The rich world and the food crisis

July 31, 2012

Free Market Foundation

Leaders of the G-8 nations are gathered this week in Tokyo, Japan, to root out the culprits in a food crisis that has moved hundreds of millions from subsistence to starvation. In fact, they only have themselves to blame, says Adam Lerrick, a visiting scholar at the American Enterprise Institute.

The G-8 countries’ interventions have distorted global agricultural markets to the paralysis point, says Lerrick. Indeed, the new famine is not about a crisis in global supply. Markets are full of food that developing-nation consumers cannot afford to buy:

Prices for rice, corn, wheat and soy beans, the staple crops for world sustenance, have doubled in a single year.

This pinches families in developed countries who allocate 15 per cent of their income to food.

In poor countries, where many spend 75 percent of their earnings to eat, real wages have been cut by a life-changing one-third.

In response, countries whose people are being hit hard are adopting policies that mortgage their economic future:

From Mexico and Indonesia to Egypt and Côte d’Ivoire, governments have responded to protest and riots with backward measures that keep domestic prices down but choke off incentives to plant and harvest more.

One-third of the world’s population now lives under food price controls.

Subsidies to keep rice and bread on the table are eating up scarce funds.

In the name of conservation, U.S. farmers have been bribed to keep fields fallow 36 million acres of cropland, the size of Iowa, at a taxpayer cost of $2 billion a year.

In Europe, large farmers have been compelled to leave 10 per cent of their holdings idle.

Source: Adam Lerrick, The Rich World and the Food Crisis, Wall Street Journal, July 8, 2008.

For text: http://online.wsj.com/article/SB121547397953534035.html

For more on Trade Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=42

FMF Policy Bulletin/ 15 July 2008