Much nonsense has been written about the food crisis, much of it by people using it to build support for their personal causes. It is a multi-faceted problem. Some aspects have been discussed on this blog, such as decades of underinvestment, rising demand, and inflation. Another key factor is government policy, the subject of this post. Today’s instructor is Dennis Gartman; this is an excerpt from his always interesting newsletter, The Gartman Letter, of 19 May 2008.
Teach a man to fish
The wisdom of the old saying that the world is best served by teaching a man to fish rather than giving him a fish to eat rings true down through the ages. If an aid society, wishing to do the right thing, simply chooses to give food to starving people rather than teaching that same group of starving people how to fish or farm, damage is done that can take generations to fix.
The damage wrought upon the native Indian population in the US as the Department of Indian Affairs has chosen to subsidise the indigenous Indian populations is all to well documented and ever more well publicised. It is the failure of government of the good intentions of ill-advised “do-gooders” at its most evident. Now food riots are taking place in a large number of Third World nations, with the blame put upon the 1st world nations that supposedly have not done enough to keep the people of Mali, or Chad, or Haiti from starving.
This morning we look at Haiti, for it is closest to us here in the US.
Food riots have been breaking out across Haiti in the past six months, with the media blaming those riots upon the Bush Administration for not getting food supplies to the Haitians quickly enough. We, however, shall pin the blame upon any number of Administrations, going back three or more decades, where food aid, in the form of rice, at subsidised prices were so cheap and so good, that the Haitians gave up producing their own indigenous foods that had served Haiti well through the centuries. Production of corn, sweet potatoes, cassava and domestic Haitian rice were made to appear so expensive compared to the cheap, subsidised American rice that poured into the country that rice farmers did the proper, economic thing: they stopped producing their crops that could not compete with massive sums of cheap, high-quality imported rice.
In thirty years, American rice has become the dominant staple of the Haitian diet. And why should it not be? Why would a Haitian cassava farmer continue to produce a crop that was more expensive and less nutritious than cheap, quality American Rice? It would be illogical for him or her to do so? It would make no economic sense, and they responded properly. Production of the other crops so necessary in the past has fallen consistently and dramatically.
So when the food riots broke out as rice prices began to rise, what then did the Haitian and US government’s do? Rather than bring in food from abroad to stem the rioting along with very clear signals that these new subsidised food stuff imports would be highly temporary, and rather than also make it clear that new agricultural, free market policies would be necessary to stop the long term import of American rice and to spur the production of domestic food, the government in Haiti imposed a price reduction on domestically grown rice by nearly 16%. The signal being sent to Haiti’s farmers is that producing rice in the future will be unprofitable, and that if it ever becomes profitable, the government will almost certainly intercede to stop that trend. Hence, only an idiot farmer would begin to plant rice, when rice is so clearly demanded by the public.
Haiti is now the US’ 4th most important market for rice exports. It should not be ranked in the top 20 if population and per capita incomes are taken properly into consideration; however, subsidies trump economic reality in the short run. Further, we surmise that the rice lobby in the US will not allow for an end to the subsidies for export, and will wage a public relations war to try to prove that US exports of rice are the only thing that shall stand between Haiti and starvation, and that only a cruel nation, and free market theorists would support and end to the subsidy program.
We state, instead, that it is these subsidies that are the problem. Haiti was once self-sufficient in food, and exported much abroad. Now it has turned into a nation of dependants, incapable of feeding themselves… the result of those trying to do-good who in the end do untold damage. Give the man some rice and you feed him for a day; teach a man to grow rice — profitably — and you feed him, his children, those around him, and perhaps some others in other nations who are hungry too.
Please share your comments by posting below (brief and relevant, please), or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).
For more information about this subject
- Important news about the global food crisis! (1 April 2008)
- A view from Indonesia of the food crisis (3 April 2008)
- Stratfor warns about the global food crisis (18 April 2008)
- What you probably do not know about China’s food crisis (21 April 2008)
- Higher food prices, riots, shortages – what is going on? (29 April 2008)
- A modest proposal for solving the global food crisis (30 April 2008)
- Weekend reading about the Food Crisis (17 May 2008)
This archive shows all posts about the food crisis, plus reports from from major international agencies.
One of the problems caused by EU farm subsidies has been to create artificially large prices on farm land to the benefit of the old farmers but not new farmers wishing to establish themselves.
A sudden removal of subsidies and new farmers will see the value of their net access go into red. The trick would be to disconnect the subsidies from the world market price of rice, etc. And then over 20+ years remove the subsidies.
That the path the EU is on. it’s not quick or easy but it may work.
Oh the EU hypocracy about the damage their subsidies have done frankly disgusts me. The US is bad, but the EU is in a class by its own.
But they both deserve every insult handed to them over their ‘trade liberalisations’, forced on many poor countries by their foot soldier the IMF. Translated their policies are:
(1) Stop asisting your own agriculture (by central boards, research and development, income smoothing mechanisms, etc, etc).
(2) Open up your markets to OUR heavily subsidised products, driving your farmers into bankruptcy.
(3) Grow ‘cash’ crops for export, but because of import restrictions you can’t sell them anyway to the US or the EU.
(4) So they get sold on the open market to other countries, hammering their farmers.
Hey, I’m an Australian, we know all to well the scam the EU and US have fostered on the world, since it has hammered us as well.
