It sort of feels that way right now. The economy is possibly moving into recession as housing prices tumble, oil prices skyrocket, and Washington gobbles up tax revenue the way a glutton behaves at an all-you-can-eat buffet.
A lot of families are starting to tighten their belts, as they always do when the going gets tough. Today, however, it may be harder for them to cut back because the cost of something they can’t live without continues to rise.
I’m speaking of food. The United Nations calculates that since 2002, global food prices have gone up by nearly two-thirds.
Let’s start with a quick look at the silver lining. We face this current challenge because of global prosperity. As people in developing countries increase their income, especially in Asia, they’re seeking more food and better food–and farmers are striving to give them what they want. The alternative certainly isn’t appetizing: a poor world in which hungry people can’t feed themselves properly.
Yet it doesn’t take a math wizard to recognize that if food prices keep on spiking, we’re going to find ourselves in precisely the situation we want to avoid. We need creative and effective solutions.
There will be no fast-acting panaceas. Still, we can do better or worse, depending on public-policy choices made in Washington, Brussels, and elsewhere.
Because the hike in food prices is fundamentally a matter of supply and demand–not enough of the former, too much of the latter–a pair of basic approaches present themselves. The first is to reduce demand. That’s what a Malthusian pessimist would want to do, perhaps through the mechanism of mass starvation. It’s a grim equation: Fewer mouths equals more food.
The good news is that we can reject this approach and turn to a couple of capable allies in the supply-side battle against unaffordable food: trade and technology. Unfortunately, in too many places right now, governments are resisting both.
Trade is critical because it removes artificial barriers to the free flow of goods and services. When those barriers are in place, in the form of taxes and tariffs, prices go up.
That’s why export tariffs are a devil’s bargain. Many nations, from Argentina to Kazakhstan, are starting to impose new export tariffs on what their farmers grow. They hope to increase the supply of agricultural goods within their own borders, thereby dampening prices.
Yet this strategy almost always backfires. First, prices go up in other countries. Later, as other nations try to manipulate their own economies, prices start to rise at home. Countries find themselves locked in a vicious cycle of scarcity. Recent efforts to limit food exports in China, India, Russia, Ukraine, and Vietnam have merely worsened the global problem of food prices.
Import tariffs don’t help either. They’re a form of protectionism that’s meant to prop up inefficient farmers. They always wind up hurting consumers. Governments worried about the cost of food should strive to eliminate as many of them as possible.
South Korea recently reduced its duties on corn, flour, milling wheat, and other products. Consumer prices fell by one-tenth of one percent. “That may not sound like much,” noted the Wall Street Journal, “but by lowering the baseline on which future inflation builds, the benefits will add up over time.”
Congress could accomplish something similar in the United States by approving recent free-trade agreements with South Korea and Colombia. The Bush administration should do its part by pushing even harder than it already is for a successful conclusion to the Doha round of world trade talks.
Technology also has an important role to play. We already know how to make dramatic gains in crop yield through genetic modification. Countries that have not yet fully embraced biotechnology will find that by doing so, their farmers can produce more almost immediately.
In the long term, yields will rise even higher if entities such as the European Union recognize the value of biotechnology. We’re on the cusp of incredible advancements–in the area of drought tolerance, for example–but we won’t get there fast enough if too many public officials continue to ignore sound science and embrace the fear-mongering of know-nothing radical activists.
Until we recognize trade and technology as friends of the consumer, the price of ignorance will exact its toll upon us at the grocery store.
Reg Clause, a Truth About Trade and Technology board member (www.truthabouttrrade.org) raises cattle, corn and soybeans on a fourth generation family farm in central Iowa.