It's the Stupid Politics: Food & Failed Policy

Japan doesn't need any of the rice it buys abroad, and its leaders don't want it. In fact, Japanese farmers harvested a big surplus in 2007, and the long-ruling Liberal Democratic Party attempted for decades to shield traditional growers from outside competition. The rice imports are typically warehoused for years and eventually sold to make crackers or miso, sent abroad as food aid or, increasingly, fed to chickens, pigs or cattle. Japan is a big importer for one reason: the World Trade Organization demanded that it become one. In 1993 the WTO required that Tokyo import the equivalent of 4 to 7.2 percent of its annual domestic rice consumption. The result is that last year Japan imported 770,000 tons of unwanted and unneeded rice last year, contributing in a small yet significant way to the run-up in rice prices that is helping to stir riots and unrest across the world. (Article continued below...)

The WTO cracked Japan's rice market open in the name of free trade. By protecting local growers with heavy subsidies, went the logic, Tokyo and its neighbor South Korea had forced their consumers to pay three to four times the world average for a sack of their main foodstuff—a product farmers in, say, Thailand, with its lower costs, could deliver much cheaper. Such closed-door policies denied farmers in developing countries access to the world's premier rice market, thus limiting their ability to farm themselves out of poverty. Yet when Japan's market finally opened, the big winners were farmers from another rich, heavily subsidized region: California. They've grabbed roughly half of Japan's import quota since 1995, thanks to $2 billion in subsidies paid to the state's rice farmers over that period.

The story illustrates the two biggest factors contributing to today's global food crisis. One is the grossly distorted system of global trade in agriculture. Rich countries—mainly the United States and parts of Europe—heavily subsidize farms, then dump their surpluses onto emerging markets (often after forcing them open in one-sided trade deals). The other factor is underinvestment in agriculture in the developing world, which leaders rationalize on the mistaken assumption that imported food would forever remain cheap. "They simply did not make [agricultural investments] a priority," says Lennart Bage, president of the U.N.-affiliated International Fund for Agricultural Development. "They've been lulled into a false sense of complacency."

And now they're facing a rude awakening. By all accounts, a period we might call the Era of Cheap Food, which ran from 1980 to 2003, is over—most likely for good. The new context is food scarcity, soaring grain prices, market panic and well-founded fears of widespread hunger in Africa and South Asia. The crisis is driven by the inexorable rise of a new middle class in emerging markets that is consuming more and better food, but also by stupid and reversible policy mistakes. A dizzying array of trade restrictions distorts global commerce in most agricultural commodities. Although the barriers take different forms in Asia and Europe, the United States and Latin America, their purpose everywhere has been the same: to protect local farmers and an often vanishing rural society, not to feed people.

The scale of the market distortions is enormous. One World Bank study estimates that rich-world exports subsidies and tariffs cost poor-country farmers $100 billion yearly in lost income. Mike Moore, former New Zealand prime minister and head of the World Trade Organization, urges prompt conclusion of the WTO talks, which would end agricultural export subsidies by 2013, and "give four to five times as much to Africa as all the debt relief and overseas development assistance put together." In 2006, development aid alone came to more than $100 billion, so these are huge sums.

The crisis, however, has upended the WTO debate. While many parties, particularly the United States and Europe, were arguing over which side needed to do more to free markets, the race is now on to close markets. Surplus-rice growers, including India, Vietnam, Thailand and Cambodia, have imposed new export restrictions to curb inflation at home, leaving the Philippines, Indonesia and other major importers to scramble. It's a starve-thy-neighbor policy that is sure to raise global prices and worsen the crisis.

It makes little sense to press for more farm market manipulation when that's what created the problem. For decades, America and the European Union have lavishly underwritten agribusiness—subsidies totaled $283 billion in OECD nations last year—while keeping domestic prices artificially high. That created a vast problem of overproduction, which rich countries solve by dumping the excess on world markets, which, until recently, was driving down prices.

Mexico is a prime example: after NAFTA came into effect in 1993, subsidized U.S. corn flooded Mexican markets, slashing local corn prices by 70 percent within several years. The same dynamic has sent cheap European sugar to Africa, cheap U.S. rice to the Caribbean, and chicken from both to Ghana and Cameroon. All the while, the EU and the United States retain high tariff walls to keep out developing-world competition. In many cases, says Jack Thurston, founder of the U.K.-based farm-policy watchdog, even food aid is thinly disguised dumping. It's no surprise that when grain prices exploded this winter (Thai rice was up 280 percent from December to April), driven by rising demand and supply shocks (declining yield growth, bad weather and the shift of corn to biofuels), poor countries were ill prepared to ramp up production.

