Food Crisis: Root Causes and the Farm Bill

The food crisis is, if you will pardon the pun, providing "fertile ground" for development articles. I would like to take the opportunity to share three excellent, recent articles on the issue, and how it relates to development as a whole. Each article helps to draw out how and why market imperfections and the international economic structure have "sown the seeds" of this crisis and are now bearing fruit (or a lack thereof, for most of the world).

(1) Walden Bello, "Manufacturing a Food Crisis," The Nation, May 15, 2008.

(2) K. Subramanian, "The Fund, Fed, and Finance Feed the Famine," The Hindu Business Line, May 16, 2008.

Both of these articles are excellent. Bello's article focuses on the role of the IMF and WTO in setting the stage for the current situation, while Subramanian's article provides a more general economic overview of how current speculation builds on the groundwork provided by Bello's piece. I should note that Walden Bello is one of the most respected scholars and public activists in development today - a native and professor from the Philippines and former director of Focus on the Global South.

(3) Martin Khor, "New US Farm Bill Will Anger the World," Malaysia Star, May 19, 2008.

One would think that we'd started to learn from our mistakes - especially given that even World Bank President Robert Zoellick is calling for reduced US agricultural subsidies and increased market access for Southern countries. Apparently not, as Khor, a Malaysian journalist, economist, WTO expert, and director of the Third World Network, explains.

Last week, both chambers of Congress passed the 2008 Farm Bill with more than a 2/3 majority, enough to override the President's threatened veto. For once, Khor and I agree with something that President Bush is doing - and, when he finally acts intelligently, the US Congress decides to be stupid en masse. The bill has two parts - one that is good, and one that is bad. First, it proposes $200 billion in domestic food aid. That's OK, and probably a good idea, since it helps those having trouble with grocery bills. But the remaining $89 billion in the bill is an expansion of US farm subsidies - without a cap on earnings. President Bush's main problem: it undermines out diplomacy and efforts in the WTO and doesn't restrict the benefits to smaller farmers. A quote from the article: "Bush had proposed limiting farm subsidies to those earning less than US$200,000 (RM643,180) a year. However, under the Farm Bill, even millionaires can receive the handouts."

Given the massive food prices and profits being earned by corporate agriculture in the inflated speculative market - do they really deserve the subsidies? Also, there's the fact that subsidies lower food prices in times of short supply, allowing farmers to lower prices in tight times for their business - the problem right now isn't that of a supply crunch, its one of manic-period market speculation causing a largely artificial price spike. Subsidies under those conditions will have minimal impact on actual market conditions, because they don't address the root cause of the price spike. So, we have $90 billion dollars of useless spending that only serves to prop up US corporate agriculture and anger the world even more.

The one time President Bush is actually thinking diplomatically, Congress goes behind his back and listens to the agriculture lobby. Well done, ladies and gentlemen.

World "Food" Crisis

On my way to the metro this morning, I picked up a bagel and a full copy of the Washington Post. Normally, I just read the "Express" edition and get additional news online, but I felt generous today. I'm glad I did - I just found the best article on the current food crisis that I've seen in the mainstream press. The full article can be found here.

Perhaps the most fascinating part of this piece is an admission and supposed pressure on the US government by World Bank president Robert Zoellick. The section is worth quoting at length:

Last year, the World Bank commissioned an internal review of its agricultural programs in Africa, concluding that "over time, the importance of agriculture in the Bank's rural strategy has declined." The bank's Independent Evaluation Group noted that total international agricultural aid fell from $1.9 billion in 1981 to less than $1 billion by 2001, and that the bank cut its number of agricultural specialists for Africa from 40 to 17 over the past decade.

World Bank President Robert B. Zoellick has vowed to reverse the slide, proposing to boost annual lending for African agriculture from $450 million to $800 million. He has also pressed the United States, Japan and European governments to end agricultural subsidies that make it difficult for poor farmers to compete in global markets. "The world's agricultural trading system is stuck in the past," he said. "If ever there is a time to cut distorting agricultural subsidies and open markets for food imports, it must be now."

Zoellick has also called for reducing the sort of food donations favored by the United States. The World Food Program, which was established in the 1950s to distribute surplus U.S. and European food stocks, concedes that shipping too much food aid into poor countries can hurt local farmers, said Nancy Roman, the food program's director of policy planning. But the U.S. farmers and shipping companies that supply the WFP have resisted the change.

The WFP has already reduced its share of food donations -- known as "in-kind" aid -- to 50 percent of its overall giving, Roman said. In addition, the program has increased the portion of food it purchases in the developing world and is pressing states to give more cash than food.

These two measures, reducing US food subsidies and scaling back "in-kind" aid, are two of the three largest hurdles to working agricultural markets in the Global South. The reduction of subsidies, preferably codified and enforced by the WTO (although unilateral measures would be an OK second-best) provides needed market access to the agricultural sector in the South, and prevents cheap US and EU exports from crowding out small farmers in these countries. Reductions in in-kind aid, likewise, prevent massive food shipments from disrupting local food markets, allowing for a steadier, more predictable income stream to local, especially smaller, farmers. That is not to say that in-kind aid does not have a use, but it should be carefully targeted and managed to countries where agricultural markets are not working at all, and is perhaps best used in work-for-food programs - allowing for infrastructure development and cleanup efforts while helping mitigate the food crisis.

The final major hurdle is closely tied to these as well - it involves the reduction of monocropping and single-crop export strategies. In this context, the article makes one slight error in how it presents statistics relevant to World Bank lending. This erroris in not explaining the dates for the reduction in World Bank agricultural aid. The dates given are 1981-2001, and are significant for two reasons:

(1) 1981 marked a recognition by the Bank that its traditional agricultural extension programs and lending in the South had failed, largely because the Bank was promoting single-crop programs based on short-term market signals. The net result was that each program promoted a new "magic bullet" crop to local farmers, ended up flooding the market, and then depressed the price of the good to the extent that farmers were back in there original position - only, rather than growing foodstuffs, they now received a piddling income from non-edible/low food-value commercial exports (groundnuts, cotton, cut flowers, etc.). While the Bank has scaled back activities, it has also shifted its focus to diversification and agroprocessing initiatives. While I, along with many working in development, have gripes with Bank operations, these initiatives are aimed at reducing market volatility and adding value to current agricultural products, and represent a welcome phase-shift from the Bank.

(2) 1981 also represents the beginnings of the debt crisis in Latin America, which saw a shift in World Bank lending to backstop IMF structural adjustment policies. Such policies forced sudden, mass liberalization and scaling back of government spending on social programs, in order to bring macroeconomic stability. Leaving aside why structural adjustment's execution was (and remains) abysmal, the key notion here is that the shift was a necessary one (though the execution of that shift caused more harm than good) in the context of the fundamental shift in the global economic regime that occurred in the 1970s (removal of the gold standard, spiking oil prices, etc.).

The combination of these two factors explains why the Bank, an organization with substantial but nonetheless finite resources, underwent a phase shift in the amount and type of aid they give. The debt crisis of the 1980s and financial crises in the 1990s maintained impetus for structural adjustment through 1998, and the recent shift in more inclusive development mentality didn't really gain steam until 1999. Coupled with organizational inertia, the Bank is in the middle of a shift in mindset to approach new challenges caused by shifting international market structures.