As drought devastates this year's grain harvest, it's vital that countries don't make a bad situation worse.
- By Robert D. HormatsRobert D. Hormats is vice chairman at Kissinger Associates and former U.S. under secretary of state for economic growth, energy, and the environment.
The price of food is rising once again — and fast. According to the United Nations Food and Agricultural Organization (FAO), global food prices rose 6 percent in July alone. Scorching heat and drought have devastated corn and soy production in parts of the United States. Wheat output from other major exporters — Russia, Ukraine, and Kazakhstan — has also dropped due to weather-related disruptions. Although food prices remain below their February 2011 peak, and the situation has not yet reached international crisis proportions, the recent spike is cause for serious concern. That’s why it’s especially important now that countries not make matters worse, as some have done in recent years in the face of food shortages.
In high-income countries like the United States, and in Western Europe, sharply higher food prices create very real challenges and force families, especially low-income families, to make difficult and often painful choices about how to spend their money. In low-income countries, higher food prices impose enormous hardship, often forcing nearly unthinkable life-or-death decisions. This is particularly true for poor families in countries that import the bulk of their food, such as Angola, Egypt, and Tunisia. Rising food prices also can trigger social unrest, as has been demonstrated repeatedly in recent years, and place enormous strain on the budgets of governments that subsidize food prices.
In circumstances of rapidly rising food prices, government leaders are frequently confronted with critical decisions: How can they stabilize, or reverse, sharply rising domestic food prices? And how do they respond to the often acute needs of their people when prices do rise and shortages do occur? In response to popular demands, governments in some exporting countries have in the past imposed restrictions on the sale abroad of domestically produced agricultural output. These measures have taken many forms, such as export quotas, prohibitive export taxes, or outright bans. For example, China levied an export tax on grains and India suspended wheat exports in 2007.
But although export restrictions are generally implemented in the name of domestic food security, they rarely achieve that goal. The resulting distortions in agricultural markets usually produce a range of adverse and sometimes unintended consequences for the domestic economy. Some effects occur right away, such as lower incomes for domestic farmers, who are forced to sell their crops for lower prices to the local market. Some take longer, such as the disincentive for farmers to cultivate additional acreage and make investments in seeds, fertilizer, and irrigation. In some cases, farmers may even decide to cut back domestic food production — despite global food shortages. All of these scenarios, over time, harm local consumers. In addition, many countries who cut agricultural exports suffer long-term loss of foreign markets, as importing countries look to what they consider more reliable suppliers. At the same time, higher prices abroad can induce farmers in other regions to plant more, cutting into the markets of those countries whose export barriers exacerbated the initial food-price spike.
Globally, agricultural export restrictions by major exporters harm food security for many other countries. They remove large volumes of basic food staples such as corn, rice, and wheat from world markets and thereby increase already rising and volatile international prices. The International Food Policy and Research Institute found that export restrictions by several countries during the 2007-8 food price crisis contributed to more than 60 percent of the rise in the global price of rice.
Food-price inflation also creates a situation where food-deficient countries may overcompensate through panic buying and hoarding of food products, further exacerbating international price spikes and adding to the pain of the most vulnerable populations. Such reflexive actions should be avoided in any case because they only worsen the problem. More broadly, the consequences of any country adopting export restrictions, hoarding, or engaging in similar types of market distorting policies can create a vicious spiral as numerous other governments react by adopting similar, inward-looking policies.
The basic point is this: Food security cannot be viewed in zero-sum terms. The data are clear. Export restrictions on basic food staples — even well-intentioned measures to protect domestic consumers — lead to higher prices worldwide and ultimately reduce both domestic and international food security. Export barriers by food-exporting countries are especially harmful to hundreds of millions of people living in import-dependent developing countries, where even the slightest increase in food prices can be devastating.
The United States has actively sought agreements in multilateral fora to remove all agricultural export restrictions and ensure that nations refrain from implementing them in the future. A growing chorus of voices is joining our efforts. Last year, G-20 leaders pushed to remove food export restrictions and we will advocate for similar commitments at the upcoming Asia-Pacific Economic Cooperation Summit in Vladivostok, Russia.
It’s time for world leaders to acknowledge that export restrictions undermine the goal of food security. While keeping crops at home through artificial export barriers may appear tempting for leaders in the short term, it causes great harm to the citizens of other countries, not to mention large segments of their own domestic populations. Food-export restrictions are, in short, bad and harmful policy.