Global Policy Forum

Presentation for FES/Global Policy Forum on The Right to Food:
How Can the UN Respond to the Global Food Crisis?

By Katarina Wahlberg

Why Are Higher Prices Not Benefiting the Poor?

The globalized system of agricultural production and trade can help us understand why poor countries are not benefiting from the higher prices of agricultural commodities.

For several decades, analysts generally considered low commodity prices a major obstacle to development of poor countries. Since most of the world's poor live and work in rural areas – higher commodity prices should increase the living wage of farmers and agricultural workers and thereby promote development and combat hunger.

But now that prices are high, we find ourselves in a serious global hunger crisis.

This "new face of hunger" is affecting new groups of people where malnutrition has traditionally been very low, such as urban middle class people in countries such as Indonesia, Yemen and Mexico.

Also, the crisis is affecting the rural poor, including farmers and agricultural workers – who were supposed to benefit from higher prices.

Globalized System of Agricultural Production and Trade

The simple reason for this, is that we have a very unequal and unfair system of international trade.

The past three decades of international trade liberalization has transformed most developing countries from net-exporters into net-importers of food.

Through the WTO, the IMF the World Bank and regional/bilateral trade agreements such as CAFTA, rich countries pressured poor countries to dismantle tariffs and other barriers to trade.

Trade, however, has not been liberalized equally. As we all know, rich countries have been able to keep their large agricultural subsidies. (The OECD spends almost 300 billion each year) And large agribusiness – not small-scale farmers – have been the major recipients of the subsidies.

So in fact, the past decades of "trade liberalization" has strengthened the position of the most powerful players, particularly large agribusiness. A handful of companies, such as Cargill, Archer Daniels Midland, ConAgra and Monsanto dominate production and trade of many commodities.

For example, Monsanto controls 41% of the global market in commercial maize seed and 25% of global soybean seed. And in the US, four companies control over 80% of beef packing.

In poor countries, without protection of domestic markets, large agribusiness and subsidized goods from rich countries undermined local agricultural production. Small-scale farmers are the most vulnerable and many have gone out of business altogether. (increased urbanization, unemployment, migration). Remaining agricultural production is dominated by large-scale industrialized farming of export crops.

We have created a situation where developing countries don't produce enough to satisfy domestic needs. Roughly 70% of all developing countries are net importers of food. Among the least developed countries, this figure is even higher. This situation has made poor countries far more vulnerable to fluctuations in global food prices. – And we see this happening now, with the current price hike!

Trade liberalization has also reduced governments' ability to intervene in the market to regulate supply and prices. And government intervention is necessary for example to maintain cereal stocks to buffer against price fluctuations, since the high costs discourage the private sector from doing so.

A final factor of trade liberalization is climate change. We need to consider how international trade contributes to climate change – through transports of agricultural goods. Climate change is already threatening production in many countries through an increasing amount of droughts and floods.

What About Exporting Countries and Producers?

Naturally, it is not as simple as concluding that exporting countries are benefiting while importing countries are suffering from the higher prices.

It's not even possible to conclude that all producers are benefiting from the price hike. In fact, many small-scale farmers are net-importers of food.

Also, the cost of input products, such as fertilizers, fuel and feeding stock for cattle, have skyrocketed, and as a result, many farmers make a smaller profit of their production.

Conclusion

Many governments are responding to the current food crisis by introducing various measures to curb exports of food such as export quotas, export duties, minimum export prices, and even export bans of certain commodities.

These measures put import-dependent countries in an even more vulnerable situation. And understandably, many people are calling for opening up the trade system further.

However, taking into consideration that the past decades of trade liberalization has in many ways caused the current crisis, we must be very cautious in calling for even more trade liberalization. We will probably end up worsening the right to food for the majority of the world's population.