02 April 2008

Driving up food prices

The BBC reports that Cote d'Ivoire's president has reduced taxes and customs duties on food in response to rioting. As the prices of wheat, rice and other staples continue to rise, I wonder if we are seeing a new kind of 'beggar-thy-neighbour' trade policy emerging?

In the last few months, export taxes have been imposed in Argentina and export restrictions imposed in Thailand and Vietnam. A few months ago, I noticed the same thing in Ecuador. These measures may work to contain the price rise in food exporting countries, for a while; but they will drive prices even higher for everyone else. This hasn't had much effect in Cambridge, Massachusetts, where food makes up maybe 10% of our expenditure, but most of the poorest countries in the world are food importers and poor people spend over two-thirds of their income on food.

I teach a course on globalization and the parallel with the 1930s is alarming: at that time, the Smoot-Hawley tariff provoked retaliatory tariff increases by Europeans, South Americans and others. A tariff may be optimal for one country is detrimental to the world. Only this time, we are talking about restrictions on exports, not imports.

What are the options for dealing with this? Maybe the World Food Programme or FAO should convene an emergency food summit to try to persuade food exporters not to starve everyone else.

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