Food Crisis: A Challenge or an Opportunity?

Last week’s conference on world food security held by the Food and Agriculture Organization (FAO) of the United Nations in Rome was significant from many different perspectives. For instance, we got a chance to hear Robert Mugabe accuse the West for causing food shortages in his native Zimbabwe. The criticism raised quite a few eyebrows, but in a way it is illustrative of exactly how many nations view the food crisis. They view it as a challenge.

The food crisis indeed is emerging as one of the key social, political, and economic issues that countries large and small are coming to grips with. It was only several months ago that the Economist featured a burnt toast on the cover, declaring “the end of cheap food.” At the same time, it seems, we’ve been dealing with the problem for much longer than that.

There are plenty of opinions out there on the economic nature of the problem. Whether its increased production of ethanol, higher demand related to economic growth and the rise of the middle class in emerging markets, changing climate, or sheer commodities’ speculation – most experts agree that higher food prices are here to stay. In other words, the trend of falling prices, the trend we enjoyed for decades, may have come to an end.

A more interesting question, however, is “what do we do about it?” Seeing it as a challenge, many governments dealing with massive numbers of poor sensitive to even minimal variations in prices are putting in place measures to minimize the impact.

Anti-hunger riots in Haiti, which turned violent in an instant, are a clear signal to the fragile government in Haiti as well as other governments around the world that the problem is not going to go away on its own. You can’t sweep it under the carpet. The impact on the poor has to be considered as one of the top priorities.

Some countries, like Egypt and India, have put in place export restrictions, seeking to boost the domestic supply to keep prices down. The Russian government called in its business leaders and tried to broker informal commitments not to raise prices on certain commodities, especially during the holiday season and before elections.

In Argentina, the government of Cristina Fernández de Kirchner, went even further by increasing export taxes on certain commodities and putting in place restrictions on others. Seeking to appease the consumers, however, the government forgot about those on the other side of the aisle – the producers.

The move drew hundreds of thousands of farmers in this export dependent nation into the streets. Farmers tried everything from blockading roads to refusing to supply goods to domestic markets, but the policy still stands. Ironically, indications are that in trying to minimize the impact of rising food prices the government of Argentina has only magnified it.

Not only is the country losing tax revenue because of declining exports, consumers are facing shortages as well. Reduced exports are also driving up global prices and are hurting people elsewhere. But most importantly, famer strikes over bad policies have resulted in what the government tried to avoid in the first place – a declining public confidence.

The lesson here is that food crisis should not be only a challenge. Countries must begin looking at it also as an opportunity - an opportunity to reform among other things.

In many instances, the domestic producers continue to face problems of overregulation, lack of technological access, lack of capital, poor infrastructure and others. A broken property rights system in Zimbabwe is restricting the ability of farmers to supply the domestic market, let alone supply neighboring countries as in the past.

Reducing barriers to doing business, increasing domestic production, supporting the private sector, investing in infrastructure, providing technology and access to capital are, perhaps, much better strategies for dealing with the food crisis.

Addressing the issue, the Commission on Growth and Development led by international representatives including China, Mexico, India, and Brazil among others, concludes that “a sustained effort at increasing food production must therefore play a larger part in the development strategy of most developing countries than it has done so far.”

This does not mean that countries should not seek to help the poor. What we are saying is that the food crisis must serve as an incentive to reform the business climate and increase production, so that economic barriers do not further exacerbate the conditions poor people face. It is bound to work better than simply putting in place price controls and throwing entrepreneurs in jail for non-compliance.

Ultimately, the quality of growth in a country is directly related to the ability of poor people to get access to property rights. With property rights and ownership even the poor can find ways to save and invest thereby creating new opportunities for the production of food and other essentials in a country.