How bad government caused the food crisis

31 May 2008

Julian Morris argues that recent shortages and price rises of staple food in Asia and Latin America have been caused as much by parasitical politicians as by poor harvests

But these gains have not, for the most part, reached sub-Saharan Africa, whose political elite has little interest in promoting progress. In much of Africa, weak property rights and an absence of the rule of law undermine the capacity of smallholders to invest in improvements to their land. Meanwhile, various taxes and tariffs mean the average price of fertiliser is six times the world price.

These production constraints are compounded by barriers to the sale of goods. Many African governments still operate marketing boards, which force farmers to sell at below market prices. They also impose average tariffs of 30 per cent on imports of agricultural goods from other African countries, driving up prices of food produced in Africa and discouraging production. Subsidies to Western agriculture have exacerbated this problem by driving down the price of commodities produced outside Africa.

Similar interventions have prevented economic development more generally. As a result, even at the best of times, most Africans consume barely enough food to keep them in good health. Millions consume too little — contributing to widespread disease and early death. And this year, several external factors have combined to make the situation far worse.

A major factor has been increased demand for energy and food — driven by the rising wealth of the majority of people around the world and especially those in rapidly growing countries such as China, India, Brazil and Vietnam. As Angela Merkel put it recently, many Indians now have two meals a day — how dare they?!

Increased demand, combined with limited supply, has resulted in a rise in relative prices: oil and food now cost considerably more than they did a year ago. In a free market, entrepreneurs respond to such price rises by investing in the production of more of the scarce goods or close substitutes. Demand for computers and cars has increased dramatically in the past two decades, but they have not become more scarce or expensive — rather the opposite: better models have been developed and supply increased, so that demand is met at lower prices. But neither oil nor food exist in a free market.