The Wrong Policies on the Rise to Target High Food Prices
A combination of bad harvests together with an increase in biofuel demand have created a food shortage and, thus, rising food prices across the globe. This is a cause for concern, first because biofuel demand is increasing and, second, because the world presently lacks the productive capacity to ensure that sufficient stocks are available to keep up with demand when harvests fail. In response, some countries have introduced, or are planning to introduce, traditional supply and market control measures: e.g. export taxes and production subsidies. Measures recently deemed unacceptable are creeping back on to the political agenda, i.e. protectionism and self-sufficiency. This is a mistake which the world may soon pay for dearly.
Measures recently deemed unacceptable are creeping back on to the political agenda, i.e. protectionism and self-sufficiency. This is a mistake which the world may soon pay for dearly.
Contrary to popular (or political) wisdom this shortage will probably trigger a market response, with farmers ramping up the production of cereals. This has de facto started and prices are falling. Using production enhancing subsidies is thus unwarranted and would just create excessive year to year surpluses. Actions aimed at fostering self-sufficiency or domestic surpluses would simply disrupt trade and hurt competitive food exporters.
Today we actually need to ensure that food in the world is efficiently produced in the most productive regions avoiding an excessive use of natural resources, such as water. There is abundant underutilised or abandoned land in the area of the former Soviet Union. High prices will induce production to return to these areas and push the governments of those countries to speed up land reform and reduce the administrative barriers to allow farmers to operate. Finally, a lot could be achieved at very low cost in developing countries by improving the basic infrastructure and market requirements needed for local producers to operate. In developing countries it is neither the free market nor price volatility that has undermined local production; rather, this may be attributed to the absence of a functioning market and the price depression created by the unfair protectionist policies of the largest producers, such as the EU and the US.
14 Oct 2008
Jorge Núñez Ferrer
Jorge Núñez Ferrer is an Associate Research Fellow of the Centre for European Policy Studies (CEPS), based in Brussels.