Farm Subsidies Are the Real Culprit


In developing countries in Africa and elsewhere, many go hungry. U.S. and European subsidies depress prices, undermining world agriculture

For more than half a century, developed countries in the West have systematically and egregiously distorted the global production and trade of agricultural commodities through an elaborate range of domestic and export subsidies. It is naive to believe that distortions perpetuated for so long will now be swept under the carpet using the excuse of "the hunger crisis." Let's get some facts straight.

First, it is indisputable that the lavish farm subsidies provided by the U.S. and the European Union to their farmers distort global production and trade. These subsidies artificially depress prices, encourage inefficient producers (in the U.S. and EU) and discourage competitive producers (in the developing countries). Just look at the impact of subsidies on cotton. Some of the most competitive producers are countries in West Africa. They receive a pittance as the price for cotton because of the huge subsidies to a handful of farmers in the U.S. And exactly the same argument holds good for a host of other agricultural commodities—rice, wheat, soybeans, corn, pulses, sugar, dairy products, and so on. The bottom line: Subsidies shift production away from efficient developing countries to inefficient developed countries.

Second, the U.N. is now clearly saying that the ethanol/biofuel policies aggressively pursued by developed counties have exacerbated the current food crisis. Huge subsidies are being handed out to encourage production of biofuels by converting food products into energy products. This is what is responsible for drastically increasing prices of goods such as corn. So, what are these policies achieving? Developed countries subsidize their inefficient farmers, and the corn grown is then used to produce subsidized biofuels, which makes energy prices cheaper. The net result, to let the rich drive their cars and SUVs cheaply! And, who pays the real price for this? The world at large.

Rice from Overseas

Third, if rice can be efficiently grown in many parts of West Africa, why is there a hunger crisis? Well, developed countries sell cheap rice to these countries (cheap only because of the extensive subsidies). West African countries, therefore, import their food rather than grow it. And, in a year when there is a sudden supply shock (as is the case today), food prices suddenly escalate, and these countries face a crisis because they can't afford the imported food. Are the developed countries' subsidies blameless? No!

The point is that whether we look at the current crisis or the one that has been perpetuated for the past 50 years, ultimately the blame rests at the door of the developed world and the policies they have aggressively pursued. Surely, it is time to put a stop to this. We need to solve this once and for all rather than trying to "compromise" and duck making a decision.

Notwithstanding Malthusian doomsday predictions and the economic logic of Engel's Law, the world has quite happily managed its food situation. Yes, we do have a crisis today. But it is not one that cannot be managed. Prophets of doom, ascribing a looming crisis to demographics or changes in consumption because of rising incomes, have been belied time and again. How? Technology has always provided a solution. We had our Green Revolution, as did other parts of the world. It is now time to invest resources into R&D and technology to engineer another Green Revolution. That is the way forward. This is most certainly not the time to continue perpetuating intrinsically and fatally flawed policies. Let the developed countries abandon their farm subsidies. Instead, they should divert these resources to funding the World Food Program and help the really poor battle today's hunger crisis.

Kamal Nath is India's Minister of Commerce Industry.

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