Subsidies, subsidies - when will we learn?

Mark Twain famously observed that man was the only species on earth that could blush .... or needed to. The present food crisis is man-made and has already pushed over a 100 million poor people in the poorest places further into desperate poverty. 

Mark Twain famously observed that man was the only species on earth that could blush .... or needed to. The present food crisis is man-made and has already pushed over a 100 million poor people in the poorest places further into desperate poverty. 

Governments have been destabilised, thousands will perish. The last 50 years have been the most successful in human history in lifting living standards worldwide. All this is threatened. Why? 

A combination of global factors. China and India, where low cost exports kept inflation down for a decade and helped consumers everywhere, are now exporting inflation because of demands for energy and changing food consumption demands. 

China was self-sufficient in energy until 20 years ago and is now the 2nd biggest importer of energy. Her energy demand increases over the past 5 years now equal Japan’s total energy consumption. Energy costs feed into agricultural prices due to fertiliser and distribution costs.

In a bid to wean herself off her addiction to oil, the US moved to a populist Green bio-fuel alternative. Really a sordid subsidy to farmers in the mid-West. 

Ethanol to fuel production actually consumes more energy to produce than it saves. The bio-fuel needed to fill the tank of an SUV represents the grain necessary to feed an African family for a year. 

Up to a third of world food price increases can be traced to those programmes which have resulted in nearly a third of US crops being diverted to fuel cars. 

Meanwhile, a tariff of 30% on efficient, non-subsidised Brazilian bio-fuel keeps that product off the US market. Rice prices have doubled in a few months, corn, soy beans, and wheat up by 100% in a year. 

The low US dollar has pushed up food prices exported or gifted by the US. Governments are panicking, and rightly so. Riots, hoarding, the army guarding farms and warehouses are commonplace. 

Afghan poppy growers are reported switching to wheat.  Major producers such as Thailand and Vietnam are restricting exports which drives up prices even further, encouraging speculation in ‘food futures’ to profit from this frenzy. What to do?

The UN, World Bank, IMF, WTO, and Senior Finance Ministers met in Washington, D.C. and pledged to raise NZ$640 million for food aid. Food must be put in the mouths of the poorest as soon as possible. But that’s short term.  What happens next month? 

And, often the food dropped into these places wipes out what agricultural production exists now. How can local producers prosper when rich countries sell their surpluses, subsidised to the tune of a billion dollars a day, at whatever price is necessary to undercut local producers?

Corrupt, inefficient, dysfunctional governments often make things worse. There’s never been a famine in a democracy.  Half of African agricultural production doesn’t get to markets because of inadequate infrastructure, roads and ports. Public spending in African agriculture has fallen by 50% in the past 2 years.

We have a 250% capacity to over-fish the world’s fishing grounds. Rich countries, including China, subsidise the energy costs of their fishing fleets which vacuum out the fishing grounds of many developing countries, devastating traditional fishing.

The Doha Development trade round is the best medium and long term answer because all these subsidies are on the table. Africa would get, if the deal was done in agriculture alone, 4-5 times more than all the aid and debt relief put together. 

But it’s just not rich countries that have fallen into this corrupt tradition. A provincial government in India, which won an election on 80% subsidy for rural electricity recently.

Problem is, most farmers don’t have electricity so wealthier farmers pump water up, lowering the water table to the point that poor farmers can’t get water.

Food production in the last 100 years has vastly outstripped population growth, especially where farmers’ property rights are respected. China saw a 40% growth over 5 years in agriculture which they let farmers own what they produced. 

Norman Borlaug, in the 1960’s, invented ‘super wheat’ and ‘super rice’ creating the Green revolution which has saved millions of lives in developing countries. He was awarded the Nobel Prize for Peace.  Nowadays he would be attacked by protestors, his laboratories and work threatened. 

The hysteria about GM foods enabled the wicked Robert Mugabe, who has devastated Zimbabwe, turning a food exporting country into a place with the lowest life expectancy in Africa, to turn back food aid because GM foods were a ‘capitalist conspiracy’. 

As Mao once said, “Rather socialist weeds than capitalist crops.”  Properly monitored GM production offers much hope. 

It’s been used for decades in the US and elsewhere.  The US is the most litigious society in the world. Class action lawsuits would be flourishing if anything bad could be proved. We reject science and rational thinking at great peril. 

This is man-made madness. Yet, we have the tools, the experience and the capacity to fix it. If rich countries cannot summon up the political willpower to take on their rich farmers, a small percentage of whom consume over 80% of the subsidies which makes food dearer, when prices are high, when will they? 

Even in rich countries, these subsidies are a direct cash transfer from the poorest of consumers to the richest of producers. But all politics is local and immediate, the next headline and election. Alas, for much of the world, it’s the next meal.

Mike Moore former Prime Minister of New Zealand
former Director-General of the World Trade Organisation
Adjunct Professor, La Trobe University, Melbourne, Australia.

 

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