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Keep Open Markets in Food

The ban on food exports is not just economically counterproductive, but also strategically short-sighted

Shikha Dalmia
May 20, 2008

There is no security on this earth, only opportunity," said US general Douglas MacArthur.

The only country that seems to be minding MacArthur's advice in the wake of the global food price crisis is South Africa. India and other Asian countries, by contrast, are opting for the chimera of security over opportunity. There is no better evidence of this than the ban on food exports that they have embraced.

The alleged purpose of the ban is to foster national food security by ensuring that domestically produced food goes for domestic needs first. But, in fact, India will lose a vital opportunity to tear down the West's long-standing food barriers and capture more market share - all of which, in the long run, will hurt, not help, its food security.

There is no doubt that soaring food prices pose a special challenge for countries such as India, 300 million of whose 1.1 billion people still subsist on less than $1 a day. Even before the food crisis, these people were spending about half to two-thirds of their wages on two meals a day. With the price of staples such as rice, corn and wheat more than doubling in the last year, they face a veritable catastrophe.

The task of arranging immediate relief for people on the brink of starvation is as urgent as it is difficult. There are no great solutions, especially given that India's resources - public and private - are scarce relative to the scale of the problem. Even then, India's recent ban on rice, pulses and wheat is probably the worst way to deal with the problem.

On a purely utilitarian calculus, the ban will hurt not just far more people than it helps, but also the neediest. Farmers - and others in the agricultural sector - account for about 60% of India's population. The ban prevents them from selling their produce in the most lucrative markets, undermining their ability to cope with the rising inflation. In effect, notes Gary Becker, a Nobel Prize-winning economist at the University of Chicago, the rural poor will end up subsidizing the food of urban consumers, many of whom tend to be relatively better off.

But, even though some groups might benefit from the ban in the short run, everyone will lose in the long run. Why? Farmers, who can't reap the full value of their produce precisely when it is most in demand, will have little incentive to invest in higher yield or storage technologies. This will inevitably depress food supply, prolong the current price hike, make future supply disruptions more likely and make food "security" an even more elusive goal.

The ban is not just economically counterproductive, it is also strategically short-sighted.

India, as other developing countries, has long been trying to get the West - especially the US - to scrap policies that make its exports uncompetitive in Western markets. The Doha trade talks that are once again under way in Geneva have been floundering for seven years precisely because of European and American refusal to eliminate their subsidies to domestic farmers and tariffs against overseas farmers.

Free-traders in Europe and America have been trying to roll back these trade-busting policies - including President George Bush, who has all but declared that he will veto the latest US farm Bill, currently wending its way through the US Congress, because of the boondoggles it hands to American farmers. Whatever the justification for these measures in the past, free-traders correctly insist, there is none in an era of record food prices.

But the wave of export bans in the developing world will severely undercut these efforts. These bans will hand powerful new ammunition to protectionist lobbies to argue that Western countries simply cannot rely on open trade to meet their food needs. This after all is the same thinking that is driving the energy debate in the US, with even advocates of free trade such as President Bush embracing the notion that America must wean itself off its "dependence" on foreign oil producers and boost domestic supplies, even if that means massive new subsidies for indigenous energy sources - and tariffs against foreign suppliers, especially biofuels. In a protectionist worldview, "food independence" can hardly be less critical than "energy independence"!

Given this backdrop, the European Union's trade commissioner Peter Mandelson's worry that the developing world's export bans will unleash a spiral of protectionist measures around the globe is on target. This will be truly unfortunate because it will further segment the global food market, locking agricultural production in less efficient areas instead of allowing it to move to more efficient ones.

But the real tragedy will be for the developing world - because it cannot ultimately win the race of protectionism it is triggering: The West simply has far deeper pockets to subsidize its agricultural sector and undercut third-world products not just in its own markets, but also in common export markets. The upshot might be that a temporary export ban might produce a permanent loss of global market share for India and other nations.

The one country that seems to understand this is South Africa. It has resolutely avoided jumping on the export-ban bandwagon and recognizes that rising food prices do not mean a time to hunker down and raise the banner of "food security". In fact, they represent an opportunity to expand exports and capture new markets. "We don't believe banning exports is going to help us in the long run," South Africa's agriculture minister, Lulu Xingwana, recently declared.

This is the right attitude and policy. There is no security - only opportunity.


Shikha Dalmia is Senior Analyst


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