in supply across food products in the quarter following the outbreak of the pandemic for the 50 most affected countries.<sup>3</sup> Given the substantial uncertainty about the extent of the current health crisis, in a sensitivity analysis we consider an upward scenario, where initial export supply shocks are 10 percent higher compared to the observed declines in China’s food exports, and a downward scenario where we assume that the initial decreases in supply across countries are 10 percent lower compared to the observed declines in Chinese exports of food. These scenarios roughly imply that shocks in the 50 countries most affected by Covid-19 could be half or double the initial shock in China.

Under the baseline (China-like) scenario, Covid-19 is estimated to lower the world’s export supply of food by 12.7 percent, on average in the quarter following the outbreak of the pandemic. Many important staple foods, including rice, wheat and potatoes have drops in export supplies of over 15 percent. Price changes for individual country-products will depend on the concentration of their imports from countries most affected by Covid-19 and on the elasticity of import demand. Using product-level elasticities estimated from a gravity analysis covering 152 countries by Fontagné et al. (2019), we find that lower export supplies would lead world food prices to increase by 4.0 percent on average. In the downward and upward scenarios for the initial supply shocks caused by Covid-19, decreases in overall food export supply would range between 5.7 and 19.7 percent and price increases between 1.8 and 6.3 percent on average. These effects should be considered as initial impacts, as the longer-term effects of Covid-19 will largely depend on the length of the health crisis -something that it is difficult to predict at this stage.

We next quantify the potential impact on export supplies and global food prices of export restrictions. As of the end of April, more than 20 governments had imposed some form of restrictions on food exports (EUI-GTA-WB, 2020). As food prices increase due to the initial Covid-19 shock, governments may be tempted to use trade policy to stabilize domestic prices. These measures can lead to retaliation and rising food prices (Giordani, Rocha and Ruta, 2020). The basic insights from the theory are presented in Section 2. Intuitively, export restrictions mitigate pressures on domestic food markets but lead to further declines in supplies in the world market. Food prices would further increase as the shock caused by uncooperative trade policy magnifies the initial supply shock due to Covid-19. In response, other governments would likely retaliate by imposing new export restrictions in the attempt to reduce domestic food price escalation, leading to a multiplier effect.

The analysis finds that food prices could spike as a result of the multiplier effect of (uncooperative) trade policy. Under the baseline scenario for the initial shock, we find that escalation in export restrictions would lead to a decline in the world food export supply by 40.1 percent on average in the quarter following the outbreak of the pandemic. Global food prices increase by 12.9 percent on average. Price increases are highest for key staples such as fish meat (106.2 percent), oats (31.1 percent), vegetables (28.5 percent) and wheat and meslin (25.1 percent). In a sensitivity analysis, where we use demand elasticities estimated at the bilateral-product level for a subset of countries by Kee and Nicita (2020), we find that export restrictions could drive up the average price of food by 49.2 percent. This is driven by products like fresh fruits and vegetables whose import demand is much less elastic vis-à-vis specific producers, leading to higher price increases when they are hit by a supply shock. Finally, in the downward and upward scenarios, global export supply of food under uncooperative trade policies would decrease between 21.0 and 55.4 percent, respectively, during the quarter following the outbreak of the pandemic. Food prices would increase between 6.6 and 17.9 percent on average using Fontagné et al.’s (2019) elasticities.

> 3 The most affected countries are the ones with the highest numbers of confirmed Covid-19 cases (see Appendix Table 1 for the list of countries).

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