Of course, it's not only rich countries that are at fault. Governments across Asia and much of the developed world have their own trade distorting policies (map), and have made mistakes that choked supply. They've allowed irrigation systems to break down, public agricultural spending to fall and irreplaceable rice land to be grabbed for pell-mell urbanization undertaken by "city planners who seem to take Los Angeles rather than Hong Kong as their inspiration" and build out instead of up, as Standard Chartered put it in a recent report about China. According to the International Rice Research Institute, Vietnam, Thailand and Bangladesh are losing tens of thousands of hectares of prime farmland a year to urban and industrial sprawl.

Asian countries geographically ill suited to large-scale rice production have come to rely heavily on imports and now regret it. In Malaysia, the government has promoted export-driven palm-oil plantations, which are better suited to the local climate and geography than rice. Now the annual food bill has grown so expensive that Prime Minister Abdullah Badawi recently announced a $1.3 billion scheme to create massive new rice farms on Sarawak.

Even the Philippines, a rice importer since the 19th century and now the world's largest importer, is rethinking its reliance on global markets. Agriculture Secretary Arthur Yap says it is "an imperative" that the country achieve rice self-sufficiency by 2011. But that will require massive investment into places like Queru Bin, a hardscrabble village on the island of Negros, which was hit by famine in 1973 and again in the 1980s. Residents, most of them too poor to buy enough rice at today's high prices, sow tiny plots of yams or cassava to fill their bellies.

In China and India, two fast-growing giants that have become grain hogs in recent years, policymakers have themselves to blame for declining yield growth. While Vietnam has become a major rice exporter by giving farmers claim to their land—and a motive to get the most out of every paddy in the long term—China's peasants live in fear of local cadres with the power to snatch their fields for pet development projects. That's a big reason "most farmers in China have gone a whole generation without making major improvements to their land," says Roy Prosterman, chairman emeritus at the Rural Development Institute in Seattle. In India, the poorest 18 million families—more than 100 million people—face a similar plight because they are landless. They work mainly in the fields, earning meager wages for seasonal work, and when food prices skyrocket their real wages plummet. It's a recipe for famine.

Policymakers in both countries are addressing these land issues. Beijing has issued new directives to bolster farmers' tenure rights, and India plans to give its poorest 18 million households tennis-court-size garden plots to buffer them from spiking grain prices.

It's not only subsidized food that feeds the hunger crisis. The average incomes in poor agricultural regions are undercut by America's cotton subsidies, by Europe's phony opening of its sugar market (only to cheap unrefined sugar) and by the U.S. and European practice of "tariff escalation" on coffee. The latter raises tariffs depending on how fully coffee growing nations process their beans. "The more value they add by grinding, packaging it, branding it and doing everything else they teach in business school, the higher the tariff," says Moore. Now these policies are raising the vulnerability of nations like Colombia and Egypt to famine.

So is the boom in biofuels. Western farm lobbyists have embraced corn ethanol (and other biofuels such as rape-seed biodiesel) as a new way to gobble up excess production and justify lavish farm subsidies. The result has been a vast shift of land into energy crops (15 percent of arable land in Germany and France, and some 20 percent of America's corn production). Prosterman warns that "we need to close the subsidy spigot, otherwise we won't be feeding 15 to 20 percent of our corn to cars, but two or three times that amount. I shudder to think what that would do to food availability worldwide."

Agronomists argue that the planet is not even close to being tapped out on spare food growing capacity to nourish an expanding population. And economists say higher prices could be the wake-up call that compels politicians to create the right incentives for farmers to meet that potential. They need to cut the red tape, knock down the trade barriers and create conditions in which investments in agriculture flow to the areas that need it most. In one promising development, the food-price crisis has led African and other poor countries to all but drop import tariffs among themselves, which should boost production. And in recent years the EU has begun slashing its highly destructive export subsidies from a high of €15 billion in the 1990s to less than €3 billion last year (though they still refuse to abolish many of their highest tariffs). To solve the food crisis, a much more profound attitude shift will be needed. As hundreds of thousands of tons of warehouse rice sit in bins in Japan, it's a change that can't come too soon.