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April 10, 2007

Food aid distorts local markets

by Luther Tweeten

THE United Nations Food and Agriculture Organisation (FAO) has admitted that food aid can distort local markets, helping to perpetuate the conditions that demand food aid in the first place.

"International food aid provides about 10-million tons of commodities a year to some 200-million needy people, with an estimated total cost of $2bn," the FAO said on the recent release of its 2006 report. But food aid is rarely bought locally. The US, which gives more than half the world's food aid, buys mostly from its own farmers.

But the FAO does not go far enough in addressing the root causes of famines, which persist amid plenty. This food aid in kind destroys local markets. During the famine in northern Kenya in 2006, southern Kenyan farmers could not afford to drive their surplus up north, knowing it would be worthless on arrival. In 1993, by the time food aid reached Somalia, the crisis was over and the recent harvest had been good. As food aid inundated the market, prices fell by 75%, pushing many local farmers into further poverty and hunger.

The FAO's solution is "cash-based transfers or food vouchers." But while such vouchers may indeed "stimulate local production, strengthen local food systems and empower recipients in ways that traditional food aid cannot," they may also stimulate corruption and inflation, hitting the poor hardest. The tragedy is that although global food supplies have grown 50% faster than the human population in the past 50 years, hundreds of millions of people remain poor and hungry. Over the past two decades, a period of rapidly rising per capita production of food, the number of FAO emergencies has doubled.

FAO director-general Jacques Diouf said of the report that "the focus should be on preventive measures aiming at an increase in the security of production." But it is far from clear that his primary response, more aid money, will actually address the root causes of poverty and hunger. The FAO says food insecurity, defined as a daily shortfall of 100 to 400 calories, affects 800-million people all the time or frequently. Most are among the 1,2-billion extremely poor, earning one US dollar a day or less.

This poverty has not been solved by aid (money or food)-in fact, aid often helps prevent reforms. Only economic growth can lift people out of poverty and the best way to achieve sustainable growth is to remove government restrictions on property ownership and free enterprise. In many countries, governments have imposed protectionist trade barriers, food marketing boards and other arbitrary regulations, including heavy tariffs. These have deterred investments that would have increased agricultural output. They have also deterred other forms of entrepreneurship that would have led to economic growth. In Africa, some countries impose tariffs as high as 33% on agricultural goods from neighbouring countries, harming farmers and preventing food getting where it is most needed.

Lowering these barriers would not only reduce food prices directly but also by enabling the use of better agricultural technologies. But for people to be able to invest in better technologies, they need to be able to save or borrow, which means that property rights must be secure and financial markets unimpeded by bureaucratic rules: conditions that are rarest in the poorest countries.

Wealthy countries can help by cutting their agricultural subsidies and import barriers : the World Bank estimates this would be worth more to the poor in trade opportunities than the value of all aid currently given. They can also encourage poor countries to open internal and local trade, which would generate even greater benefits : a farmer with no hope of major exports can still run a very successful business locally if allowed to do so.

There is enough food for everyone in the world. The barriers to getting it or growing it are not inequality or capricious weather. They are corruption, internal and external trade barriers, including tariffs, and the absence of the economic freedoms that allow people to make a living.

*Tweeten is co-author with Douglas Southgate and Douglas Graham of a new book, The World Food Economy. He is a professor of economic policy at Ohio State University.

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