Jan 06, 2009

Looking Back on the Food Crisis

by Laura Starita

In early December, James Surowiecki, financial columnist for the New Yorker, opined on the causes of the food crises that caused shortages and riots in developing countries in the first half of 2008. Among other points, he suggests that deregulation of agricultural markets, initiated in part during the World Bank structural adjustment era of the 1980s, has created a world agriculture market in which too much of our food is produced by too few regions. This centralization of food production makes crops particularly vulnerable to shocks—such as drought in Australia, a top three wheat producer, or flood in the midwest of the US, a major corn and soy region.

His argument—that too much market-driven focus on efficiency in food production has turned out to be a bad idea—is not that far afield from what food writer Michael Pollan has rightly asserted in his books and articles about the US food system. Yet Surowiecki goes astray in a number of ways, most notably in that he fails to specify that market driven agricultural reform—and the resulting abolition of subsidies for seeds and fertilizer to poor farmers—is only a developing world phenomenon. In developed countries, massive subsidies and market distortion have not only survived but have thrived to deleterious effect for everyone. This is in fact Pollan’s point in much of his writing. Developed world agricultural subsidies created the necessary preconditions for the food shortage.

The US and the EU hand billions of dollars in cash every year to major producers of maize, soy, wheat, rice and sugar, and still more in the form of loans with crop price guarantees attached to them. The addition, Western governments have more recently tried to encourage the production of biofuels through subsidies, which resulted in farmers producing less for food markets and more for fuel processing. These billions of dollars in public sector funds cause massive price distortion in the world food market, because they allow Western farmers to sell their product at below cost and still reap a “profit.“ In contrast, many developing countries don’t have subsidies—in Africa, for example, subsidies disappeared in the 1980’s and only a few countries have returned to using them. These distortions have created a far greater disincentive for developing world farmers than local deregulation, since the foreign produce that shows up in local markets costs less than locally grown goods.

Surowiecki, parroting an all-too-common critique of the World Bank, also betrays a lack of familiarity with the history, context and thinking behind the “Structural Adjustment Programs” that brought an end to agricultural subsidies in the developing world. It’s easy to throw stones at reforms that in theory reduced payments to poor farmers in favor of free market reforms. The reality is that the agricultural subsidy programs in most countries were tools of patronage and corruption. Fertilizer subsidy checks were given not to poor farmers but to the friends of the ruling elites who used the subsidy to buy cheap fertilizer and then sell it at higher prices for personal gain. The driving reason for demanding that the programs be shuttered was not idealistic adherence to free market principles but a pragmatic attempt at limiting corruption before the World Bank pumped hundreds of millions of dollars into the hands of government officials in these countries.

Surowiecki is right to say that the world financial crisis, and the resulting collapse of the commodities markets, has only created a temporary relief of pressure on food markets and that eventually we’ll have to deal with the food crisis again. As William Masters, a professor of Agricultural Economics helpfully points out in a letter responding to Surowiecki’s article, it’s simply wrong to conclude that appropriate market reforms should not be part of the solution.