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It's the protectionism, stupid!

Thursday, 17th April 2008

More on the man made food shortage. Victor Mallet is, at least in part, spot on in the FT:

It is tempting to assume that the problem is purely one of supply and can be fixed by genetically modified plants or investment in a new “green revolution” to boost crop yields. The three most productive solutions, however, are all matters of policy.
First, there is an urgent need for a sustained liberalisation of agricultural trade. The immediate cause of this crisis is not – perhaps surprisingly – a shortage of food. The problem is the sudden reluctance of traditional exporters to sell their surpluses. As with credit providers in the seized-up credit markets, each producer is hoarding its own supply in case of hard times at home, because it suspects its trading partners will do the same. Trust in the efficiency and liquidity of the market has collapsed.

Farm protectionism is not new and international markets are grotesquely distorted by tariffs and subsidies. The main producers – particularly the European Union and the US – have jealously protected their farm sectors from foreign competition, partly on food security grounds.

International farm trade has nevertheless managed satisfactorily for decades to redistribute surpluses of staple foods. The current seizures in the markets are therefore a cause for general alarm. Singapore, one of the world’s wealthiest nations, depends on food imports as much as Eritrea, one of the poorest.

The second level at which policies need to change is national. Like international trade, domestic trade in farm produce is often highly distorted. While developed nations tend to support their farmers at the expense of consumers, developing countries typically subsidise city-dwellers at the expense of rural smallholders, who receive low prices and have no incentive to increase their output.

As the Financial Times reported two weeks ago, Asian countries are among the worst offenders. Farming productivity growth has slowed drastically in the current decade. “The neglect of agriculture in Asia has got to be corrected,” said Ifzal Ali, the Asian Development Bank’s chief economist.

Asian governments could do much to boost food output by liberalising their domestic markets, helping to provide farmers with credit and giving them access to the sort of modern technology and advice they once received as a public service.

Third and last, governments need to examine their population policies and limit population growth. Although there is enough grain to go round at the moment, you do not need to be a neo-Malthusian to worry about the demand implications of a global population rising by about 80m people a year or to notice that countries with fast-growing populations – India, the Philippines and Egypt, for example – are especially vulnerable to disruptions in the world’s food trade.

I don't agree with his third point, and I'll explain why in another post.