The U.S. Response to Food Crisis

The United States scores better than Europe on agricultural subsidies, but it's backsliding quickly.

High food prices have been bad news for consumers, but they have revealed even worse news about the tendencies of government. Soaring crop prices offer a tremendous opportunity for smart reforms and real economic development. In rich countries like Western Europe's and the United States, high prices could, in theory, make it easier to wean farmers from lavish subsidies, plugging holes in the public budget and putting the world's farmers on a more level playing field. That, after all, has been the stated goal of free-market-oriented governments in the United States for many years. Lowering subsidies could also lighten farmers' footprints on the landscape; subsidized and protected farmers usually plow too much land and tread heavily with fertilizers and pesticides. Which makes it all the more surprising that the response of the United States in particular to the food crisis has been to do the opposite of what would be best for the world economy. Over the last month the U.S. Congress has passed new legislation that will heap even more cash on farmers. The bill will extend a program that protects U.S. sugar producers from world competition by guaranteeing that they alone can keep most of the U.S. market. It channels money to a wide range of farmers regardless of whether they need it, and it indexes new subsidies to already high crop prices, which puts the government on the hook for massive payments when prices eventually decline.

This is exactly the kind of thing that the United States has excoriated Europe for doing in the past. Yale's and Columbia's Environmental Performance Index confirms what has been known for years: the European countries are the worst offenders in the lavishing of agricultural subsidies. (The EPI team measured subsidies using a method applied at the World Bank: they look at the difference between the world market price for products and the actual price inside each country.) The richer members of the European Union, such as France, Germany and Britain, have maintained these poor practices because their farm lobbies are strong but also because they are rich. The poorer new EU members, such as Poland, do much better on the EPI's subsidy score because their governments don't have so much money to splash. Although the United States has never had a good record on subsidies, the EPI study shows that U.S. farm programs are not nearly as lavish as Europe's. America, however, is now catching up.

It is not an accident that the latest U.S. farm bill arose in an election year. Despite its huge and unnecessary cost as well as a well-deserved veto by President George W. Bush, the legislation is so popular with politicians keen to earn re-election that it passed by a large enough margin to override the veto. The farm lobby keeps winning because most farm policy is wired according to the age-old lesson in politics: the benefits are channeled to special interests, and the costs are diffused to people who don't notice or can't do much to change the policy. American taxpayers and eaters pay a small part of the total cost, but until recently they didn't notice it. Even worse, farmers in the rest of the world suffer under this policy because they can't sell as much of their product in the U.S. market; subsidies have also dampened world prices and made it hard to plan investments in important crops like corn and sugar.

Across the developing world, governments are squandering the opportunity of high food prices. In the face of food riots and unrest, many have panicked by clamping down on exports, on the theory that keeping products off the world market will leave more at home. India, for example, forbade its farmers from exporting rice earlier this year. That offered a temporary fix for high local rice prices but depressed the price that India's rural farmers get for their product. Meanwhile, international prices rose, and other governments have been tempted to follow suit. As each government takes matters into its own hands, the orderly global trade in food, which has been a main element of a more productive and secure world food system, is coming unraveled. The Chinese government is now vetting plans to create its own dedicated global food-supply chains to ensure that China gets what it needs.

Faced with today's high food prices, each government has tended to look at the issues from its own narrow perspective. That's understandable, but when governments have gotten together in efforts to deal with these problems in concert they haven't done well either. The Doha Round of trade talks is all but dead, having foundered mainly on the inability of governments to agree on farm policy. Agriculture has been pivotal to those talks because governments have already made such progress on reducing trade barriers on other goods and services, and because the Doha Round was aimed at helping the world's poorest, which requires helping their farmers become more profitable. Subsidies by rich countries are a chief obstacle to success, and the new U.S. farm program will make progress even harder.

Even when governments gather just to focus on food they have had a hard time making progress. Last month 180 governments met in Rome for the United Nations' food summit. They gushed bromides about the need to address the current crisis, but they were unable even to agree on an agenda. The Rome summit made no progress on the issue of biofuels, which are pushing up food prices, because the governments that have backed biofuels most heartily, notably the United States, weren't willing to expose their bad policies to international scrutiny.

Periodically the world's food markets lurch into crisis. Crops fail; demand and supply move in unexpected ways. But markets help rectify those imbalances. They create food security through flexibility, and they help even the world's poorest farmers get their fair share of economic opportunity. The bad news about the current food crisis is that most of the world's major governments are actively undermining all the main tenets of free, global markets. And the United States, an indispensable force in the world, has abandoned its role as champion for market force. When the EPI team updates its scores next year, the United States will probably move down a notch or two.