COMMENTARY
Yes, but food self-sufficiency for poor countries is the wrong goal
Autumn 2008
One can only share Michel Barnier’s empathy and deplore the human suffering caused by the surge in food prices. The increase in the price of major food crops could undercut the remarkable progress in poverty reduction achieved in recent years. So Mr. Barnier’s call for strengthening food supply is also easy to agree with. The global food crisis poses serious macroeconomic challenges to low-income countries and could undermine their hard-won macroeconomic stability.
Increasing food production in low-income countries is indeed crucial in responding to the food crisis, and the aim should be to ensure food security rather than food self-sufficiency. The distinction is important; few if any countries in the world are naturally self-sufficient – geography and climate often don’t permit it – so aiming at self-sufficiency would in many countries promote an inefficient use of resources. Food security implies availability and access to food for all.
More rather than less trade liberalisation would help ensure food security, so the recent breakdown in the Doha Round negotiations is unfortunate. Agricultural trade is still much less liberalised than trade in goods. Production subsidies in rich countries such as those of the CAP have so far kept international food prices artificially low, discouraging production in other countries. More widely dispersed food production could therefore decrease price volatility by attenuating the effects of localised meteorological misfortunes. Export restrictions have multiplied in recent months, and even though they are allowed under WTO rules, export subsidies further distort food markets by decreasing production incentives for farmers, and pushing up international prices.
Policies to ensure food security of course extend well beyond trade policy. Financial and technical support for low-income countries to help boost food production will be essential. Paradoxically, many developing countries are already surplus producers of basic food grains, yet have high numbers of malnourished people unable to afford food. Delaying the food price increases or providing direct food aid can serve as emergency measures to protect the poor, but such measures are untargeted and very costly. In the long run, there is no alternative to passing on higher food prices to consumers. It is therefore essential to develop effective social safety nets to protect the most vulnerable members of society.
The food crisis poses formidable macroeconomic challenges to middle and low-income countries. For food-importing countries, higher import bills will worsen balance of payments positions that are already under strain from rising energy prices. This is a particular challenge to countries with inadequate foreign exchange reserves. By providing external support to finance additional food imports, the international community is helping low-income countries avoid balance of payment strains.
The food crisis is also putting new strains on government budgets. Some countries may need to increase public spending to accommodate the cost of measures adopted to mitigate the impact of increasing food prices on the poor. Fiscal responses need to be carefully designed, however, to safeguard the soundness of public finances, maintain debt sustainability and preserve spending on other sectors crucial for development such as education, health and infrastructure.
Higher inflation risks undermining hard-won macroeconomic stability – and once again this is especially true of many low-income countries. Higher food prices have already led to substantial increases in headline inflation because of the high share of food in their overall consumption, and thus in the consumer price index. While any permanent rise in food prices must in due course be passed on to consumers, monetary policy should not allow the current food price shock to translate into a generalised and sustained increase in inflation.
Addressing the food crisis requires broad cooperation among the countries affected, donors and international organisations to put in place a more comprehensive policy response. Smoothly-functioning international agricultural markets would ease the food crisis, and international support has a role to play to help poorer countries implement good policies. Stepped-up budget support can help finance food aid, targeted support for the poor, and increased investment in agriculture, without jeopardizing macroeconomic stability. Low-income countries can also benefit from additional technical assistance to set up efficient, targeted, social safety net systems.