Getting Serious About Food
Senior Research Fellow at UNU-WIDER
At the G8 July summit in Aquila, Italy, US$ 20 billion was pledged to support farmers in poorer countries. Is the world getting serious about food security? To be sure, while growing water shortages and climate change pose important challenges, the world is not running out of food, yet. Rather, it is the current system of market mediated food security that needs serious repair. If it is to provide a credible alternative to the politically more palatable, but also more costly system of national food self sufficiency, public investment in agriculture must not only be increased, it must be well spent, world food markets need to be made more dependable, and national social safety nets need to become effective. And even this will not suffice for a market mediated food security system to fulfill its potential as long as EU and US bio-fuel policies maintain the link between food and fuel prices. Our world can simply not afford to have its food prices determined in the infinitely larger fuel market. Clearly, a daunting agenda presents itself for academics and politicians alike.
For starters, many questions remain about the G8’s recent pledge. There are few details of how and where this new public money will be spent, and this can make a huge difference. Economic theory and empirical evidence suggest a focus on public goods such as rural infrastructure (roads, electricity and ICT), soil conservation, and agricultural research, development and extension (RD&E), as opposed to private goods such as farm inputs (fertilizers, seeds) or commodity specific marketing and promotion programs. Nonetheless, farm input subsidies are high on Africa’s new agricultural agenda. The governments of Malawi and Zambia for example, have been spending more than 60 percent of their agricultural budgets on input and crop marketing subsidies, with other governments rapidly following suit. This leaves little room for investment that pays off over long periods, such as rural roads, irrigation, and agricultural RD&E.
A much better understanding of the relative role of the different determinants affecting modern input demand and supply is needed. When accompanied by increased public accountability, such a move towards evidence based policy making could ensure a more optimal return to the new investments. Agricultural ministries could for example shift from being primarily providers of agricultural services to becoming facilitators, coordinators and regulators. In this view, extension services might be provided through mixed public-private systems, involving public agencies contracting out extension services, as in Uganda. More detailed disaggregation of agricultural public spending and the establishment of public spending tracking systems could increase transparency and foster public accountability. Citizens’ report cards may help feed information about the performance and relevance of government agricultural services back into the policy making process.
In addition to the appropriate modalities of agricultural investment, important questions also remain about the appropriate spatial allocation of the world’s staple crop investment, i.e. the appropriate balance between national self reliance and market mediated food security. Last year’s escalation of export restrictions by key staple exporters served as a chilling reminder of the deeply political nature of food as a commodity. It also eroded the incipient trust in the world food market as a reliable source of food. Yet, reverting to grain self sufficiency combined with larger national buffer stocks to stabilize domestic markets presents a costly alternative to many net importers that have no comparative advantage in grain production. It also leads to thinner and more volatile grain world markets, which countries may in effect have to rely upon more frequently as climate change increases the occurrence of natural disasters and domestic supply shocks are more likely to exceed their buffer stocks. This has led some richer food importing countries, especially those suffering from water scarcity (such as Arab countries and China), to outsource their staple crop production to land-abundant countries in Africa and South East Asia. Whether such arrangements will enhance food security in both origin and destination countries will very much depend on how land acquisitions and agricultural production are organized. The signs so far are not fully convincing.
Overall, the shift from national food self sufficiency towards a more market based global food architecture in the 1980s has served the world reasonably well with staple foods abundantly available and cheap throughout the 1990s and early 2000s. Addressing the flaws in the system and building on its merits appears an appropriate way forward. In particular, much could be gained from efforts to make world markets more reliable and competitive through the establishment of a global food intelligence unit to generate reliable grain stock information. A thorough revision of WTO regulations on export restrictions is also needed. By better disciplining export restrictions, the balance of benefits from the trade system between exporters that want assured market access, and importers that want assured supplies, could be restored. This is an important topic for the Doha Round, but one that has so far not received much support. To adequately manage world price volatility, these efforts will likely need to be further complemented with the establishment of an internationally coordinated strategic reserve system and more stringent efforts to monitor and maintain the competitive character of food markets as market concentration deepens. Together these actions may help restore trust in world markets and foster a more politically palatable and economically efficient balance between domestic staple crop production and reliance on the world market.
The 2008 food crisis further highlighted that many countries do not possess effectively functioning social safety net systems that can be activated in times of crisis. As a result, countries often saw themselves obliged to revert to politically expedient but economically inefficient universal tax reductions and subsidies. Nonetheless, a review of the world’s vast experience with social safety nets suggests that these can be successfully designed and implemented in all country settings. In low income settings this entails adapting the design in accordance with the administrative capacity. The key now is to initiate such systems where they do not exist and to strengthen and streamline them where they do.
Nonetheless, investing more and better in agriculture, restoring trust in world food markets, and establishing well functioning social safety nets will not suffice to ensure global food security as long as energy prices are allowed to determine food prices. Studies by FAO and others clearly indicate that with the important exception of ethanol produced from sugar cane in Brazil, first generation agro-fuels produced in OECD countries with current technology are generally not competitive with fossil fuels without the current subsidies (and tariff protection), even at high crude oil prices. Removal of EU and US subsidies and import tariffs is clearly a very minimal first step to reducing distortions in the food market and allowing agro-fuel production to concentrate in economically and environmentally more suitable locations. Second generation agro-fuels that use lignocellulosic feedstock such as wood, tall grasses, and forestry and crop residues hold more promise.
Clearly, redressing the global food architecture poses a daunting task and policymakers will be eagerly looking for insights and policy solutions at the upcoming triennial conference of the International Association of Agricultural Economists which takes place from 16-22 August, 2009 in Beijing. A profession whose days were once numbered and whose ranks have been prematurely thinned, is back in demand, as high as ever. Building on its longstanding engagement in the food security debate, starting with its classic 1991 book Hunger and Public Action by Jean Drèze and Amartya Sen, which highlighted the existence of hunger in the midst of plenty and shifted the world’s attention to individual food demand issues, UNU-WIDER will once again seek to facilitate and advance the world's food security debate through a new project on the global food architecture to be launched this fall.
WIDER Angle newsletter, August 2009