Trade policy adjustments to insulate domestic markets when world food prices spike have been ineffective in dealing with food price shocks that exposed millions of people to poverty in developing countries, a World Bank researcher told a New Zealand agricultural economics conference this week.
Dr Will Martin, the manager for agriculture and rural development research in the World Bank is an Australian who has worked for the Washington-based World Bank for the past 25 years. He is also President-Elect of the International Association of Agricultural Economists. He was speaking to more than 250 international delegates attending the Australian Agricultural & Resource Economics Society’s conference in Rotorua this week.
His analysis of detailed expenditure and agricultural production data from 31 developing countries assesses the impacts of changes in global food prices on poverty in an effort to understand their impacts on the poor.
Food price increases unrelated to productivity changes in developing countries raise poverty in the short run in all but a few countries. “That’s because the poor spend large shares of their incomes– frequently about 60-70 percent–on food and many poor farmers are net buyers of food,” he says.
“However, in the longer run, if prices stay high, two other important factors come into play. Poor workers are likely to benefit from increases in wage rates for unskilled workers resulting from higher food prices, and poor farmers are likely to benefit from higher agricultural profits as they produce more food. As a result, higher food prices appear to lower global poverty in the long run.”
He says a natural and understandable policy reaction for many countries when food prices rise is to lower domestic prices through levies on exports, temporary import tariff reductions, or import subsidies. “But these are beggar-thy-neighbour policies that push up world prices,” he says. He estimates that these policies accounted for nearly half the increase in world rice prices in 2007-8. Individually, most countries took action that reduced the impact of higher world prices on the poor. But, when the contribution of these policies to the higher world prices is taken into account, they turn out to have been ineffective.
“What countries need is a collective approach that enables relatively open trade to continue in those circumstances. Clearly, this still needs to be combined with social safety nets so poor people can cope in the short term, but then realise the longer term benefits of higher prices. We need to deliver policies that actually work rather than policies that appear to work.”
Dr Martin says countries need to develop this ‘social safety net’ so the poorest can get access to what they need when they need it.
He says the World Trade Organisation (WTO) showed with the abolition of variable import levies in the Uruguay Round that it can introduce trade policies that bring about the kind of collective action needed to tame food price spikes.
“The collective agreement of the EU-US over export subsidies in the Uruguay Round also showed what can be done when there is clear recognition of the problem. It’s much more complex when many more countries are involved but we need to keep working away at the challenge if we are to make progress. Getting the confidence of policymakers to act differently will require a lot more research and policy formulation.”
Most people, rich or poor, farmers or not are net buyers of food. All will be affected by price rises and the poor, who spend a greater proportion of their income on food, will be hardest hit.
Export bans and other protectionist measures might help the poor in the short-term but it is a temporary fix.
Policies which increase wealth rather than those which artificially keep prices low provide the best long-term solution to poverty and hunger.
The solution to poverty and food shortages isn’t restrictive trade practices, it’s liberalising trade.
The challenge is how to help the poor cope with price rises in the short-term until they benefit from improved incomes which enable them to afford more food.