Export Tariffs Driving the Price of Wheat Up

“Price of wheat is soaring. So buying a loaf of bread is going to cost a lot more dough. What is happening?” our intrepid correspondent, Byron King wonders.

“Sure, we have lots of hungry mouths in this world. And more and more dollars are chasing those bushels of wheat, to feed those mouths. And couple it with the worldwide episodes of drought, and cropland destruction, and decline in soil fertility, and rising costs for seed and fertilizer and equipment. So just for reasons of limits on factors of production, it is harder and harder to increase supplies to match the growth in demand.

“But look at what else is helping drive the price of wheat upwards: Export tariffs.

“Whoops. The traditional use for tariffs was to limit imports into a nation, and protect domestic markets against ‘cheaper’ foreign competition. The idea was to protect domestic industry, and permit it to grow over time in a sheltered domestic market.

“But now the use of tariffs is shifting to control exports. The intent of these export tariffs is to protect internal national supplies of a critical commodity.

“But export tariffs are a two-edge sword. Tariffs may limit exports, of course. Export tariffs will limit sales into international markets. In doing so, they will support higher world market prices, because of limits to supplies in trade. And back home, export tariffs deny the benefits of higher world process to the domestic producers. That is, the farmer receives a ‘lower’ price signal. The taxing government is capturing the difference between internal and international prices, via the tariff. So there is less of a market incentive for the farmer to increase output, if that is otherwise possible.

“It gets back to the classical economic argument that tariffs distort markets. In the case of export tariffs on food, they limit production at home while supporting artificially high prices on international markets.

“Long term, tariffs are probably self-defeating. But that’s another discussion.”

For more from Byron, check out his latest report. In it, he details a little known source of energy that he calls “China Lake Energy” that has enough reserves to significantly reduce our dependence on foreign oil. He’ll tell you what five penny stock companies — whose stocks are all priced less than $3 per share — that are set to take this energy public in a very aggressive and profitable way.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

Latest posts by Bill Bonner (see all)

Leave a Reply

Be the First to Comment!

Notify of
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@marketsandmoney.com.au