Distress signals: Food markets blocked

SCMP Tuesday May 13 2008

Protectionism and a lack of information are having tragic consequences, and not just in Myanmar.

One does not have to believe that market forces should rule every aspect of our lives or that democracy always makes for good government to realise that two current crises owe much to their absence. I refer both to the flood tragedy in Myanmar and the food price rises which threaten to cause widespread poverty and malnourishment.

The Nobel-Prize-winning Indian economist Amartya Sen once pointed out that famines do not occur in democracies. Modern communications enable news of shortages to be known and markets will provide supply, albeit at a cost.

Hundreds of thousands died during the Great Leap Forward because information was controlled and markets were nonexistent. In Myanmar, thousands died because a government terrified of information lacked both the will and some of the means to warn its citizens of the approaching peril. Storm surges driven by cyclones are nothing new to the Bay of Bengal. Bangladesh has suffered several such tragedies but now has warning systems to reach the most vulnerable people living on its low-lying river deltas, and safe areas for evacuation. Myanmar, a nation much better endowed with natural resources, has almost no such systems.

Myanmar, as a whole, cannot be short of rice. Despite abysmal productivity, it still has a small export surplus. But, after years of socialism, it has no market mechanisms which can get food to the areas where stocks have been destroyed by the flood. It must rely on an incompetent government and such foreign relief as is permitted.

In Myanmar, as in North Korea, the security of the state overrides the welfare of the people, so aid is received reluctantly and foreign personnel are kept out in case they allow information to come in.

It is a striking contrast to Indonesia when hardest hit by the tsunami. Foreign and local combined efforts ensured that few died of starvation or disease after the initial disaster.

Myanmar's government is also part of the larger current problem - rice shortages. If markets were allowed to operate freely, where farmers make their own decisions, Myanmar would still be the largest rice exporter in the world. But, instead of exporting 10 million tonnes like Thailand, or 4 million like Vietnam (once it liberalised its markets), it sells less than 1 million tonnes a year.

One result is that the global rice market is thin and volatile - only about 7 per cent of global production is traded across borders. China exports, at most, 2 per cent of its crop; India, 4 per cent at best. This narrow market in turn persuades governments in deficit countries such as Malaysia to encourage high-cost production at home, to limit import dependence.

At times like today, even exporters impose restrictions to keep local prices down - as China, India and Vietnam have all done - which merely adds to the sense of panic among importing countries with inadequate stocks, such as the Philippines or Nigeria.

Making matters worse is the fact that rice consumption is frequently promoted through subsidies to consumers, often at the expense of the investment in agriculture which could, in the longer run, bring down the production cost. In some cases, rice is presented as a cultural necessity even in areas where, because soil or climate were unsuitable, it was once viewed as a relative luxury compared with other grains and root crops.

The whole world is suffering in one way or another from misguided food-related subsidies. For years, US and European export subsidies undermined farmers in more efficient producing countries. Now shortages, in part caused by biofuel subsidies for corn in the US, are being used to justify a continuation of these subsidies and high price guarantees.

Meanwhile, countries that should be able to export more have failed to invest because prices were low for years or have policies driven entirely by the quest for self-sufficiency. India, in particular, has huge potential to increase productivity in rice, which is currently half that in China.

Generally, low international prices have discouraged investment in new varieties of rice and in irrigation systems. These are badly needed if rice is not to become a scarcer commodity, and water shortages, shrinkage of suitable farmland due to urbanisation and rising environmental damage are to be overcome.

The danger of this crisis is that the wrong lessons will be learned: there will be more, not fewer, subsidies; more attempts at self-sufficiency regardless of cost; and more restrictions on imports and exports.




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