How Freer Trade Can Help Feed the Poor
An agenda for easing hunger worldwide by reducing trade protectionism
John Nash and Donald Mitchell
RADE POLICY may not, at first glance, seem like the ideal tool for combating hunger. But eradicating costly protectionist barriers may be one of the best ways to put food on the tables of the poor. The world produces more than enough food to feed everyone. Yet about 840 million people, or almost one-sixth of the world’s population, still suffer from undernourishment. The overwhelming majority of these—about 92 percent—suffer from chronic undernutrition, rather than the acute hunger that grabs headlines in periods of man-made or natural ...view middle of the document...
Grain prices have been falling over the past 25 years thanks to global surpluses. Despite a reduction in global cropland used for grain production, particularly in the five largest exporting areas—the United States, the European Union (EU), Canada, Australia,
Real grain prices have declined sharply since 1980.
(constant 1990 dollars) 700 600 500 400 300 200 100 0 1980
1985 1990 1995 2000 2004
Source: Development Prospects Group, World Bank.
34 Finance & Development March 2005
Rice silos in Brazil.
and Argentina—real prices for wheat have fallen by about 34 percent and for rice by almost 60 percent (see Chart 1). The 2004/05 crop year is expected to see world grain production increase by 8 percent, the biggest year-on-year increase in 26 years, as a result of higher yields and better growing conditions in regions plagued by several years of drought. With consumption projected to increase by only 2 percent, the boost in production should lead to higher grain stocks. In spite of adequate global supplies, and in part thanks to relatively low world prices, many countries impose import tariffs on food to encourage and protect higher-cost domestic production. While this is true of both industrialized and developing countries, the latter bear the brunt of much of the cost of both their own protectionist policies and those of the richer countries. Food protectionism results in higher domestic food prices, which mostly hurt poor consumers as they spend disproportionately on food. Protectionism does not benefit the rural poor equally as it leaves out two large groups: those who do not own farmland, but have to pay higher prices as consumers; and those who own farmland, but do not produce for commercial purposes. And even commercial farmers, who may see a short-term increase in their income, will not experience long-term benefits such as a significant narrowing of the income gap with nonfarmers; this will come only from measures that raise agricultural productivity and facilitate the movement of labor. Policymakers often view protectionism as a substitute for more productive methods in support of agriculture, such as
increased spending on rural education, infrastructure, research, and technical assistance. It keeps them from investing in efficient food distribution systems that would improve their ability to respond quickly to food emergencies. Simulations have shown that replacing the implicit tax on consumption that results from protectionism with an equivalent explicit tax and investing the revenue in agricultural research can be enormously beneficial for increasing employment, income, and consumption, particularly of food (Diaz-Bonilla and others, 2003). Protectionism also indirectly encourages farmers to continue planting low-value food crops instead of diversifying into high-value nontraditional exports that would be a better way of raising income and escaping poverty. In...