Insights and Analysis

Doha Round Collapse: The New Reality of High Food Prices

August 6, 2008

By V. Bruce J. Tolentino

Last week, the latest round of talks under the “Doha Round” of multilateral trade negotiations ended in disarray and disappointment. The trade ministers and negotiators gathered in Geneva could not — again — reach agreement on reforms in agricultural support and trade.

The mainstream press reports that the refusal of China and India to reduce import tariffs is the main reason for the collapse of the talks. Yet behind the belligerence of less-developed countries at the negotiations lies a much more important obstacle to trade reforms: the continuing and growing ” and worse, unnecessary subsidies, and protection being provided to European and especially American, farmers.

Over the last decade, food prices worldwide have been rising and spiked upward in the last year. Over that period, the fortunes of American and European farmers have steadily improved, to the extent that any economic justification for continued taxpayer subsidies to farmers has disappeared.

Yet these relatively small farming populations exert oversize political influence. In an election year, the Democratic-controlled U.S. Congress has passed the largest Farm Bill ever of US$300 Billion, even over-riding the veto of the lame-duck President Bush. And in the case of the EU, the sticky point at the Doha talks revolved around the reduction of EU tariffs on bananas from a ‚¬176 to ‚¬114 per ton over 8 years.

In recent years, when many sectors of the U.S. economy have been in some trouble, U.S. agriculture has boomed. Food and agricultural products are some of America’s largest exports to the world, especially to China and Russia. American farming has also greatly evolved technologically. Family farms now constitute only about 1% of all farms. Most farms are corporate operations, and the farming population comprises less than 2% of all Americans.

The new regime of high food prices has changed the political rationale for agricultural subsidies. Governments have heretofore subsidized and protected farmers to protect them from low food prices. Yet the impact of rapid growth in demand from fast-emerging economies like Russia, China, and India; natural population growth; fixed land size; diversion of food to fuel; high fertilizer prices pushed by high fuel costs; and natural disasters have combined to push food prices to record levels.

The international development community is again turning to agriculture after at least two decades of benign neglect. Lending to agriculture is again fashionable at the major international financial institutions. There is renewed enthusiasm in the various institutions that comprise the Consultative Group for International Agricultural Research (CGIAR) such as the International Rice Research Institute (IRRI) and the International Food Policy Research Institute (IFPRI). Even the large, somewhat moribund UN Food and Agriculture Organization (FAO) has re-acquired a new cachet.

Yet the rhetoric in U.S. and E.U. politics is still dominated by the need to protect farmers, instead of the imperative to feed all. More than ever, America and Europe need to take their free-market pronouncements to heart, and first and foremost, apply these to their own agriculture. More than any aid program that the U.S. and E.U. can ever mount, the opening of their markets to more competition and the exports of less well-off nations will generate improvements in the welfare and security of all.

Bruce Tolentino is The Asia Foundation’s Director for Economic Reform and Development Programs. He can be reached at [email protected].

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