I made several trips to India and Pakistan between the late-1960s and the early-1980s. The ‘Green Revolution’ was just emerging during my first trip in 1967-68, when I spent 6 months collecting agricultural data for my Ph.D. dissertation near Allahabad, on the fertile Gangetic Plain of northern India. I later lived for 1-½ years in Pakistan during the mid-1970s, as an agricultural economist with the U.S. Agency for International Development. By the time of my stay in Pakistan, the Green Revolution pace of change in the subcontinent had begun to slow. During and immediately following my various trips, I was always struck by the contrast between the prevailing U.S. view of ‘markets’ and the views of Indian and Pakistani governments. It seemed to me that India and Pakistan needed to place more reliance on markets and the U.S. needed more regulation of markets.
Now, some 40 years after the Green Revolution erupted in Asia and some other parts of the developing world, we again appear to be facing the kind of world food crisis that India faced just prior to that revolution. Food commodity prices have risen by more than 60 percent in the last 2 years, to their highest levels in decades. A constellation of factors have brought about the pressures on food supplies and consequent increase in prices, including crop failures in some parts of the world, the surge in biofuels production and associated use of cropland for fuel rather than food, continued growth in the world’s population, higher energy prices, and rising incomes in developing countries—which induce diet changes that put more pressure on grain supplies. Moreover, annual worldwide growth in agricultural output has been much slower in the last two decades than in the previous two decades following the Green Revolution. Between 1970 and 1990, world grain and oilseed production increased at an annual average rate of 2.0 percent per year, while world population growth averaged 1.7 percent annually. Population growth was lower between 1990 and 2007, averaging 1.4 percent annually. However, growth in grain and oilseed production averaged only 1.3 percent per year in the later period.
Food scarcity and associated price increases always hit the poor hardest. As a consequence, in recent months, we have seen food riots, government limitations or increased taxes on food exports by the governments of some exporting countries, and a variety of short-term national and international responses to get affordable food in the hands of the poor in many developing countries.
We are also seeing an intense discussion of what kinds of national and international agricultural and food policies are needed to deal with this food crisis on a long-term basis.
Pascal Lamy, the Director General of the World Trade Organization (WTO), for example, recently stated that successful resolution of the WTO’s Doha Round of trade negotiations could help provide medium to long-term solutions to the world food problem. In his May 7 report to the WTO General Council, he stated:
“… a WTO deal could help soften the impact of high prices by tackling the systematic distortions in the international market for food. We all aim to substantially lower barriers to trade in agricultural products and diminish levels of trade distorting subsidies, particularly in developed countries that have hampered food production and investment in agriculture in many developing countries.”
Bob Davis, writing May 12 in The Wall Street Journal Online, stated that the current world food crisis represents a breakdown in the global agricultural market. “Skyrocketing prices should boost production of grain, which can be shipped around the world. But not if countries hoard supplies and restrict exports.” He went on to describe efforts by the World Bank and International Monetary Fund (IMF) to persuade national governments not to restrict food commodity exports.
Likewise, the May 11 Washington Post Editorial Page called for the U.S. to use “strong diplomacy” in attempting to persuade national governments not to restrict food commodity exports.
These, in effect, are all calls for more reliance on ‘markets’. More reliance on markets does, indeed, constitute part of the needed long-term response. But we need to avoid a mentality that markets by themselves will deliver long-term solutions to the food crisis. In reality, we need both ‘more’ and ‘less’ reliance on markets.
First, how do we need more reliance on markets? We do not need a narrow WTO view of ‘free markets’ for agriculture—which in fact do not prevail in the globalized agricultural system and are unlikely ever to prevail so long as national governments are responsive to felt needs of their citizens for food security. But WTO advocates are correct in calling for the European Union (EU) and the U.S. to dismantle the forms of farm subsidy that until recently have resulted in ‘dumping’ and associated depressed farm prices in developing countries, thereby undermining incentives to expand agricultural production within those countries themselves. The U.S. has ‘talked the talk’ of free trade in WTO negotiations, but has consistently failed to ‘walk the walk’. We need a lot more reliance on true market forces in the U.S. agricultural sector, rather than heavy reliance on artificial markets created by commodity subsidies, highly subsidized crop and farm revenue insurance, taxpayer-funded disaster programs that encourage production that is ecologically and economically inappropriate to some regions, and ethanol subsidies and mandates.
