An Oversupply of Bad Policies Help Food Supplies Dwindle

Idiotic biofuel mandates are contributing to food price increases around the world. Higher global food prices lead to more hunger in poor countries. However, as the International Policy Network in London makes clear, the governments of many poor countries are making matters worse. As IPN points out in a press release:

Rising food prices have caused street protests from Mexico to India to Senegal. US and EU ethanol subsidies are partly to blame.  But by imposing tariffs on imports and exports, the governments of poor countries are at least as responsible.

"A whopping 70% of the world's trade barriers are imposed by governments of poor countries," said Alec van Gelder, Network Director of International Policy Network: "Governments that really care about their people would remove those tariffs immediately."

·       The Indian government imposes average tariffs of over 60% on agricultural goods

·       According to the UN FAO there are 200 million underfed people in Africa, yet average tariffs on agricultural goods between Sub-Saharan African countries are 34%.

·       Nigeria has actually banned imports of various staples at different times, including wheat, rice, maize and vegetable oil.

·       The removal of tariffs on fertilizer and other agricultural inputs would lead to increased crop productivity, improving the lives of farmers and reducing further the cost of foodstuffs.

        Average fertilizer use in poorer countries is 107kg per hectare. In Africa it is only 8kg (yes, eight). Tariffs on fertilizer imports are a major reason for this low use-rate.

·       The removal of subsidies to biofuels (including requirements to include a proportion of such fuel in petrol and diesel - such as those being implemented in the EU) would also reduce food prices and must be a priority for rich countries.

·       Some countries have recently imposed tariffs and bans on exports of foods.  While such trade restrictions temporarily reduce local prices, they increase prices in importing countries, result in reciprocal bans, and reduce the incentives to produce those foods in the next season - leading to reduced global supplies.

"Reducing agricultural trade barriers would increase supply and reduce the cost of food, benefitting the very poorest people in the world," Caroline Boin, IPN's Environment Programme Director said.

For more information on how bad policies in poor countries help starve people, go here. 

Disclosure: The nice folks at IPN have occasionally paid my travel expenses to international climate change and trade conferences.

Comments

[Seer]

While it's easy to blame biofuel mandates for using up supply, under a libertarian system wouldn't prices be high anyway because of a lack of farming subsidies or farming control.

[GILMORE]

Ahh. Diclosuriffic. I feel 10% better than yesterday.

Seer | April 16, 2008, 11:21am | #

While it's easy to blame biofuel mandates for using up supply, under a libertarian system wouldn't prices be high anyway because of a lack of farming subsidies or farming control

Not unless the chinese start deciding to eat millet again, aborting all their new children, and go back to being a shitty state-run economy.

Much of the growth in prices has even less to do with subsidies and more to do with externals, like the drought in Australia, the price of oil, and the increased meat consumption in the developing world which requires 5X the grain they needed previously (for animal feed)

[Vlad Drac]

IN A LIBERTARIAN WORLD, THERE ARE NO ROADS.

(Back To The Future ripostes discouraged. Stick to the Usenet classics.)

[SugarFree]

That's what the free market is known... high prices and scarcity.

Remember when we had to wait in huge line sin the 1970s for toilet paper and bread? It was horrible and clearly the fault of capitalism.

[Reinmoose]

Seer -
It may change what we eat, but holy crap, no.

[MikeP]

While it's easy to blame biofuel mandates for using up supply, under a libertarian system wouldn't prices be high anyway because of a lack of farming subsidies or farming control.

Farming subsidies are typically subsidies for farming, not subsidies for food.

Think prices supports -- i.e., a guarantee on the minimum price of food -- or import tariffs -- i.e., a guarantee against international competition lowering food price.

Most definitely these sorts of farming subsidies force prices higher than they would be in a free market.

[R C Dean]

While it's easy to blame biofuel mandates for using up supply, under a libertarian system wouldn't prices be high anyway because of a lack of farming subsidies or farming control.

Well, in a libertarian world,

(1) Taxes would be lower, so to the extent prices were higher, you could afford it better.

(2) Regulatory barriers to farming and technological innovation would be lower, which would tend to keep input costs down and supply up, allowing lower prices.

(3) Of course, trade barriers driving up food prices wouldn't exist.

All told, without knowing a lot more about the real effect of subsidies on food prices, I couldn't really say whether they would be higher or lower than they are now. I see no reason to assume they would be higher, though.

[John]

At least in the US subsidies are hurting supply. A lot of land that could be productively put into wheat production is held out of production in exchange for a check from the government. Now with wheat at $10 or more a bushel, the highest it has been since the 20s, you make more money farming than you do taking subsidies. The problem is that once you take the land out of the program you can't just put it back in. Wheat prices are high now but what about next year and the year after? By putting the land back into production you are trading a steady payment for a big reward of uncertain length. People being risk averse, are saying thanks but no thanks to farming this year. If it wasn't for the government paying people not to farm, the entire midwest would be wall to wall wheat and corn this year and the prices would start to come down.

