Trade Liberalization

The conventional wisdom holds that a free market economy, with minimal government interference, would function more efficiently, and thus become more productive.11 Hence, governments should stop subsidizing farmers to purchase fertilizers, stop being involved in the marketing, storage, and transportation of food, or provisioning credit, and just leave farmers alone. Following advice to this effect, including from international development agencies, many developing country governments reduced their subsidies for small farmers and consumers, making their lives more difficult.12

Rich countries have continued to subsidize and protect their farmers, and their agricultural subsidies and tariffs have undoubtedly undermined food production in developing countries. However, cutting farm subsidies will increase food prices, at least initially, while reducing agricultural tariffs alone will not necessarily lead to an increase in food production in poor countries without complementary support. Some food security advocates have called for rich countries to compensate for the adverse consequences of their own agricultural subsidies and protectionism by providing additional foreign aid to the developing world, targeting production efforts that enhance food security.

Since the 1980s, governments have been pressed to promote exports to earn foreign exchange and import food. Although enhanced agricultural production is desirable, much of the recent emphasis has been on export crop production. While this may help a country’s balance of payments, export-oriented agriculture does not ensure sufficient food. Export-oriented agriculture can induce investment in producing higher-priced luxury crops, rather than the lower-priced food crops needed to meet the needs of the domestic population.

Instead of developing their own agriculture, many poor countries have turned to the world market to buy cheap rice and wheat. In 1986, U.S. Agriculture Secretary John Block called the idea of developing countries feeding themselves “an anachronism from a bygone era,” saying they should just buy American. Increased food production and lower food prices have undoubtedly contributed to poverty reduction in much of the world, but the consequences are complex. Higher food prices affect different poor people in different ways, with food producers possibly benefiting while all others will be worse off.

Some countries that were previously self-sufficient in food now import large quantities of food. Net food imports are now true for most developing countries, including sub-Saharan Africa. Madagascar President Marc Ravalomana noted that, twenty-five years ago, Africa had a surplus of exports in cereals, rice, soybeans, and other food products. “Over the years, we increasingly shifted toward imports of these products.”13 Thus, food security went the way of various other government interventions associated with the earlier period of high growth and rapid development associated with the “Golden Age.” But food should not be treated as just another commodity, and governments should develop appropriate policies, infrastructure, and institutions to ensure food security (not to be equated with total self-sufficiency) at the national or regional level.

Following the recent food price hikes, some countries have lowered tariffs to reduce the impact of much higher prices of imported food, but such stopgap efforts have had marginal impacts at best. Others—mainly but not only net food importers—have restricted food exports to insulate their populations from rising international food prices by limiting the option of exporting food for higher prices.14 Such export restrictions have undoubtedly further limited supply to a relatively small international rice trade, thus contributing to price increases, especially for rice.

The World Bank and the WTO still claim that agricultural trade liberalization offers the medium-term solution to the current food crisis even though eliminating food subsidies will raise food import costs in the short term.15 Even if completed, the Doha Round does not envisage very significant reduction of agricultural subsidies and tariffs but would further undermine national food security measures while ensuring greater international dependence on relatively few major food exporters associated with the Cairns group. While higher food prices may make food production in developing countries—for domestic markets and for export—more attractive to farmers, this will not necessarily reduce food prices, the root of the current crisis. If food prices decline, the incentive to continue food production may be undermined once again.16

In any case, the complete elimination of agricultural tariffs and nontariff trade barriers is certainly not on the agenda in the Doha Round. The reduction of such trade barriers is likely to mainly benefit existing agricultural exporters of the Cairns group, rather than most poor developing countries. Also, it is now increasingly acknowledged—for example, in the “aid for trade” discussion—that new productive capacities and capabilities do not emerge automatically following trade liberalization but need to be supported by appropriate government support measures. Hence, it becomes necessary to ensure a strong domestic supply response with strong public support for domestic productive capacity building.

 
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