Price fixing at the root of food crisis by Stephen Glain

The National

April 29, 2008
Price fixing at the root of food crisis

By Stephen Glain

For opponents of globalisation, the combustion of worldwide food shortages is a blessing in disguise. What could be a better target for blame than gluttonous agro-barons and speculators?

It is true that capitalism can distort markets as much as it can enhance them. Consider the chronic shortage of flu vaccines from a US pharmaceutical industry that does a brisk trade producing and marketing three separate brands of erectile dysfunction pills. So what is the answer to global food security? Collectivised farming? Shall we revive the Soviet kulak system or adopt Israel's Kibbutzim? The problem with the world's unstable food supply is not free trade but the very antithesis of it – a web of farm subsidies that allow producers, rather than consumers, to dominate the market. Not since Britain's 19th-century corn laws has the global agricultural system been so rotten with price fixing, starting with the very bread basket of the world economy, the US.

Congress is deliberating a new version of the 2002 farm bill that legalised the scandal of what farm lobbyists call "programmes" and everyone else knows as handouts. Because of the electoral heft of America's grain belt, nearly 90 per cent of all farm subsidies in the US go to growers of just five crops – wheat, cotton, corn, soya beans, and rice. In general, farmers are eligible for more subsidies as they grows more crops. This, of course, drives down crop prices, which in turn triggers demand for more subsidies. To break the cycle, Washington frequently pays some farms to keep their fields fallow – some 40 million acres of cropland each year, according to the Heritage Foundation, a conservative think tank. This continues even as record demand from high-growth economies like China and India has made Nebraska soya growers as rich as Saudi sheikhs. A Department of Agriculture report states that farm households enjoy higher income and wealth than the national average.

Today's farmers – no longer the share croppers of Oklahoma dust bowl lore but well-fed industrialists on spreads not much smaller than Bahrain – enjoy a net worth that is double the national average.

Despite this, according to a 2004 report by the Organisation for Economic Co-operation and Development, US taxpayers shell out US$25 billion (Dh91.8bn) a year on handouts to "big farm" (not to be confused with "big pharma", (shorthand for America's drug lobby), and lose another US$16bn in the form of subsidy-inflated food costs.

In the meantime, the US budget for emergency food aid is grotesquely under-resourced.

If only America's farm giants and their legislative bag men were the only offenders. The World Trade Organisation (WTO) estimates that farm subsidies worldwide total more than $221bn per year, or about 18 per cent of the value of global agricultural income, with the US and the EU accounting for a third of that amount. It was a dispute between Washington and Brussels over farm subsidies that derailed the WTO Doha round in 2006, but it was the developing world that has suffered the consequences.

Had the round been saved, a World Bank study suggests, poor countries could have generated nearly $350bn in additional income by 2015. More importantly, it would have given farmers in the developing countries badly needed incentives to develop more crops for export, as well as for sale domestically. Instead, the World Bank is forced to deal with crippling food shortages by issuing vouchers and cash rebates to impoverished states.

Have bilateral free-trade agreements, with their sweetheart deals for corporations, fed the crisis? Probably. Have commodity hedge-funds bid food prices higher? Most certainly. But the simple crop subsidy has been around a lot longer than either of America's two most notorious neighbourhoods – New York's Wall Street and Washington's K Street, the capital's glamorous gutter for lobbyists – and the compounded damage it has done over the decades is nothing short of criminal.