see here).
That’s our first building block for today.
Next up, an overview about where food comes from, where it goes and how it circulates.
Food producers, exporters and importers
After looking at several sources, I always stumbled upon the following countries as being the biggest producers of food:
- Turkey / Türkiye
- United States
China for example is said to have 10% of world’s arable land and producing ca. 20% of world food supply. China is also the world’s biggest producer of meat, primarily pork.
On the other side, India, once a former world-leading economy due to being a trading superpower with spices, is also a very big producer, but unlike China, bigger parts of its output stay in the country of origin.
Did you know that India is – by volume – the world’s biggest Whisky producer? It consumes 48% of worldwide whisky production and is the sixth biggest importer. Seven of the top ten brands by volume are – from India. Yes, you likely haven’t heard of it, because it mainly stays in India, hence the biggest producer (see here).
Depending on the sources you look upon, there are most often the same countries listed as the world’s leading food producers. However, the order and the underlying years are not always the same (see here, here, here and here).
Taking for example the last source in the brackets before, the list could look something like this:
|China||3.9 billion tons|
|India||1.2 billion tons|
|Brazil||1.1 billion tons|
|Turkey / Türkiye||1.1 billion tons|
|United States||0.7 billion tons|
Pay attention to what is included and what not. Here above, we only have crops! It always depends on what exactly you are looking at, but we can keep it at this broad-brush approach for a first impression.
If you would like to know the biggest producers on a single product basis, then feel free to have a look at this interactive map from Visual Capitalist (see here), where you can not only switch between single produce, but also look at graphics, tables and developments over the years.
Here is for example the current status quo as to banana-producing countries:
I’m sure many thought that Bananas mainly come from Latin America.
But the biggest producers (not exporters!) are:
|Country||banana production in 2020|
|India||31.5 million tons|
|China||11.5 million tons|
|Indonesia||8.1 million tons|
The next interesting question spins about the biggest food exporting and importing countries.
Here we find (in USD trading volume, not tons!):
|Exporting Country||Amount in USD (2020)|
|United States||122.7 billion USD|
|The Netherlands||83.5 billion USD|
|China||81.6 billion USD|
|Brazil||71.4 billion USD|
|Germany||70.4 billion USD|
|Total||1.381 billion USD|
Above, we have some new names. The tiny Netherlands, which have a total landmass of less than 0.5% of the first-place USA, are not so far behind.
And finally, here is an overview of the biggest food-importing nations, again by trading volume in USD, plus the relative share:
|Importing Country||Amount in USD (2020)|
(% of world trade in USD)
|China||156 million USD – (11%)|
|United States||148 million USD – (10%)|
|Germany||86 million USD – (6%)|
|The Netherlands||61.3 million USD – (4%)|
|Japan||60.5 million USD – (4%)|
|Total||1.425 billion USD|
On one side it is somewhat surprising to see nearly all the same names again – with the exception of Japan. On the other side, it does not tell us anything important, except that these countries are very active in trading with food.
The very interesting part comes now. Here are some other of the biggest producers from the beginning again, but this time I added a column with their imports:
|Country||Importing Amount in USD (2020)|
(% of world trade in USD)
|Russia||26 million USD – (1.8%)|
|India||18 million USD – (1.3%)|
|Indonesia||15 million USD – (1.1%)|
|Turkey / Türkiye||12 million USD – (0.8%)|
|Brazil||9 million USD – (0.6%)|
|Total||1.425 billion USD|
Among those top food producing countries that also belong to the “BRICS”, Emerging Markets or any other “non-Western”-term you find, all have – with the exception of Turkey / Türkiye – total populations in the triple-hundred millions.
On the contrast, they have only very small relative shares of total world food trade concerning imports! Take for example Brazil which is exporting 8x as much in USD than it is importing.
This is food self-sufficiency.
Not only that. They play a very significant role in feeding the world!
Most Western countries, however, cannot be counted to this category, including Germany or Japan. Also, don’t forget that many parts of the Northern hemisphere are import-dependent during the colder months of the year.
In times of crop failures, extreme weather (think of massive flooding in Pakistan in 2022, frost in Brazil in 2021, extreme heat and drought in the Northern hemisphere in 2022, etc.) or maybe even just political tensions, there always is a risk around the corner that food supply falls short – whatever the reason.
This leads us to the next segment where we take a look back at the rice-crisis of 2008.
The global rice-crisis of 2008
“Why is a rice-crisis such an important event?” you might think?
Short answer: Rice is the single most important staple food and supplier of calories in the world!
Whereas in the West, rice is not necessarily eaten several times a week, in most developing markets it is THE food item lives depend upon to fill up the daily needs in terms of calories.
The main reasons are geographical availability and price-affordability. However, healthy or nutritious is not the same like calorie-sufficient! The former is not always available and also much more expensive.
It is a shame that according to the World Bank three billion people worldwide cannot afford a healthy, nutritious diet. There are even countries – mainly in Sub-Saharan Africa – where a mind-blowing 90% of people lack this absolute necessity. Healthy and nutritious means, your meal plan should contain not just starchy carbs (that push up your blood-sugar, like rice or potatoes), but also vitamins, proteins, essential fats and trace elements like zinc or iron (see here).
The sad truth is, however, that big parts of the world only have rice as a relatively affordable means of food to chose from.
