Food and trade (Editorial)
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03/08/2008
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Statesman (Kolkata)
The WTO meeting has failed after the USA reportedly got into a deadlock with India and China over import rules for farm products. Nevertheless, there seems to be a consensus among the participants that increased trade can help ensure the world's food security.
The opposition from India arises from the protection that will be allowed to its farmers from cheap imports. The country does not dispute the fact that increased trade is beneficial. There is a need to reconsider this. It is undisputed that trade can be helpful in times of food crisis. We, for example, filled the bellies of our people in the sixties by importing wheat under PL480 from the USA. But there is a difference in relying on trade to tide over a crisis and relying on trade for meeting our long-term requirements.
Soaring prices
WTO Director General Pascal Lamy suggests that increased trade in food will provide food security to the people of the whole world. Speaking at a conference on world food security he said: "In order to cope with soaring food prices, supply must adjust to demand. For this to happen, trade will help.' The problem is that the nature of trade is fickle. Three years ago the international price of food was low. At that time, the World Bank advised developing countries to focus more on the development of their export capacities in minerals in which they had comparative advantage and buy food from the global market. Zimbabwe, for example, could export copper and import wheat.
The price of food has increased considerably since then and Zimbabwe is in trouble. It does not have the income to buy food and it is yet to develop its own food production capabilities.
The situation in India has also changed. Three years ago we were demanding protection for our farmers from cheap imports ~ as we continue to do today. We wanted to reserve our right to impose high import duties on cheap imported food so that domestic prices would remain high and the livelihood of our farmers would be protected. The price of wheat in the world markets was low, but it was high in India.
The situation has reversed today. The government is reducing import duties on food items such as palm oil to keep domestic prices low. More subsidies given by the rich countries and low prices of food in global markets would be a blessing today.
Our perspective on trade changes with circumstances. It would not be judicious, therefore, to leave food to the mercy of the market because our demand for food does not change with the moon. And, it is not possible to adjust domestic production quickly to the changing price scenario. It takes many years to build canals to increase the production of food. On the other hand, once farming of grapes, mangoes and jatropa is started, it is a huge loss if the prices decline and the trees have to be uprooted.
India did well not to jettison its food production in favour of cheap imports despite World Bank advice to the contrary. The developed countries realise this thoroughly. They provide huge subsidies to their farmers and maintain domestic production precisely because they do not want to depend on world trade to meet their food requirements. Yet, the likes of Pascal Lamy advise the developing countries to rely on world trade because dependence of developing countries on the world market dominated by the companies of the developed countries is beneficial for them.
The arguments made by Mr Lamy in favour of trade-based food security must be understood in this background. He claims that trade is helpful in meeting increased demand for food. This is true, but only in the short run. Indeed, we met our increasing demand of edible oils by importing the commodity from Malaysia. This was good in the short run but disastrous in the long term. Import of palm oil depressed the price of oil in the domestic market and discouraged our farmers to produce more.
A vicious cycle of low prices, more imports, yet lower prices and yet more imports has thus set in. It would be better for India to face the increase in the price of oil and encourage domestic farmers to increase production. We have sacrificed our long-term food security in securing cheap supply of oil in the short run.
The second argument made by Mr Lamy is that subsidies given by the rich countries are bad but trade without subsidies is good: "European and American farm subsidies are partly responsible for the current high food prices because they undermine farming in developing countries.' But subsidies are a double-edged sword. A knife can be used to kill an innocent person or to perform surgery on a patient. Similarly subsidies can be used to increase domestic production or to kill the domestic production of other countries.
India used fertilizers, electricity and diesel subsidies in the sixties to increase food production. But Mr Lamy's prescription offers no scope for such beneficial use of subsidies. Indeed, the harmful subsidies being given by the rich countries are tolerated while the beneficial subsidies given by the developing countries are prohibited in the present proposals.
The third argument is that many developing countries cannot possibly meet their food requirements from domestic production. Mr Lamy says, "If the Egyptians had to produce all the cereals they eat, which today is very expensive, there wouldn't be a drop of water in the Nile! So, trade, from time to time, is a way to use natural resources, where they are most readily available.' Even if this is true, this does not necessarily support trade. Egypt has other alternatives such as reduction of consumption of meat or undertaking water harvesting in the large desert areas. The benefits to Egypt from imports of food at present should be evaluated in the light of the cost of dependence in the long run.
Global trade
The fourth argument is that "22 countries, which had been identified as the most vulnerable to the food-price crisis by the United Nations Food and Agricultural Organisation, were among the world's least trade-integrated economies in agriculture.' The conclusion drawn by Mr Lamy is that less integration with global trade is responsible for their crisis. There is an alternative argument. Low domestic production and low integration with global trade could both be the consequence of bad governance which dissuaded farmers to produce and businessmen to trade. Increased trade would add fuel to the fire.
The immediate needs will be met from imports and the pressure to reform governance will be reduced. This is precisely the reason why many developing countries have been reduced to penury. Corrupt leaders decimate their own people and go around the globe with begging bowls. Then a major portion of the aid money is diverted to their personal coffers. It is better for these countries to face the heat of domestic governance. Developing countries must not be lured into trade-based food security which is a ruse to trap us into dependence on the rich countries.