The big joke is that EU and US taxpayers are paying through the nose to subsidise destroying agricultural production elsewhere. The biggest joke is the food costs in the EU are ridiculously high, so they pay twice, once though buying inflated prices for the product and again through their taxes (at least food in the US is, even still, pretty cheap).
No this is not a swing at rational, income smoothing mechanisms which are necessary for agriculture. Or centralised buying and R&D organisations, assistance for infrastructure and investment. Agriculture is not like making cars and these are sensible mechanisms for it. Agriculture is in the forecasting business, you lay down your crop and it could be a year (or in some cases more) before you know the price you will get, under/over production is commonplace locally or even globally. Thus these mechanisms are necessary otherwise you can starve.
If car manufacturers give up the ghost we can all carry on (look at Cuba), but 3 days without food and people riot (I’ve had personal experience of this). 3 weeks without food and people start eating each other. So agriculture is special, food security is special.
But what the EU, especially, has done is criminal, you could argue quite reasonably that they have killed more people in the world in the last 30 years than all the wars put together.
Yes, there is a long term problem, food production is nearing a peak at the moment, thus the high prices.
Yes, there is at least 10% more available (quite possibly more) under more rational, worldwide policies. But, and here is the BUT. See any change in EU/US policies? See any moves to allow greater local control? See the IMF, et al, changing direction. Nope.
It will only change when the rest of the world tell the EU and US to sod off about their globalised agriculture policies and go their own way. I long for the day when EU food exports are blocked by every country in the world and that includes their wine, cheese, beer, etc. Then and only then will they do anything to change whrn it really hits their pocket book.
well, I agree with the damage caused by subsidies. But how do you dismantle such a system? Not quickly thats for sure.
Take sugar beets. Germany and France are by far the largest EU producers. So unless the governments in those countries favour subsidy reductions things will change very slow if at all. You can’t force them and they will take revenge elsewhere in the EU system if someone tries.
So sugar cane producers around the world pay the price. And so forth with all other farm products.
As Fabius points out a small but well organized lobby can push foolish policies foreward successfully. Maybe it would help if the rest of the world started to counter those lobbies in the EU/USA with their own?
Alternatively they could simply not dump subsidised food on the world market.
Fine they have their own internal subsidies/distortions. Ok that is their problem. But when they inflict it on the rest of the world AND bend ‘international’ organisations to do their dirty work, that is when it become a World problem.
For example, they could allocate their rediculous surpluses to international crisis relief works. Only used for genuine short term relief. But no, they have to try and reduce their tax burden by dumping at subsidised cheap prices on the world market. They could charge market prices overseas (except for their contribution to disasters of course). But no.
They will not change until change is forced on them. So, the best thing is for the rest of the world to make themselves independent of their produce and then lower the boom on them. Or, alternatively use leverage on them, e.g Russia giving them orders, give us this amount of food for this amount of oil. Finally EU taxpayers will revolt and (eventually) a more rational system will evolve.
I must admit, I’m not holding my breath. Similar to the US maintaining its F-22s to the last US taxpayer with a job (non rich of course, tax is for the ‘little people’), the EU will maintain its agriculture system to the last, non starving EU, taxpayer.
So we have, at least, another 20 years of this rubbish to endure.
http://ec.europa.eu/agriculture/external/wto/index_en.htm
More optimisms, less scepticisms.
I must admit, I’m not holding my breath. Similar to the US maintaining its F-22s to the last US taxpayer with a job (non rich of course, tax is for the ‘little people’), the EU will maintain its agriculture system to the last, non starving EU, taxpayer.
Not going to happen. Subsidies are only 0.33% of the EU GDP.
What makes us think that pulling the plug over decades instead of seconds will make any difference???
There were no subsides for ailing buggy manufactures at the beginning of the automotive revolution. Nor subsidies for mechanical adding machine manufactures when micro-circuitry destroyed their business. Yet, despite the failure of the government to take care of the people displaced in those enormous upheavals, people adjusted to market, moved on and survived.
If self important planners distorting the free market created the problem, what exactly makes people think that a planned exit will be anymore effective? End all subsidy. Now.
Why are we dumping food on the world market? Why do we have farming subsidies? Diagnosis must preceed cure, even in public policy.
The Midwest consists of many States — each with two Senators and some Representatives — and few people. They are focused on a narrow range of issues, with government support for farming at the top of that list.
They are our equivalent of the “rotten boroughs” in 19th century Britain. As such our “farm problem” is worse than the EU’s.
There might be no solution other than a Constitutional ammendment that changes the structure of the Senate. That will be difficult, because these States will of course oppose any reform.
Anyone here know what the best charity would be to support fixing these problems and specifically to help the people in the world who are literally starving, I’m just curious for some future ideas I have, and think this would be the best helper in the world. Let’s say I have a lot of money in the future or that I sell things and want to give a cut to charity…what are your ideas?
I’m also interested in knowing if there are charities, etc out there that explain why they shouldn’t buy cheaper and be independent…
The first rung on the ladder to industrialization is textiles. There is not one example of a society that leap frogged over weaving and dyeing of cloth yet achieved industrial status. But Africa is prohibited from industrializing because gifts of clothing from Europe and USA are so great, no domestic textile industry can take root. This has done, and continues to do, far more damage than free rice to Haiti.
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Fabius Maximus replies: How about Singapore?
Yes, if you load up on expatriates from a sister country loaded with textile trained nascent industrialists, you can leap frog over textiles. Now that China is sending people to Africa, over time, Africa can become populated by Chinese. Problem solved.
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Fabius Maximus replies: Great point about Singapore.