This way, you can take rice as a proxy-barometer for stress in the world’s food supply.
But where does rice come from? It should not be surprising that by far the biggest chunk of rice comes from Eastern Asia:
According to our other source – the World Food and Agriculture Statistical Yearbook – a staggering 90% of world’s rice production comes from Asia.
The single biggest producing countries are:
|Rice producing country||Amount in tonnes (2020)|
(% of total world production)
|China||214 million tonnes (27%)|
|India||172 million tonnes (22%)|
|Indonesia||83 million tonnes (11%)|
|Bangladesh||56 million tonnes (7%)|
|Vietnam||44 million tonnes (6%)|
|Total||782 million tonnes|
If you thought Japan would in the top five: They “only” produce some 9 million tonnes (or 1.2%). Enough for self-sufficiency, but no big player worldwide. Even the US is producing slightly more rice than Japan. Thailand for example produces more than 3x the amount of Japan and even the Philippines produce double the amount.
In the first half of 2008, between Januar and May, the international price (measured in USD) jumped 4x and caused a major agricultural crisis. By year end 2008, the price calmed down and even fell to where it started, but in between there was stress in the system.
When exports are restricted, automatically the available supply gets reduced, even if factually enough supply would be available.
What caused the price-spike and what happened? In my own words in short, from Wikipedia (see here):
Rising energy costs (remember record oil prices back then?) and export restrictions by certain countries caused the price-jump.
One started, others followed suit.
Many exporting countries tried back then to protect their citizens from up-shooting inflation (and themselves from uprising people), like India and Vietnam.
Because simultaneously and even slightly before the price for wheat rose dramatically, the Indian government decided to increase the share of rice in its distribution programs for its own people over wheat.
Here is the price chart. Note, first wheat spiking and rice following:
A bushel off wheat (60 pounds or 27kg) rose up to 11 USD or nearly 0.40 USD per kg.
A CWT of rice (hundredweight or 100 pounds or 45.4kg) rose up to 22 USD or nearly 0.49 USD per kg.
Note: Wheat is priced in USd (with a small “d”, analogous to GBp in British Pence), while rice is in “full” USD). Here, you can find some more information from the US Wheat Association. They show the “correct” prices.
The respective governments did what is only logic: They first thought of themselves and then secured the food supply for their own people.
However, this often leads to panic-buying and rationing, only causing more panic. And of course higher prices.
This is only domestically. Besides that international trade is negatively influenced and may even come to a standstill in some places that cannot afford the higher prices which affects most Asian, African or Latin American Countries.
It goes to the highest bidder, if ever…
The panic rose to such an extent that a Thailand-led group even thought about creating the equivalent of the OPEC just for controlling rice supply and prices.
According to the article from Wikipedia and citing a paper from the Center for Global Development (see here), there indeed has never been a danger of undersupply. It was all pure psychology and mass-hysteria.
As you know, there are again many problems around concerning food supply. The Big Bang next year should likely be the under-plantation during the current season due to higher fertilizer prices and less availability. This would be a topic worthy a completely separate article where I pass at this stage. You can find some sources here and here for further reading.
Then of course also high energy and transportation prices.
Add to that the following.
Next food crisis on the horizon?
There is again additional tightness on the horizon. Food security and protectionism should be ranked way higher and paid more attention to than the WC in Qatar, the “bad luck” of inexperienced
crypto-losers investors or comparable topics.
Global food protectionism can again lead not only to higher prices that already have risen due to different reasons, but it can in many parts of the world post a threat to food security.
Here are several puzzles from different sources:
There are lots and lots more of such news. You have the whole plate from rice over wheat, edible oils, meat and even sugar (see here, here, here, here and here).
Such reports can already be found pre-2020. Since then, it has only become worse and more frequent. The above came from the first half of 2022. One could assume that the topic cooled down a bit.
But, only two months ago in September, India again restricted exports, this time not wheat like in the first half, but rice (remember?):
The government imposed a 20% tariff on rice exports (see here).
This is insofar important, as although we have seen that China is the biggest producer, here comes a chart that shows India being by far the biggest exporter:
We discussed rice rather extensively, but this can happen to any other type of food.
When there are problems domestically, exports will very likely be limited or even completely put offline, at least for some time.
Watch this trend closely!
New Research Report for my Premium Members
Maybe it is not the solution to the problem per se (it certainly is not), but I came over an investable company, listed on the NYSE, that could be the beneficiary from several standpoints:
- it has arable land (third-party certified) that already covers a big chunk of the company’s market capitalization
- the business produces rice and other crops as well as milk and other dairy products
- the company has a different “main” business with which it benefits from higher oil prices, too
- it is a founder-led business
- neither the company nor the operating business are in Asia
I think now is the time to have a closer look at this particular company. My Premium Members will receive an email alert when this latest research report is due on Saturday, 19 November.
Protectionism is at the very least a double-edged sword. It is by no means this perfect one-size-fits-all solution. There are always two sides to the coin.
Food has always been a very sensitive topic. It is a basic necessity that unfortunately many people worldwide cannot afford. Neither healthy nutrition, nor even basic staples just to put some calories into the mouth.
Add to that several catalysts for supply shortages or export restrictions and you have a full-blown food-crisis.
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