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April 15, 2008

Global food crisis requires more industrial agriculture and globalization, not less

by *

The world price of staple foods has rocketed, almost doubling in the past 18 months. For consumers in the rich world this massive increase in the price of wheat or rice is an inconvenience; for consumers in the poorest countries it is a catastrophe.

Food accounts for around half of the entire budget of most Africans. Of course some poor households sell food, but many are net buyers. Indeed, decades of agricultural stagnation and growing populations have turned many African countries into food importers. The households that are poor and net purchasers of food are concentrated in the urban slums. These slums are already political powder kegs: rising food prices have triggered riots from Ivory Coast to Indonesia, from Burkina Faso to Bangladesh. Indeed they sow the seeds of an ugly and destructive populist politics.

Why have food prices rocketed? Paradoxically, this squeeze on the poorest has come about as a result of the success of globalisation in reducing world poverty. As China develops, helped by its massive exports to our markets, millions of Chinese households have started to eat better. Better means not just more food but more meat, the new luxury. But to produce 1kg of meat takes 6kg of grain. Livestock reared for meat to be consumed in Asia are now eating the grain that would previously have been eaten by the African poor. So what is the remedy?

The best solution to a problem is often not to reverse what caused the problem. If you broke your leg by falling off a cliff, it is not a good idea to climb back up. The best solution to the rise in food prices is not to arrest globalisation. China's long march to prosperity is something to celebrate. The remedy to high food prices is to increase supply. The most realistic way is to replicate the Brazilian model of large, technologically sophisticated agro-companies that supply the world market. There are still many areas of the world - including large swaths of Africa - that have good land that could be used far more productively if it were properly managed by large companies. To contain the rise in food prices we need more, globalisation not less.

Unfortunately, large-scale commercial agriculture is deeply, perhaps irredeemably, unromantic. We laud the production style of the peasant: environmentally sustainable and human in scale. In respect of manufacturing we grew out of this fantasy years ago, but in agriculture it continues to contaminate our policies. In Europe and Japan huge public resources have been devoted to propping up small farms. The best that can be said for these policies is that we can afford them.

In Africa, which cannot afford such policies, the World Bank and the Department for International Development have orientated their entire efforts on agricultural development to peasant-style production. Africa has less large-scale commercial agriculture than it had 60 years ago. Unfortunately, peasant farming is not well suited to innovation and investment. The result has been that African agriculture has fallen farther and farther behind.

Our longstanding agricultural romanticism has been compounded by our newfound environmental romanticism. In the United States fear of climate change has been manipulated by shrewd interests to produce grotesquely inefficient subsidies to biofuel. Around a third of American grain production has rapidly been diverted into energy production. This demonstrates both the superb responsiveness of the markets to price signals, and the shameful power of subsidy-hunting lobby groups. However, just as livestock are eating the food that would have been consumed by poor Africans, so Americans are running their SUVs on it. One SUV tank of biofuel uses enough grain to feed an African family for a year.

In Europe deep-seated fears of science have been manipulated into a ban on both the production and import of genetically modified crops. This has obviously retarded productivity growth in European agriculture. Again the best that can be said of it is that we are rich enough to afford such folly. But as an unintended side-effect it has terrified African governments into banning GM lest their farmers be shut out of European markets. Africa definitely cannot afford this self-denial. It needs all the help it can possibly get from GM drought-resistant crops.

While the policies needed for the long term have been befuddled by romanticism, the short-term global response has been pure beggar-thy-neighbour. It is easier for urban slum dwellers to riot than for farmers: riots need streets, not fields. And so, in the internal tussles between poor consumers and poor producers, the interests of consumers have prevailed in the developing countries.

Governments in grain-exporting countries, such as Argentina, have swung prices in favour of their consumers and against their farmers by banning or restricting exports. But such tariffs and export bans make investing in commercial-scale food production less attractive, drive up prices further still in the food-importing countries, and discourage farmers from increasing their yields, exacerbating global food shortages.

Unfortunately, trade in agricultural produce has been the main economic activity to have resisted the force of globalisation. The cost of this is now being picked up by the poorest people in the world.

*Paul Collier is Professor of Economics at Oxford University and the author of The Bottom Billion: Why the Poorest Countries are Failing and What can be Done about It

The Times - UK

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