Fri, Nov 14, 2008 page9

• Free trade and freer farmers can combat the food crisis

  Governments such as China, India and Vietnam fail to realize that restricting exports leads farmers to invest and produce less

  • By Douglas Southgate
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  After peaking earlier this year, world food prices have retreated in recent months. Nevertheless, the UN is warning of another food crisis that could push more than 100 million people back into absolute poverty.

  With human numbers rising and income growth pushing up per-capita consumption too, must food remain expensive? The UN Food and Agriculture Organization said in its latest report last week that nearly 1 billion people are undernourished. Are they condemned to remain hungry? Not at all.

  During the second half of the 20th century, food supplies grew faster than demand and real prices for cereals declined by 75 percent. Because cereals account for more than 60 percent of the human diet, consumers paid a lot less for food.

  

  ILLUSTRATION: MOUNTAIN PEOPLE

  These days, population growth is slowing but demand is still going up quickly because of improved earnings. By 2050, demand for food will probably increase by between 60 percent and 100 percent. And if we don’t grow more food per hectare or farm more land, real food prices will rise.

  So there was nothing unexpected about the current rise in demand for food. As UN World Food and Agriculture Organization Director-General Jacques Diouf said: “It was predictable and we predicted it, and it was avoidable, but the world failed to avoid it.”

  But “the world” is not to blame — the blame lies with individual governments, especially in the poorest countries, that put up huge barriers to the movement of food, keeping prices high.

  Only 15 percent of African trade takes place within the continent. Poor countries’ tariff barriers are higher on average than in developed countries. South of the Sahara, the average tariff on agricultural imports is 33.6 percent. And over-regulation, red tape, delays at customs and corruption all make it worse.

  Since these obstacles make inputs more expensive too, domestic producers are prevented from responding fully to higher food demand.

  Ukraine is a perfect example of a country with huge agricultural potential that remains largely untapped. Simply farming more efficiently and using better inputs, such as fertilizer, could nearly double current crop yields. This would allow Ukraine to export 50 million to 80 million more tonnes of cereal a year. This is enough in cereal-equivalent terms to feed 50 million people in China. In India, where average consumption is lower, 100 million people could be fed.

  Ukraine is so well adapted to farming that it was a world leader in the mid-1880s. It was later the bread-basket of the Soviet Union and, today, it remains a net exporter despite the Communist legacy. But export quotas and other government meddling keep domestic prices artificially low, removing the incentive for farmers to grow more.

  On the other side of the world, Argentina shows similar wasted potential. Farming 15 million hectares instead of the current 9 million hectares would generate an additional 30 million tonnes of cereal for export every year. This could feed 30 million people for a year in China, or 60 million in India.

  But, here too, production is held back by politics, with Cristina Fernandez’s administration following the lead of previous governments in using every available tactic to keep food cheap, whatever the real cost. In March, export taxes on several foodstuffs were increased, with soybeans, the main export crop, now taxed at 45 percent. Decades of such policies have reduced the amount of land under cultivation since the early 1960s.

  The vain pursuit of self-sufficiency has landed many countries in difficulty today, especially those without the vast potential of Argentina or Ukraine.

  Nigeria, Senegal and Malawi pursue this mirage, while many of the poorest sub-Saharan countries actually are proudly “self-sufficient” in food. The result is that per capita food consumption is alarmingly low.

  Governments want to keep food cheap, yet fail to realize that restricting exports leads farmers to invest less and produce less. Such moves by China, India and Vietnam push up prices for everyone.

  Indeed, the response of governments to the food crisis has largely been counter-productive — more than 30 countries introduced export restrictions or outright bans, making food prices soar further. Freeing trade and freeing farmers is the only way to get a good deal for producers and consumers everywhere.

  Douglas Southgate is professor of agricultural, environmental and development economics at Ohio State University.
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