The global food crisis: A toolkit for audacious leaders

Arvind Subramanian 30 June 2008

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According to World Bank research, the current level of commodity prices, which are likely to be a medium- to long-term reality, will throw about 100 million human beings back into the ranks of the poor and hungry. Over the last few months, food riots sparked by the doubling or tripling of prices of basic food staples gave us a glimpse of the perils associated with delaying concrete responses to tackle food insecurity. Heads of state, agricultural specialists, and presidents of international organisations met in Rome two weeks ago to tackle the problems created by the food crisis. The resulting document of that meeting included bold directives on the most immediate issue: humanitarian assistance for affected countries. However, the Declaration will not be enough to address the food crisis.1

About a month ago, in a hearing in the U.S. Congress devoted to the global food crisis, I identified a series of proposals that would make a difference in alleviating the plight of some of the most vulnerable people in the world.

Short-run measures

It is imperative to ensure early emergency reaction to food shortage episodes, including capacity to mobilise food quickly and cheaply to the most affected areas of the world. Efforts to increase funding and improve coordination between governmental agencies responsible for food assistance are all excellent initiatives that have already been announced by many governments in recent months. Additionally, the Declaration takes a bold step forward in calling for the disbursement of food aid, when appropriate, through the use of local or regional purchase.

More ambition would payoff considerably. We should strive for the full elimination of origin requirements on food aid. These requirements constitute a prime example of bad policy that curtails the effectiveness of food aid and spur doubts about the donor country’s generosity. My colleague, Kim Elliot, has noted that untying US food aid would double US assistance at destination without additional cost to US taxpayers.

Short-run actions need not be limited to addressing requests for humanitarian or technical assistance. Concrete steps to cool down markets of selected food staples can also be taken. Peter Timmer and Tom Slayton recommend relieving China and Japan from WTO rules that forbid the sale or donation of part of their rice stocks. Such a step would not necessarily lead to higher risks in these nations. Only last year, 400,000 tons of rice in Japanese stocks were used as livestock feed for they were not considered fit for human consumption.

Medium-run measures

Collective action is necessary to “fix the incentives” facing agriculture globally. This entails scrapping policies that encourage farmers to turn land away from food production and revitalising the WTO by ensuring that it plays a role in solving the challenges in global agricultural markets brought to the forefront by the food crisis.

Policies that stimulate production of biofuels have diverted of land away from food production. More knowledge on the overall contribution of biofuels to sustainable development is absolutely essential, but there already exists strong evidence indicating that the US corn-based ethanol program has contributed to raising food prices, and there are also doubts that corn-based ethanol constitutes the best alternative fuel program, on environmental grounds. Meanwhile, oil prices at $125 a barrel have undermined the original rationale for the program by providing sufficient incentives and anchoring the competitiveness of corn-based ethanol. It is therefore unnecessary and misguided for the United States to insist on maintaining aspects of the ethanol programme that are tantamount to “picking winners” – such as ethanol mandates or high tariffs on competing fuels – in light of the current food crisis. Their elimination would constitute better food policy as well as better environmental policy.

Export restrictions in food-exporting countries are a doubly harmful reaction to food price increases, and they constitute a prime example of contemporary problems in global agriculture not properly managed by current or prospective WTO rules. First, export restrictions add fuel to fire as they nourish increases in world food prices – for some commodities, restrictions on export provide an extra boost to prices of up to 20 percent. Second and more importantly, export restrictions numb the incentive of farmers to do the necessary investments to augment production.

Export restrictions also highlight the weakness of the global agricultural trading regime. Lack of access to markets in good times and export restrictions in bad times are self-reinforcing phenomena that foster strategic action at the cost of the common good. We need a system capable of ensuring that both imports and exports remain free to flow in good and bad times. Pledges to revitalise the Doha Round alone will not do the trick, even if they help jump-start negotiations. Currently, the round has been devoted to traditional forms of agricultural protection such as tariffs and subsidies. We need to enlarge the agenda to include discussion on all trade barriers, including export restrictions, biofuel policies, and regulations on genetically modified organisms, so as to ensure that the world trading system remains capable of tackling contemporary challenges in world agriculture. If Africa is to exploit new agricultural technologies, policies toward genetically modified organisms, especially in the European Union, need to be clarified, made transparent, and rendered immune from protectionist pressures. The United States and the European Union should provide leadership in heading an international effort to bring about a collective agreement.

Long-run measures

A positive fallout of the current crisis is to bring agriculture back into focus. Decades of neglect of agriculture have heightened our exposure to food crises and contributed to increasing the number of people who go hungry in the world. In recent weeks, agriculture has been showered with increased development assistance from governments and multilateral organisations.

However, resources alone will not suffice if they are not properly directed to raising agricultural productivity in developing countries, most notably in Africa. Africa has not had technological productivity improvements in agriculture comparable to those in Asia or Latin America. The market on its own will not deliver on productivity improvements because of the low purchasing power of African countries. International public action will be required. Developed countries and multilateral donors should go on a war footing to improving the incentives and institutions for generating research for African agriculture. For example, existing structures such as the Consultative Group on International Agriculture Research need to be revitalised; creative ways of stimulating the basic research and its subsequent adaptation need to be found.

Conclusion

Tackling the challenges posed by the current food crises requires joint action by various members of the international community. Developed nations should take the leadership role. In the short run, Japan and China should allow their stocks of rice to be exported to those in need, and the United States should eliminate origin requirements on food aid. Over the medium run, we need collective action in the WTO to eliminate distortions in agriculture and agricultural trade, including the replacement of US and EU biofuel programs with green policies that do not actively pick the winners. Over the long run, we need to rally resources and revitalise institutions to boost agricultural research and productivity in developing countries, especially Africa.

Footnotes

1 It is not my purpose to discuss the Declaration of the High Level Conference on World Food Security, but rather focus on those areas where there is overlap with my proposals.

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Topics:  Development Poverty and income inequality

Tags:  Agriculture, food crisis, solutions

Comments

Most development economists assume that if there is famine we need food. This does not take into account the role prices play in the marketplace.

If prices go up it is usually because demand is too high or supply is too low [drought].

The price increase is a signal to suppliers to increase production.

If external food is supplied there is a high likely hood that the price will decline. Diluting the price message to the producers.

Will food output increase in the future? Probably not.

One option is to supply food to the producers so they can sell it in the market and benefit. They then have the resources to increase production.

This may be complex to deliver but will produce a long term beneficial result.

Thank you.

Amrish

Amrish Macedo
amrish.macedo@gmail.com

Senior Fellow at the Peterson Institute for International Economics and Senior Research Professor at Johns Hopkins University