Get free food safety updates

This article is the online version of our Trade Secrets newsletter. Log in here to receive the newsletter directly to your email inbox every Monday

Welcome to Trade Secrets, which is heading smoothly towards the summer lull. Next week’s newsletter is the last weekly edition before we start a fortnight in August. Next month there will be a Brics summit in South Africa, more on that later in the week to keep fans of global governance entertained. (I think the concept of a summer break is a bit northern for a group of two countries in the southern hemisphere.) Today I’ll look at the fact that the global food crisis is still not happening despite Russia’s best efforts to create one, and how Brazilian President Luiz Inácio Lula da Silva could make or break the Mercosur trade deal with the EU. Charted waters is about Germany’s likely leadership in the production of batteries for electric cars in Europe.

Be in contact. Write to me at the address

Entering the world of grain

Readers will surely remember the surge of (justified) fears last spring and summer, etc global food emergency. Lower grain exports from Ukraine, an oil and gas shock hitting energy-intensive agricultural production and transport, disruptions to global shipping and generally high inflation: it all added up.

Moscow weaponized the grain by potentially cutting off supplies to world markets creating food crises in developing countries, especially in Africa. Then governments started cutting exports – India said within weeks it would feed the world blocking the export of wheat — and a repeat of the 2007-2008 food crisis seemed quite possible.

And then . . . basically nothing. Food prices fell. Export restrictions were lifted. It would be nice to think that this was because governments and the World Trade Organization got better at managing the food trade and reducing export controls. In fact, it was primarily about a series of good harvests and a trading system adapting to unreliable supply from Ukraine.

Over the past week, we’ve had a bit of a repeat of last summer. As it did briefly last November, Russia suspended the Black Sea Grain Initiative, which ensures safe passage for ships exporting food and fertilizer from Ukraine, and this time capped it off with another evil play. bombing Ukrainian grain warehouses. Moscow is still trying to play grain geopolitics with a plan to turn sub-Saharan countries into vassals (its favorite kind of allies). supply them with food imported from Ukraine. And India announced restrictions on rice exports.

However, the reaction was not catastrophic. Global wheat prices rose 12 percent last week, but are still not much more than half of what they were a year ago.

Politically, Turkey and Qatar seem unlikely to play ball with Russian President Vladimir Putin’s African blackmail. Fertilizer prices have more than halved since last spring, reflecting falling energy prices. Rice prices are at multi-year highs, but India has granted exemptions to a ban on rice exports to food-scarce countries and may do so again.

Why the muted market reaction? First, investors may have already appreciated the large disruption to Ukrainian supplies. Second, the global harvest continued to perform well despite a spate of extreme weather events. The US Department of Agriculture says so wheat production will reach a record high in 2023-24, and the share of US production affected by drought actually declines.

The suspension of the Black Sea Agreement will mainly affect Ukraine and some poor food-importing countries. This is of course unwelcome, especially considering the sequel resistance in Central and Eastern Europe to accept Ukrainian grain exports and difficulties in finding alternative export routes. But it won’t be the kind of large-scale disruption that prompts Europe and the US to lean on Kiev to agree a ceasefire and peace talks. Sub-Saharan African countries might criticize Russia more eagerly, but most low-income countries avoid taking sides in the war anyway. As with gas supplies to Western Europe, Putin’s attempt to weaponize food exports has not really worked.

Catching the elusive Mercosaurus

Perhaps it is a certain weariness, as negotiations took almost two decades before the 2019 signature and ratification talks stalled after the signature, but the global importance of the EU-Mercosur trade agreement seems to be under-recognized in some quarters. Assuming India doesn’t sign meaningful major trade deals soon and China’s bid to join the Asia-Pacific CPTPP is blocked, the South American bloc will be one of the last big chunks of the emerging market world to make substantial new deals with big, wealthy trading powers.

This would also disprove the idea that the E.U environmental neocolonialism it prevents Brussels from concluding agreements with middle-income countries, at least with virgin forest countries. From Brazil’s point of view, it would underline Brazil’s diplomatic agility by getting along with both China and rich democracies.

So what to do with Lula notes from last week? Brazil’s president has said he is optimistic about ratifying the deal, but has suggested what appears to be a poison pill — loosening the deal’s provisions on public procurement so his country can pursue an active industrial policy.

Brazil has tried unsuccessfully for half a century, but given the EU’s own adventures in interventionism, there is a compelling case for policy space. And while the EU is normally obsessed with sticking to its standard model trade deal, there is certainly an argument for agreeing to improvements here for the prestige of getting Mercosur in the bag.

The problem is that, unlike the other outstanding issue – the side letter on deforestation that Brussels wants Mercosur to accept – the fundamental change to procurement provisions is weighing on negotiators’ heartstrings. It would mean reopening the text, redoing parts of the talks and letting lobbyists and activists swarm all over it. If Lula continues to make ratification conditional on making changes to the text, it will appear that he considers the agreement expendable.

Charted waters

It started slowly and allowed China to gain a big lead in electric vehicle production. But the combination of production know-how and flogging state support By the end of the decade, Germany is expected to overtake the early leaders (including Hungary, which is part of the supply chains of German car manufacturers) and have the largest battery capacity for electric cars in Europe.

Bar chart of European Gigafactory by planned capacity in 2030 (GWH), showing Germany projected lead in electric vehicle battery plants in Europe

EU Trade Commissioner Valdis Dombrovskis warns in an FT interview there will be no compromise on green steel with the US if it violates WTO rules.

Counterpoint: Biden administration officials at the Roosevelt Institute explain why American green steel design is the best.

Taiwanese chip giant TSMC, which has moaned mightily about subsidy races disrupting global supply chains, is delaying production at a chip plant in Arizona because he cannot find good workers.

Peter Foster’s excellent Post-Brexit Britain shows how continued divergence from EU regulations (or even convergence, as this does not automatically bring market access) pile another burden on British business.

The Asian Infrastructure Investment Bank, which was recently criticized by an outgoing senior employee for being unduly influenced by the Chinese Communist Party, however concluded a partnership agreement with the World Bank

The trade secret is edited by the user Jonathan Moules

Proper care — Top stories from the world of corporate finance. Log in here

Free lunch — Your guide to the global economic policy debate. Log in here

Source Link