GENEVA – The recent sharp spike in food prices and growing concerns about food security have sparked anxiety worldwide. The possibility of being unable to put food on the table fills parents with a deep sense of foreboding. And, because the world’s poorest people spend a higher proportion of their income on food, they are the worst affected, raising the risk that years of progress in reducing poverty could be reversed.
The seemingly unalterable factors generating these record-setting rises in food prices – a shift to higher protein diets in many countries, growing populations, greater use of biofuels, and climate change – suggest that elevated food prices are here to stay. In the absence of solutions that alleviate growing pressure on supplies, hunger and malnutrition will increase.
Clearly, investment in food production must be increased in the medium and longer term. But there is a policy prescription available to leaders today that could help remove supply-side obstacles: more trade. This proposal may puzzle some, but the logic is straightforward and irrefutable.
Trade is the transmission belt through which supply adjusts to demand. It allows food to travel from lands of plenty to lands of little. It allows countries that can produce food efficiently to ship it to those which face resource limitations that hinder food production.
For example, access to international food supplies allowed Saudi Arabia to abandon its 30-year program of subsidies for domestic wheat production. Given the financial burden of the program, and, more importantly, the cost in scarce water, the Saudis decided to phase out the subsidies entirely by 2016.
When the transmission belt of international trade that underlies such decisions is disrupted, the result is market turbulence. This is why Indonesia, one of the world’s largest producers of rice and maize, recently decided to reduce trade barriers to agriculture imports.
Today, trade in agricultural products is exposed to far greater distortion than is trade in other goods. Trade-distorting subsidies, high import tariffs, and export restrictions act as sand in the gears of the transmission belt and make it more difficult and expensive to bring food to the market – and thus to the family table.
Export restrictions, for example, play a direct role in aggravating food crises. Indeed, some analysts believe that such restrictions were a principal cause of food-price rises in 2008. According to the United Nations Food and Agriculture Organization, they were the single most important reason behind the skyrocketing price of rice in 2008, when international trade in rice declined by about 7% (to two million tons) from its record 2007. Similarly, the 2010-2011 price rise for cereals is closely linked to the export restrictions imposed by Russia and Ukraine after both countries were hit by severe drought.
Most people are surprised to learn how shallow international grain markets truly are. Only 7% of global rice production is traded internationally, while only 18% of wheat production and 13% of maize is exported. Additional restraints on trade are a serious threat to net-food-importing countries, where governments worry that such measures could lead to starvation.
Those who impose these restrictions follow a shared logic: they do not wish to see their own populations starve. So the question is: which alternative policies could allow them to meet this goal? The answer to that question consists in more food production globally, more and stronger social safety nets, more food aid, and, possibly, larger food reserves.
A conclusion to the Doha Round of global trade negotiations could constitute part of the medium- to long-term response to food-price crises, by removing many of the restrictions and distortions that have muddied the supply-side picture. A Doha agreement would greatly reduce rich-world subsidies, which have stymied the developing world’s production capacity, and have pushed developing-country producers completely out of the market for certain commodities. The worst kind of subsidies – export subsidies – would be eliminated.
A Doha agreement would also bring down tariffs, although with certain “flexibilities,” thereby increasing consumers’ access to food. Globally, more food would be produced where it can be produced more efficiently, thereby creating a more equitable, level international playing field.
To put it simply: when it comes to tackling food security, trade is part of the solution, not part of the problem.
Pascal Lamy is Director-General of the World Trade Organization.
Copyright: Project Syndicate, 2011.