International Herald Tribune
Bowring: How to make the food crisis worse
Thursday, May 8, 2008

HONG KONG: The crisis over the rising cost of food has sparked a flurry of contradictory, if not inane, responses in Asia - as elsewhere - that will do nothing to stabilize prices in the short term or lead to higher production in the long term. All they do is underline the argument that government-backed price distortions have much to do with the sudden rise of grain prices.

In the space of a few days, the Philippines declared that it would aim for self-sufficiency in rice production. Indonesia and Malaysia tried to ban exports; Thailand's prime minister, Samak Sundaravej, announced a goal of creating a rice cartel consisting of Thailand and Vietnam, the world's two largest exporters, and Myanmar and Cambodia.

Then, economic ministers of the Association of South East Asian Nations, of which all the above countries are members, met in Indonesia and pledged to help stabilize prices and "continue fair trade practices and to achieve an orderly rice trade."

The Philippines has been self-sufficient in rice for only a few out of the past 100 years. Its current 10 percent shortfall comes despite having had higher farm gate prices - those at the farm - and higher productivity than most of its neighbors.

A fast-growing population, shortage of flat land and lack of major river basins to provide large-scale irrigation suggest that sustained self-sufficiency could only be achieved at high cost. As for the short term, belated panicky buying attempts by the government's importing and distribution agency must take some of the blame for the recent spike in prices.

Blame for the fear of shortages in both the Philippines and Indonesia must also go to a neighbor, Malaysia, whose high farm gate prices and massive subsidies to consumers encourage smuggling. The smugglers are the main beneficiaries of beggar-thy-neighbor grain policies.

Given that the Philippines and Indonesia are among the world's largest rice importers, the export cartel proposed by Samak could be seen as a distinctly unneighborly act, contrary to the principles of the Asean Free Trade Area.

Fortunately, it will never happen. Although the countries in the suggested group currently account for about 40 percent of global rice exports they are a mere 15 percent of world production - at its height, OPEC had 50 percent.

The key for the future is not so much the policies within Asean as those of the two major rice producers, China and India, which are also major producers and consumers of wheat but are relatively small players in the world rice market.

India exports 3 to 4 percent of its rice production, China just 1 to 2 percent. Both countries have long maintained grain self-sufficiency goals and large stockpiles; as a result, their influence on world markets has been very small.

This may not continue if diversifying domestic demand for foodstuffs suggests that they could benefit from allowing global market forces to play a larger role while keeping large stocks to prevent panic buying if harvests are poor.

India is already a huge importer of vegetable oil - mostly palm oil from Southeast Asia - and China of soybeans. But with investment in irrigation, seeds and roads, India at least has the potential to become the leading player in the world rice trade. Productivity per hectare in India is half that of China and two thirds that of Indonesia. Meanwhile, China is becoming an increasingly important supplier of processed foods and higher value-added crops like apples.

It may make more sense to focus on these and import wheat from countries such as Russia and Ukraine, with their huge potential for increased productivity, than continue to drain northern China's fast-declining water table in pursuit of wheat and rice self-sufficiency.

History tends to suggest that food panics set off protectionist policies or wrong-headed attempts at self-sufficiency.

That may well be the result this time too. But the lessons to be learned are the opposite. Years of European and U.S. production and export subsidies undermined more efficient producers elsewhere. Biofuel subsidies for corn are making it worse.

In the developing world, consumption subsidies long helped urbanites at the expense of farmers. In a multitude of countries, from Myanmar to Zimbabwe, tyrannical politics devastated food production. And in others, pro-peasant romanticism and Europe-derived anti-GM food fetishes stood in the way of higher productivity.

The more food that is traded around the world, the less likelihood of price spikes and panics.