by Arvind Subramanian, Peterson Institute for International Economics
Op-ed in VoxEU.org
June 30, 2008
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 hungry1. 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 organizations 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 of the High Level Conference on World Food Security will not be enough to address the food crisis.2
About a month ago, in a hearing in the US 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.
It is imperative to ensure early emergency reaction to food shortage episodes, including capacity to mobilize 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 pay off 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, Kimberly 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 World Trade Organization (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 because they were not considered fit for human consumption.
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 revitalizing 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 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 program 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 exports provide an extra boost to prices of up to 20 percent. Second and more importantly, export restrictions numb the incentive for 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 revitalize 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.
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 organizations.
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 revitalized; creative ways of stimulating the basic research and its subsequent adaptation need to be found.
Tackling the challenges posed by the current food crisis 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 revitalize institutions to boost agricultural research and productivity in developing countries, especially Africa.
1. Ivanic, Maros, and Will Martin, "Implications of Higher Global Food Prices for Poverty in Low-Income Countries," World Bank Policy Research Working Paper 4594 (April 2008).
2. It is not my purpose to discuss the Declaration of the High Level Conference on World Food Security (http://www.fao.org/foodclimate/conference/en/) but rather focus on those areas where there is overlap with my proposals.
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