Back to sense in food prices

Press, 21 April 1984, Page 18

Back to sense in food prices

From “The Economist,” London

It is possible that in the past few weeks something very big has begun to happen in world agriculture and politics, for which the historical precendent is bright. Thirty years after Napoleon’s war, Britain stopped guaranteeing to its farmers the highest possible prices, even during Irish famines, and started buying food at world market prices instead. All the established interests said this would bring black ruin, but it laid the foundations for the prosperity of Victorian England. Forty years after Hitler’s war there are at last signs — from the grain mountains of Europe to the featherbedded paddies of Japan, from North America’s rich prairies to southern Africa’s starving veldt — that a move towards market prices might again be in train. Since 1945, by fixing food prices in rich countries artificially high and prices in poor lands artificially low, governments have contrived to keep food output down where it is most needed and keep it up where farmers could be doing other things more profitably.

The result is that 2 per cent of the world’s farmers — the 24 million in the rich countries where less than one tenth of people work on farms — are providing nearly a quarter of all the world’s food, and nearly three quarters of its food exports. The other 98 per cent of farmers — the 1.2 billion in the poor countries where up to two thirds of people are on the land — grow three quarters of the world’s food, but still do not have enough to eat. The average farmer in rich countries, including hobby farmers, produces $lO,OOO worth of food a year; the average full-time farmer in poor countries produces $BOO worth. The rich land’s farmer is paid for far more than the $lO,OOO worth he produces, while the poor land’s one is often paid for far less than the $BOO worth he digs out. These incentives are the wrong way round. The economic distortions are growing because agricultural productivity is happily accelerating so fast. When farmers are offered more than the market price for anything, they now grossly over-

produce. Few politicians predicted this.

A decade ago, as the food mountains built up, it was trendy to proclaim that the biggest famine in world history had just begun. In the poor countries babies were growing faster than crops; in rich ones the drift from the land was expected to put production down.

Instead, since 1970, the rich countries’ agricultural production has been growing at an annual 1.6 per cent during a period when the number of people working on the land has fallen by a third. It should be recognised — and welcomed — that this acceleration of agricultural productivity is likely to continue fast.

Genetic engineering may soon bring in crops that are capable of resisting such common killers as pests, drought and frost. Supercattle will become increasingly breedable, and God knows what else.

There is now a healthy competition between rich countries’ glum politicians in claiming that their own method of overstimulation has proved worst. The E.E.C.’s policy has been to guarantee farmers up to 50 per cent above world prices

for the foods where demand is increasing least, and to feed its consumers with dear European beet sugar instead of cheap West Indian cane.

This year, despite setting a ceiling on the amount of money it provides to over-productive dairy farmers, the E.E.C. plans to spend around $l6 billion on its 8 million farmers, which is more than all the money it will get in its budget. Total overstimulation will be twice as great because individual E.E.C. governments will spend at least as much as that again. The United States spends even more on its fewer farmers. Last year, the Federal Government gave $22 billion to its 2 million farmers; according to Chemical Bank, total American farm support added up to $6O billion in one form or another, which makes an astonishing $30,000 per farmer. Much of this, though, was the cost of programmes like the pay-ment-in-kind (P.1.K.), which withheld land from production, so its effect was to cut, not glut, production. The virtue of America’s farm support programme is that farmers get world market prices for what they grow, so they decide what to plant according to the state of supply and demand in the world, not according to the whims of European politicians (who are often farmers themselves). Japan provides the worst example of stubby agricultural tail wagging large industrial dog. Domestic guaranteed prices for a basket of products in Japan are around 45 per cent higher than the world market ones. The same basket would cost 26 per cent more than world prices in Europe, and only 0.1 per cent more in America.

Japan says it built its postwar stability and prosperity on presents to peasants. These poorest people in its society have continued to vote for the very conservative politicians who have enormously strengthened Japan’s living standards by keeping out of businesses’ way. Up to a certain stage of development it certainly is politically destabilising to let rural incomes fall too far behind urban ones. The fact that some unstable African governments follow policies that do precisely this proves the point. While most rich democracies are overprotecting the 5 per cent of their people who are farmers, most poor dictatorships are milking the 70 per cent of their subjects on the land. State marketing boards force farmers to sell their crops at less than world market prices. Govern-

ments maintain overvalued exchange rates which keep the cost of imported food artificially low. Their big idea was often to industrialise helter-skelter by investing the countryside’s surplus in the towns. So peasants flocked to the towns where food was cheap while those who remained behind retreated into subsistence farming. Grain imports into the middle-income developing countries have risen from 26 per cent of world imports of 109 million tonnes in 1970 to 36 per cent of 1980's 228 million. The prospects for changing all these nonsenses suddenly look rosier than for decades. In the past month the E.E.C. has had to cut spending on milk because it is running out of cash. America has persuaded Japan to import more American beef and oranges. Drought-ridden southern African countries have lately become honourable exceptions to the African rule that governments fail to provide incentives to farmers. All governments now need to grab this opportunity for making sei.se of their farm policies. They should be guided by the principles that farmers ought to be allowed to reap as much as they can profitably sell at world market E rices and that consumers ought to e allowed to buy food at those prices. That means price cuts in Europe and Japan, price increases in Africa and Latin America. It is said both of these would be impossibly unpopular politically. Would they be? The price rises in Latin America and Africa are going to come anyway, and will actually be higher if present demand-inflation-ary policies continue. The case for moving Japan and Europe to world market prices is now very strong. Today Americans spend, on average, 17 cents in every dollar on food. The almost equally rich, and thinner, Japanese spend 32 cents in every dollar on it. World market prices for food rule in America, but do not in Japan. As in Victorian England after the repeal of the corn laws, there could hardly be a quicker way of releasing consumer purchasing power for other things while moving prices sharply down. Nobody is suggesting that farmers in Japan or Europe should be thrown on the breadline. But giving them deficiency payments or special welfare benefits is the best way of protecting them. Paying them high prices to produce more food than people can eat is worst. Copyright, The Economist.