Thursday, May 8, 2008

More on Food Prices

Here is another article on the food crisis that points to misguided policies as being a key contributor to the food crisis. Also see Kenneth Rogoff's latest piece on soaring commodity prices.

Not by Bread Alone
Thomas G. Donlan

FROM THE REPEAL OF THE BRITISH CORN LAWS TO THE END of collectivization in China and the former Soviet Union, the key to feeding a nation's people has been to let the market do it -- ably assisted by continuing progress in agricultural technology.

But countries from the Philippines to Haiti are forcing their farmers out of world markets so as to lower domestic prices. Then, the same governments that closed markets in order to control prices vainly demand that farmers plant and harvest more food, despite lower profit opportunities. Some also foreclose their farmers from using genetically modified seeds. Nearly all have reduced local investment in agricultural productivity, following the example set by wealthy governments and charities.

High prices for the world's food commodities have also frightened the countries that produce surpluses, some of them new to the market economy: Kazakhstan, which had been one of the largest wheat exporters, is now one of the largest hoarders; Russia has levied a 40% export tax on wheat; Ukraine imposed a wheat-export quota and Vietnam has banned rice exports.

Some countries have never caught on to market reality, despite decades of experience: Argentina imposed a 44% export tax on soybeans to keep local feed prices down. Others are taking leave of their senses: Singapore, which became wealthy through trade, is bidding up the price of rice to fill supposedly strategic stockpiles; the Philippines, short of rice, cuts off trade; and Thailand, a producer of rice surpluses, builds stockpiles to hold down domestic prices.

The biggest and most sophisticated market economies, the United States and the European Union, wrap their farmers in so many subsidies and protections that prices mean almost nothing. Despite the rising world prices of grain, European production is falling, with exports falling faster. U.S. production of grain is rising, but much of the new production is going to motor fuels -- ethanol made from corn is blended with gasoline and soybeans are being converted to biodiesel. Even so, there's a record amount of American food grain available for export, but not enough to replace supplies taken off the market by other exporters.


Around the world, food producers and their suppliers face the same type of discouraging experiences as oil producers. What is the point of assembling large tracts of land, investing in heavy equipment, irrigation, fertilizer, highly productive seed and other inputs if the outputs must be sold into price-controlled markets?

Read the rest.

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