[The Democratic Republican]

Ending subsidies, if it went with a global free trade agreement in agricultural goods, would dramatically reduce the cost of food in the developed world. It would give the developing world a chance to improve their economies.

Ag is the most protectionist sector of our economy.

[curious]

Would gene modified foods help with the crisis? Not the current one, of course, but future ones?

[The Democratic Republican]

John is right -- I think he is referring to the Crop Reserve Program and other federal conservation subsidies.

[John]

TDR,

Those and the also the PIK program. My father owns about 180 acres he inherited from my mother. He gets a 4K check from the government every year. If he had pulled out and farmed and got say 30 bushels and acre and wheat stayed at $10 a bushel, his 1/3 share of the lease would be 18K. But, once he ops out of PIK there is no guarantee he can get back in and what does he do three years from now when wheat is back at $2 a bushel and there is a draught and he gets 20 bushels and acre? Then his share is about $2,400 and that 4K guaranteed check looks pretty good. It seems pretty crazy to me to be paying people not to farm when a decent part of the world is starving.

[Sam Grove]

under a libertarian system wouldn't prices be high anyway because of a lack of farming subsidies or farming control.

You must be new around these here parts.

Consumers aren't organized enough to get their diets subsidized, but ADM has plenty of influence in D.C. Producers have always had greater incentive to influence the political process in their favor at the expense of consumers. Always will.

[Guy Montag]

YEAAA!!! My request for the corn holocost story has been filled!

[Christopher Monnier]

Tariffs and subsidies levied by all governments are bad, but don't forget about the harm that unfounded anti-GMO paranoia is causing.

[John]

Is it possible we have reached "Peak Corn"?

[Guy Montag]

Or even "Peek Corn"

[jon]

Governments have been messing with tariffs and subsidies for years, but food prices went up a lot this year because oil prices went up. Modern agriculture is the process of turning oil into food, and that's about it. Fertilizer, tractors, trucks, irrigation, processing, transportation, delivery, and all the rest more or less run on oil.

Feeding cows grass instead of grain, ending protectionism, and letting farmers plant or not plant at will isn't going to solve what is likely to be a bigger and bigger problem: the world's poor are going to have a harder and harder time affording food as long as oil prices rise.

[Sam Grove]

But many food prices have been up for quite a long time due to residual New Deal ag policies.

Dairy
Sugar
Wheat
Peanuts
Citrus

Now everything due to ethanol subsidies which encouraged the planting of corn for conversion to ethanol which also uses more energy in oil to produce than is derived from the ethanol thereby produced.

[Prolefeed]

While it's easy to blame biofuel mandates for using up supply, under a libertarian system wouldn't prices be high anyway because of a lack of farming subsidies or farming control

Somehow I doubt that removing all tariffs on imported food, eliminating New Deal era limits on allowable fruit sizes, slashing taxes on fuel and everything else, stopping farm land from going fallow because the government pays for people not to farm it, allowing the import of sugar at world free market prices, allowing the free flow of lower-cost immigrants to our country to pick vegetables and work in slaughterhouses, etc. would result in overall HIGHER food prices.

It might result in more food being imported from countries that subsidize agriculture, as our labor force goes upmarket and produces more valuable goods.

[TerryP]

While I agree that higher grain prices somewhat driven by ethanol mandates has increased food prices a little, higher oil is a much bigger factor (see below). In poorer countries higher grain prices may have a larger affect, but oil is still the biggest culprit and with ethanol it may actually be keeping oil prices lower than where they would be otherwise.

An 18 ounce box of cornflakes with a price at $3.40/bu on corn (avg 2007 price) comes in at a cost of only 4.9 cents. At the twenty year avg ($2.28) it would cost 3.3 cents.

A two-liter bottle of soda. At $2.28/bu corn the cost is 3.8 cents. At $3.40 the cost is 5.7 cents or about a 1% increase in the total cost fo the soda.

Meat prices which you would expect to have a bigger bite also doesn't show a huge increase. At $2.28 corn, it takes 8 cents worth of corn to make a pound of chicken or 4% of the cost of a pound of chicken breasts. At $3.40 corn, the cost rises 5.2 cents or 2.5%. For beef the price would go up 14 cents per pound, or 8.7%, while pork prices would rise 13 cents per pound, or 4.1%.

This information comes from the USDA.

[Bk]

Just read a column by Austin Bay - link here - that talks about a GMO solution. Worth a read.

[joshua corning]

Modern agriculture is the process of turning oil into food, and that's about it. Fertilizer, tractors, trucks, irrigation, processing, transportation, delivery, and all the rest more or less run on oil.

Then how is the US producing more and more ag products at higher per acre yields while its per capita consumption of oil is dropping?

And how can you make statements like that when you already know these facts?