World Food Prices Up

The World Bank says that food prices are not coming down soon:

The price of corn, wheat and soybeans have all reached records this year, spurred by competing demands from the animal- feed, food and biofuels industries while stockpiles dwindle. Rice, the staple food for about 3 billion people, climbed 42 percent in the first quarter, more than all of last year's 33 percent gain.

Record grain prices contributed to strikes in Argentina, riots in Ivory Coast and a crackdown on illicit exports in Pakistan.

World Bank President Robert Zoellick this week said global gains in food prices probably will last for several years and called for a ``New Deal'' to end hunger and an additional $500 million for a United Nations food program. Zoellick also urged rich countries to cut agricultural subsidies and open markets for food imports.

Much of the turmoil in world food prices can be traced to more-expensive oil -- not just as an input to mechanized farming and fertilizer but as an excuse for the wasteful, trade-distorting, corporate-giveaway ethanol program.

I have commented on the stupidity of the ethanol program many times. What is interesting in this story is Zoellick's call for an end to subsidies. Unless he was misquoted, he has the wrong idea -- subsides make food cheaper at the expense of taxpayers. Even worse, if rich countries opened their markets to free-trade with poorer countries, world prices for food that would be sold in the US would rise. That sounds double-stupid if we are worried about the poor.

I have always been an advocate of free-trade, but free-trade (in corn) is spreading poor US policies worldwide. What to do? End the ethanol program so that corn goes back into food. End tariffs on food imports to poor countries -- so they can get access to cheaper food at world prices.

US and EU food subsidies could end (and their markets open), if the equivalent spending is redirected to lowering prices in poor countries. Alternatively, phase out subsidies/barriers over 5 years so that markets adjust.

Bottom Line: I am terribly sad to be recommending distortions on top of distortions, but US farm and trade policies have gotten so convoluted and distorted so much of the world market that a big bang change (like that would ever happen -- ha!) would shock the world's poor in many painful ways.