Greater reliance on true market forces in the U.S. would not only be beneficial to farmers and the poor in developing countries, it would also be beneficial to the long-run sustainability of our own agricultural resources. The artificial markets we have created since World War II in this country have resulted in chemical-intensive crop production practices, loss of biodiversity, and large-scale livestock confinement systems—all of which ‘externalize’ many of the true costs of food production and undermine our production capacity for the long run. Greater U.S. reliance on markets also would, over time, lead to production and consumption of healthier foods, especially of fruits and vegetables and of food consumed closer to where it is grown.
Second, how do we need less reliance on markets in addressing the food crisis on a long-term basis? We can start by dismantling the modern myth that free trade carried out globally in accordance with WTO rules would eliminate the need for nation states to have any internal food security. What kind of fantasy world is that? Western Europe was absolutely committed to food security following the devastating effects of two twentieth century world wars, and food security was the critical objective in formation of the EU’s Common Agricultural Policy. Is it any wonder that the EU has been reluctant in WTO negotiations to adopt the U.S. view that food security is unimportant? If we needed any further reminder that food security within nation states will always be the number one agricultural priority, witness the food riots and resultant controls on exports referred to previously in this article! Deep down, we know that the U.S. also would somehow limit exports if we were faced with the kinds of shortages occurring now in some other parts of the world.
It is all well and good for WTO, World Bank, and IMF officials to urge countries not to limit their food commodity exports, but it is naïve to build long-term policies on the assumption that nation states will not behave in this way. Therefore, nation states are well advised to have some form of food security objective and policies, though this sometimes can be done by a collection of well-integrated nations, as in the case of the EU.
One element of food security would be a sensible grain reserve policy, something the U.S. no longer has. The U.S. dismantled its long-standing grain reserve policies some years ago. I distinctly recall conversations at the time with economics colleagues who contended this was a good thing, that ‘the market’ could take care of whatever reserves ‘the market’ needed. Government grain reserves sometimes were managed for political purposes (true enough), and were best done away with, ran the argument. I expressed skepticism about reliance on ‘the market’ for strategic and price-stabilizing reserves. Unfortunately, I believe recent events have proven me to be correct. The fact that government controlled grain reserves are not always managed as they should be is not sufficient reason to abandon them. Far better to make reserve programs function as they should.
A second element of food security is for nations—both ‘advanced’ and ‘developing’—to place new or renewed emphasis on agricultural output growth through ecologically integrated, sustainable approaches. While not completely abandoning comparative advantage principles and agricultural trade, this approach recognizes that most nations of any significant size need to have some internal food production capacity. Producing a portion of the food supply domestically and sustainability helps satisfy food security needs and is the best way to have many poor people involved in agriculture, both as farmers and consumers of affordable, nutritious food.
Governments have a legitimate role in supplementing and regulating the market to promote sustainable food production. They can supplement the market through support for research, technical assistance, funding for infrastructure, creation of a positive climate for emergence of social capital, and cost-share assistance for conversion to ecological farming systems. They can regulate the market by enforcing tough environmental standards to curb polluting and unsustainable farming practices, thereby creating a more level playing field for ecologically sustainable systems.
Have my views on markets fundamentally changed since those early years of observing differences of emphasis between the U.S. and the Indian subcontinent? I don’t think so, though I hope I am always learning and refining my policy views. I have always been an economic pragmatist, and wary of sweeping economic ideologies. Clearly, markets have their place, and in some ways we need more reliance on market forces and institutions to deal with the food crisis that confronts us. But in other ways we need less reliance, or at least more regulations and more policies and programs to supplement the market.