Trade Policy for a New Deal on Hunger

This is a joint post with Arvind SubramanianIn a Q&A published today, CGD non-resident fellow Peter Timmer estimates that soaring global food prices and panicky starve-thy-neighbor rice export restrictions in Asia could lead to 10 million or more premature deaths in the region if the current high prices are passed along to poor rice consumers.This is the latest piece of worrying evidence that rising food prices may signal the onset of a new kind of Malthusian era, in which elevated food prices are a long-term reality driven by three key changes: rapid demand for more and more energy-intensive food in fast-growing Asia, the competition that new biofuels are posing for land; and the effect of climate-change-induced drought on global agricultural supplies.If that is the case, the world ought to focus on boosting the long-term global supply of food -- including via food-friendly trade policy. A new deal on hunger requires that trade help rather than aggravate food shortages around the world.What are the key trade policies that are aggravating the current food crisis? The problem now is not subsidies by rich countries that for years kept food production high and suppressed global food prices, hurting small farmers in the developing world. Rather, it is biofuel mandates in Europe and subsidies in the U.S. that are encouraging farmers to supply the biofuel market, raising food prices. Corn-based ethanol production in the U.S. has increased fourfold since 2000 and now takes up about 20 percent of total corn production.Meanwhile in the developing world, such countries as Ukraine, Argentina, Russia, Egypt, Saudi Arabia, India, Philippines, Indonesia, and South Korea have slashed import duties and reduced other restrictions on food imports and imposed or tightened restrictions on exports of foodstuffs. Each country is trying to keep domestic supplies high on the justifiable grounds of food security. Taken together, however, the aggregate effect is reduced global supply -- and the potential for reduced long term supply -- if governments pay farmers below global prices in producing countries. Meanwhile, the restrictions are driving world prices even higher for food importing countries -- by at least 10 percent and possibly much more according to new estimates -- as the non-poor in exporting countries benefit while the poor in importing countries literally go hungry.¹ Without a collective agreement to undo these restrictions, the world's poor, already at terrible risk, will be even worse off.The contours of trade policies friendly to a New Deal on hunger are clear. Industrial countries should eliminate any practices that reduce global food supply, including all forms of subsidies to biofuels that compete with food production. Developing country food producers should eschew export restrictions. And importing countries can also contribute. To reassure developing country exporters about future access should prices become volatile or even decline, they could agree now to lock in their recent liberalization -- a plus for all agricultural exporters.We also propose that in a New Deal on Hunger, major developing country producers set aside for now their reasonable objections to traditional rich country agricultural protection -- the bone of contention in the Doha trade round -- at least in the case of food staples (if not cotton and cocoa). Rich countries would ideally reduce this protection on their own (as their taxpayers might well like in the case of domestic production subsidies). But for a hunger deal now their long-perverse agricultural protection is not a central issue -- and leaving it aside has the political virtue of greasing the wheels of a global deal on hunger.Finally, to address the concerns of the poorest food-importing countries that have been worst hit by food shortages requires immediate action. In addition to traditional emergency food aid, all food exporting countries -- the U.S., Brazil and other big beneficiaries of the current price hikes -- could commit a small proportion of their exports as food aid (or far better contribute the cash equivalent), with this proportion increasing in line with any increase in world prices.No one should assume these trade measures alone will address the fundamental problem -- that chronic hunger is the result of poverty not just limited food supplies. But trade should help not hinder.The Doha round of multilateral trade negotiations, even if successful, will not address these policies. The initiative for a New Deal on Hunger must come from elsewhere. As former chief U.S. trade negotiator and current international development czar, Mr. Zoellick is ideally suited to the task. He should secure agreement that trade and development ministers will meet within a month to agree on the trade principles of a new hunger deal, aiming for a full-fledged agreement before the end of the year. Indeed his leadership on this issue, especially in eliminating U.S. protection of corn-based ethanol, would complete his transition from representing U.S. trade interests to the development needs of the world’s poor.Now is surely the moment to make the needs of the world's poor more central to trade policy. That would be breakthrough never yet achieved by trade negotiators alone.-------------------------Based on "Export Restrictions and World Prices" by Ivanic, Martin, Mattoo, and Subramanian (forthcoming).