farmgate: US Farmers Are Feeding The World, But Why Does Hunger Remain?
Years of supply-management agriculture gave way to the Freedom to Farm and FAIR policies prior to the past decade. US farm policy was in high gear to produce for the market, with the hope that international markets would be open and full of hungry people. The hungry people are there all right, but markets apparently are having some problems, well beyond the current global economic challenges. And those systemic problems have impeded the goals of many US farmers to feed that hungry world.
The thriving economies of India and China, both considered to be in the “developing” world, were major engines that drove grain and commodity prices higher in 2007 and 2008. But while their GDP’s were growing at 8% and 10%, there were problems with many other developing nations where food just wasn’t getting to the population. So what are the answers? USDA economists have completed rather extensive studies that seem to have a connection, although it is not a direct quid pro quo or tit for tat. And that connection seems to draw the issue of hungry folks to a problem with currency exchange.
Food security is today’s formal name for hunger, and USDA’s assessment is that more than 800 million people in 70 developing nations suffer from increased food insecurity. That is up 11% from 2007. Although prices of food have declined, there are growing deficits, higher inflation and other issues that prevent them from getting a minimum of 2,100 calories per day. The recent 33% decline in food prices was seen as positive for this group, many of which is dependent on imported food and imported food ingredients. For example, those nations where per capita income averaged less than $750 per year, the dependence on commercial grain imports nearly tripled between 1990 and 2007.
The current economic crisis is deepening the problems for those nations. One thought is their reduction export earnings and the cut in import capacity will result in a decline in food consumption. A second thought is that food security decline further when there is a cut in capital inflows along with the reduced growth in export earnings. Even in the long term, when the developed world climbs out of the current economic morass, the hungry population in the developing nations will remain flat through the next decade. USDA economists say these nations have few safety nets in place for the population, and international programs are inadequate.
As the USDA was projecting continued hunger problems for developing nations, other USDA economists were looking at the problems of price food in the markets of the developing countries because of exchange rate volatility. Most Cornbelt farmers watching the 2008 rise in grain prices knew one of the contributing factors was the lower value of the dollar that made it easier for foreign nations to buy US commodities. But when those commodities are distributed to interior markets in other nations, merchandisers have difficulty putting a price tag on a bushel of corn, beans, or wheat because of the exchange rates. USDA economists describe the problem by saying, “If the exchange rate change were fully transmitted, importers would pay 50 percent less for commodities purchased from the exporter, all other things equal. However, the exchange rate change might not be fully transmitted because the exporters might exercise market power to increase their markups in response to the exchange rate depreciation.”
The USDA study of the exchange rates says about one-fourth of US agricultural production was sold abroad in the past 15 years, one of the goals of 1990’s farm policy changes. But that volume could have been larger, USDA says, were it not for the systemic economic problem with translating exchange rates from international shipments to retail quantities. USDA says many developing countries liberalized their agricultural policies to accept more imported food products following the 1994 Uruguay Round of trade talks, but the process broke down in trying to get food to the actual market place.
Government policies are one of the reasons for the system to break down, such as the variable levies imposed by the European Union which became trade quotas. Another barricade are the state trading agencies, such as the Canadian and Australian Wheat Boards and others around the world. Tariffs are more transparent and add a percentage of the price which flows down to the consumer, without impeding the process.
So what is the impact of the problem posed by the exchange rate issue? Looking at the recent spike in commodity prices, the economists say, “The price surge likely affected developing countries asymmetrically, in that their food consumers were hit hard, with little offsetting advantage of higher prices to farmers.”
Summary:
World agricultural trade policies have improved, but not to the extent that hunger issues are declining. Food security remains a problem in 70 countries, and one possible reason is a systemic problem with adjusting food prices from exporters to retailers when those prices have been subject to exchange rate complexities.
Posted by Stu Ellis on August 4, 2009 12:50 AM to farmgate