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Rising Food Prices, Protectionism and the Poor

Rising food prices have caused street protests from Mexico to India to Senegal. But this could be a blessing in disguise if it makes governments eliminate the trade barriers that push prices higher: the poorest countries will benefit most from dropping their own tariffs.



by Caroline Boin and Alec van Gelder

Rising food prices have caused street protests from Mexico to India to Senegal. But this could be a blessing in disguise if it makes governments eliminate the trade barriers that push prices higher: the poorest countries will benefit most from dropping their own tariffs.

Nobel economics laureate Gary Becker estimates that a 30% rise in food prices over five years would cause living standards to fall by 3% in rich countries and by more than 20% in poor countries.

A few countries have already temporarily eased tariffs on agricultural imports to soften the blow for consumers — even the European Union. Thailand is considering a cut of 50% for maize, soybeans and other animal feed. These tariff reductions will offset price increases not just by lowering prices but by increasing supply. Increased trade in agricultural goods (not just food) could even help avert famines where produce is subject to government control, such as in North Korea, Ethiopia and Kenya.

But many countries resist free trade in food, domestically or with neighbours.

In Africa, 200-million people are underfed, according to the United Nations Food and Agriculture Organisation. They have borne the brunt of counterproductive state management of agriculture that has damaged farmers and economies.

For years, governments in Africa forced farmers to surrender their crops to state-run marketing boards at below market rates. Some of these corrupt and inefficient institutions have been weakened or abolished but many other restrictions on agriculture remain, including tariffs on produce and on inputs such as fertiliser and machinery — and even tariffs on exports.

Many development analysts are obsessed with subsidies to farmers in rich countries, now extended to biofuels, and the damage it inflicts on the world’s poor. But it is the world’s poorest countries that impose the highest barriers against trade with each other: agricultural exports between sub-Saharan countries face an average tariff of 33,6%, the highest of any region on Earth.

A whopping 70% of the world’s trade barriers are imposed by governments in poor countries on people in other poor countries. Alhaji Ahmed Abdulkadir, a presidential adviser in Nigeria, has said: “I can assure you that my pen is always ready to ban more items as long as they are available in Nigeria.” These would be “either banned completely and where we have doubts, we will impose high tariffs”. Nigeria’s import bans have included staples such as wheat, rice, maize and vegetable oil, making Nigerians pay sky high prices.

The World Bank estimates that global free trade in all goods would add $287bn to world income each year, half of that going to poor countries. Sixty-three percent of that immediate gain would come from freeing agricultural trade alone. In African countries, nearly all of that 63% would come from removing their own import tariffs and quotas, which artificially restrict access to other markets, including their neighbours’.

High food prices are now a clear and immediate reason to cut tariffs, but that does not mean it will happen. For decades, protectionism has been imposed against the interests of local consumers because of an unholy coalition of Western activists and local vested interests.

Under the slogan “Make Trade Fair”, groups such as Oxfam and Christian Aid claim that protecting local industries and agriculture with tariffs will allow them to grow and become competitive — with local consumers, especially the poorest, suffering higher prices.

But decades of protectionism have done little for sub-Saharan Africa. It is no surprise that crop yields — like income and life expectancy — have steadily decreased across much of Africa since the 1980s.

The technologies that could turn their fortunes around, such as fertiliser, irrigation and genetically modified crops, remain largely out of reach. Worse — and contrary to trends in Asia and Latin America — fertiliser use has actually fallen in many African countries in the past two decades. Whereas an average of 107kg of fertiliser is used per hectare in the developing world as a whole, African countries use only eight. The consequence has been disastrous: 70% of the continent’s work force is still in agriculture, mainly subsistence farming, contributing only about 25% of gross domestic product .

Demand and prices for food are rising, so freeing trade would be the best remedy for the world’s poor, cutting prices at a stroke and boosting production.

High food prices are putting pressure on protectionist governments to free their trade or face angry mobs. The choice is obvious, lest a crisis turn into a tragedy.

This article appeared in The Frontier Post on March 20, 2008.



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