Trade and Hunger

As you can see in the picture in the right (for source, click on it), food grain prices in international markets has been spiking in the end of 2010 – again, after they already did in 2008, the year of “hunger revolts” in the developing world. It is clear that something must be done to prevent another crisis. Today I would like to shortly comment an article by Pascal Lamy, Director-General of the WTO, on that subject.

Lamy’s article on Project Syndicate has the title “More Trade, Less Hunger” – which is a summarization of his theses. As one could expect from the head of an international trade organization, Lamy claims that removing trade barriers in agriculture would at least partly solve the issue of hunger in the developing world. Meanwhile, there are some points that Lamy has omitted or mis-presented, particularly: biofuels, high protein diets, climate change, food aid and speculation. They make his analysis highly problematic.

My critique of the presentation of the former three issues is founded on more optimism than Lamy seems to have. Consider this fatalistic quotation:

The seemingly unalterable factors generation these record-setting rises in food prices – a shift to higher protein diets in many countries, growing populations, greater use of biofuels, and climate change – suggest that elevated food prices are here to stay. In the absence of solutions that alleviate growing pressure on supplies, hunger and malnutrition will increase.

The diet shift, growing world population, biofuels use and climate change are indeed great challenges – but not more. They are not exogenously set variables – we can influence them, even though it is not easy. First steps in the right direction would be: corrections in nutrition patterns in the rich world (for they are the source of many “image” ideals people in the emerging countries follow); further engagement in promotion of birth control in the developing world coupled with more intensive strategies of welfare promotion (for this empirically has great influence on birth rates); abolishment of biofuel subsidies; more decisive steps towards combating climate change. All this is not easy and surely will not have perceivable effects in the short term – but this is no reason to be fatalistic and conclude that we cannot deal with it at all.

Then there is the issue of speculation influencing food prices. Pascal Lamy, although full-time dealing with world markets, doesn’t even mention the possibility that speculation could play a role. Meanwhile, there is strong evidence that speculation is a driving factor in the food price spikes in recent past: according to development economist Jayati Ghosh, other variables seem not to have changed enough to cause such strong spikes.  Speculation appears to be the only reasonable “culprit”. If that were the case, more trade (the remedy proposed by Lamy) wouldn’t solve the problem, it indeed could even make it more severe.

Some more general solutions proposed by Lamy seem reasonable:

So the question is: which alternative policies could allow […] to meet this goal [of preventing the population from starvation]? The answer to that question consists in more food production globally, more and stronger safety nets, more food aid, and, possibly, larger food reserves.

Food production, safety nets and food reserves are straightforward. More food aid is not. I am not sure what Lamy means by that – but it is important to remember that food aid is reasonable only after catastrophic events (floods, droughts, earthquakes etc.), always as a temporary solution. In the longer term it becomes counter-productive, making it impossible for the local food producers to gain ground. It is much more effective to promote agricultural self-sufficiency. So, one has to remain cautious while embracing Lamy’s proposals.

All in all, the claim that more trade would result in less hunger appears to be very simplistic and, indeed, naive. As we have seen, speculation in food markets is a great problem – more trade cannot solve it. Then there are factors Lamy considered “given” – though they not necessarily are. This makes his proposal highly problematic – you cannot solve a problem through tackling others.

More effective strategies to combat hunger in the world would include: the abolishment of agricultural subsidies in the rich world (mentioned by Lamy); more consequent regulation in global markets with the aim of curtailing speculation; national food reserves in particularly vulnerable countries; more efficient use of agricultural products (i.e., less biofuels, less meat consumption); decisive fight against global warming.

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