Harming farming.

Harming farming.

Harming farming.

Moneybox
Commentary about business and finance.
Aug. 6 2008 5:45 PM

Harming Farming

Low food prices used to hurt the world's poor—now high prices do. What gives?

For more on Third World farming, see Slate's " Dispatches" from India.

A farmer in Senegal. Click image to expand
A Senegalese farmer tends a melon field

Last week, the Doha Development Round of global trade negotiations collapsed. Some of the stickiest points involved agricultural trade: Third World governments refused to open their markets further to exports from the European Union and the United States, citing the need to protect small farmers, who make up 75 percent of the world's poor. But just why are these Third World farmers suffering? We've been hearing for years that cheap food makes it tough for them to make a profit. But food's not so cheap anymore: Global food prices have increased 26 percent from 2004 to 2007, according to the World Bank, and are expected to remain above 2004 levels at least through 2015. Now that we're all paying higher prices at the grocery store—meaning more visits to food pantries or fewer to Whole Foods, depending on your situation—shouldn't the farmers' fortunes be improving?

Alas, economics is not that simple. It's true that for years, low food prices have hurt farmers in poor countries. The result has been that in most of the world, farming is "simply not affordable," explains Olivier De Schutter, U.N. special rapporteur on the right to food. Still, he emphasizes, "This does not mean that small-hold farmers will benefit from the current increase in prices." Because they lack economies of scale and trade policy is not designed in their favor, most small farmers are not well-connected to markets. To benefit from food inflation, farmers would need massive investments to improve their productivity. Most poor farmers can't afford this because their costs—transport, fertilizers, and pesticides—have risen even more dramatically than the price of food.

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Most important, says Anuradha Mittal, executive director of the Oakland Institute, a progressive policy think tank, "Farmers are also consumers." Indeed, says De Schutter, small farmers "buy more food than they can sell for cash." So they're suffering as much as other poor people from the rising expense of food. And that suffering is widespread: Early this year, the Food and Agriculture Organization of the United Nations announced that because of food inflation, 36 countries would require additional food aid. In Yemen, children have been marching in the street to attract attention to child hunger.

"Farmers have already lost the local markets," says Mittal. "These have been taken over by the multinationals." And big agribusiness certainly seems to be doing well. Cargill's revenues have grown by 17 percent in the last year, Archer Daniels Midland's by more than 20 percent. Meanwhile, Mittal says, "Farmers in Laos have been forced to put their tools down because there is no way they can make a living."

Of course, there are winners and losers for every major change in the global economy, and it stands to reason that some poor farmers will find a way to profit from inflation. Says Columbia University economist Sanjay Reddy, who teaches courses on world poverty and development economics, a few "may have only to walk down the road and sell their produce for a lower price than people are paying." Reddy also notes that there's a difference between landowners and the landless; clearly, the former have a somewhat better chance of eking out some profit. But for most of the rural poor, the odds of cashing in are dismal.

So is there perfect price that wouldn't impoverish either farmers or consumers? Not really, says Reddy: "Price always involves a conflict of interest." That's logical enough: The higher price is in the interest of the seller, and the lower price is in the interest of the buyer. At times, the policies poor countries have adopted to make food more affordable for consumers—such as government-enforced price depression in sub-Saharan African nations—have created "terrible conditions for agriculture," says Reddy.

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Agreeing it's a tricky balance, De Schutter emphasizes the need to protect consumers while also using "the increase in prices as an opportunity to promote investments in agriculture in developing countries." To that end, he points out, it's important not to bring prices down, but to help households cope with higher prices through more programs to help the poor such as school breakfast and lunch programs, cash assistance, and cash-for-work programs. This could be sensible in the U.S. context, too: In a recent hearing on economic woes here, Rep. Barney Frank, D-Mass., observed that countries with stronger social safety nets are better able to shield their citizens from the effects of inflation, and thus can pursue a more balanced monetary policy, while in the United States, if we don't control inflation, people are left in truly dire straits. In May, Second Harvest, a national network of food pantries, reported that attendance was up 15 percent to 20 percent, with 100 percent of food pantries seeing an increase.

Others feel that governments should provide incentives and subsidies for farmers to grow food for their domestic markets. Reddy says, "National self-sufficiency is a desirable goal for developing countries."

All of these ideas are sharply at odds with recent policy trends. Many developing countries, including India (home to 600 million to 700 million small farmers), used to heavily subsidize agriculture. Some, like Indonesia, used to ensure fixed prices to protect both farmers and consumers. Export bans used to be common.

Most countries have abandoned such strategies, following the dictates of international lending institutions like the International Monetary Fund—sometimes with dire consequences. After Indonesia lifted its price controls in the 1990s, it became the largest recipient of international food aid. In that sense, hunger in the Third World, argues Mittal, is a political choice: "It's not as if these countries just suddenly forgot how to grow food."

But Mittal, a co-founder of Food First and a proponent of the idea that food is a universal human right, is optimistic about the prospects for improving the lives of the rural poor. The trade talks fell apart, she says, because Third World governments "decided that the vulnerability of the poor farmers could not be traded off against commercial interests of the developed countries." The "food crisis," she explains, is "not supernatural, it's caused by man-made policy. Which is hopeful because it can be fixed." In the United States, though, that fix probably awaits a new government interested in helping poor countries adapt to rising prices.