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.

Crisis at the IMF?

In the midst of the current food crisis in much of the developing world, the international financial institutions (i.e. the International Monetary Fund (IMF) and the World Bank) are trying to cast themselves as saviors of the developing world. Would that this were true - but the IFIs have never been the saving angels they see themselves to be. At best, the IMF exists to provide emergency budget and balance-of-payments support loans to beleaguered governments, and does so with minimal interference. At worst, the IMF attaches strict conditions to these loans, requiring developing countries to slash public expenditures targeted at poverty alleviation, liberalize volatile portfolio flows to countries without a well-developed banking sector, and helps banks negotiate full repayment on loans made to previous corrupt dictators (like Ferdinand Marcos in the Philippines, or Mobutu Sese Seku in Zaire (now the DRC)).

Fortunately, for all the talk from the IFIs following their semi-annual meetings earlier this month, the IMF is faced with a financial crisis of its own, and its influence is waning. When I was researching the Bank of the South last semester, I also sidetracked onto the IMF to see how their finances looked - and what is obvious is that nearly every country in South America has repaid the fund (with Argentina forcing creditors to accept only 30% of what they were owed, arguing against the fund's bad lending practices and conditionalities). In fact, countries across the globe are repaying the fund at an accelerated pace - even Turkey, which now holds around 40% of the IMF's portfolio, prompting The Economist to call it the "Turkish Monetary Fund." Regardless of the rhetoric, the decline of the international credit hierarchy and the clout of the IMF may end up being a welcome thing, so long as countries with viable and responsible governments retain access to sufficient credit to keep themselves afloat. None of this is to suggest that we are seeing the end of the IFIs, but their influence is, and will probably continue to be, significantly reduced.

A recent CEPR piece presents similar research and analysis in more detail, I highly recommend it.