The So-Called Global Food Crisis: Misconceptions & Facts

Friday, May 16, 2008

By Bright B. Simons,

BrightFor as long as I can remember the concern of leftist-statists like Mr. Agbodza had been that we were the victims of price-dumping. As a result of the Common Agricultural Policy, they argued, we, here in Africa, were being inundated with cheap food. Now that a temporary blip in food prices is being observed, the argument has taken a 180% turn: we are being hammered with expensive food. The resolution of this false puzzle is a matter of basic economics.

Recently, a commentator published an article about the free market and food security on a much patronised Ghanaian news website. Full of passion, but, unfortunately, lacking in depth of analysis, his views summarises a great deal of the reactions to the so-called global food crisis that have come from leftist or left of center pundits in recent weeks. We are taking the opportunity therefore to use excerpts of his article to address many of the left-leaning misconceptions that have characterised the debate so far.

In said article the writer, one Agbodza, accuses the free market of many crimes, though he takes pains to prove none of them. He acknowledges that the reasons advanced for the general rise in food price levels are numerous and complex, but offers in the same breath a point of view that suggests that free-market driven, private sector – based policies are solely responsible for the supposed crisis. To crown this string of insights, he asserts, without evidence or argument, that "However, the free market private sector has little interest in feeding Ghana by meeting the costs of this required investment."

The facts of the matter, as far as the food security issue is concerned, are in direct contradiction of most of Mr. Agbodza’s claims. We will examine his key assertions one after the other.

"You have land-producing food and you switch it to produce biofuel when you cannot feed yourself; who in their right mind will do this except the lunatic free market."

The free market or its proponents have never been the driving force behind the fashionable trend towards farmland conversion to biofuel use. Indeed, by freemarket terms, biofuel production was unprofitable, and therefore unadvised, until very recently. The steam that pushed farmers to switch to biofuel production in certain countries was supplied by government and foundation subsidies under the well-intentioned, but misguided, belief that biofuels could replace less environmentally friendly fossil fuels. The most enthusiastic national producers of biofuel, on GDP relativity terms, were countries like Malaysia and Brazil. None of these countries can be accused of a history of being pushed around by free market fundamentalists. More often than not, centrally devised "national development plans" made biofuel exploitation a cardinal feature of economic policy. The Brazilian project Mr Agbodza cites has been brought to Ghana under the auspices of the unquestionably leftist Lula Da Silva, President of Brazil, not libertarian activists in Rio.

Mr. Agbodza makes the elementary error that free market ideology is identical to "corporatism", which one will suppose equates to a belief that "syndicalism" is the same thing as scientific Marxism. Rule by giant corporations has been seen under both fascist and communist regimes, but is abhorred by all classical liberals. Corporations are not natural allies of free market enthusiasts. In fact for each group of shareholders of corporation X, the best market conditions might actually be found in the situation where corporation X enjoys a monopoly in the industry granted by a corrupt government. Classical liberal free market ideology is about "competition, competition, competition". The central tenets of the libertarian faith, such as comparative advantage and property rights, are all glued together by the principle of just, free, and unfettered competition amongst enterprises to service the self-determined needs of free individuals on a level playing field guaranteed by impartial institutions. We sincerely doubt that Mr. Agbodza, when he refers to the free market, actually understand the matter at hand to adequate depth.

"What we know for a fact for Ghana is that like all other developing countries we now have to spend a lot more on food imports. There are estimates developing countries spend up to 80% of their budget on food imports."

The point Mr. Agbodza wants to make with the statement above is not clear, but it appears he is rehashing the old theme: "imports bad, exports good". Once upon a time, that viewpoint would have been laughed out of court as "mercantilism". Why do we have to spend "more" for food imports? For as long as I can remember the concern of leftist-statists like Mr. Agbodza had been that we were the victims of price-dumping. As a result of the Common Agricultural Policy, they argued, we, here in Africa, were being inundated with cheap food. Now that a temporary blip in food prices is being observed, the argument has taken a 180% turn: we are being hammered with expensive food. The resolution of this false puzzle is a matter of basic economics.

If food imports were indeed expensive, local producers would simply have exercised their comparative advantage (akin to what some call market arbitrage) and begun to recapture market from importers. If there is a genuine case of alarmingly increasing food imports (an odd scenario giving that malnutrition is supposedly still a concern, and we are yet to see surplus imported food being carted into the sea), the sound inference can only be that they are relatively cheap. If they are, then Ghanaians are saving resources (by buying relatively cheap food) that can be used in other economic endeavours. If a trend is discovered that suggest categories of food that used to be produced in Ghana are now being imported, then that trend should be seen as an economic signal highlighting Ghana’s growing uncompetitiveness across those relevant categories. Those signals are then used by shrewd local investors to shift resources around to areas where Ghanaian production factors suggest greater competitiveness. Jobs lost in the old uncompetitive economic sectors are re-gained by new jobs being created in the competitive economic sectors. A decline in public sector productivity led to retrenchment across the civil service while an improvement in the macroeconomic indicators gingered growth in the banking sector. The consequence so far has been that newly minted gems from the University of Ghana Business School troop to the banking halls of Ring Road Central rather than to the HR department of Cocobod.

To return to the issue of food security, if readers will allow us. Considering that somewhere between 60% and 65% of Ghanaians are engaged in the agricultural sector, whereas in most developed countries the corresponding percentage is lower than 5%, one clearly sees the argument that this amounts to underutilized human resources. The critical issue therefore is that the sector can do with greater efficiency. The cry over rural folk departing to urban centers is misplaced if not positioned within the broader context of efficiency. Basic economics means that the more peasant-style farmers leave the rural areas, the more land is freed. The lower agricultural land is priced (note that there could also be a transfer of "unproductive" agricultural land to more productive use such as, perhaps, tourism) and the more attractive commercial farming becomes. Mr. Agbodza breezily dismissed such arguments as harking to a tired old free market theme of "equilibrium". We will not use that term. We prefer "efficiency". Efficiency means that resources will go to those areas that will best generate economic outcomes that reduces poverty by creating newer, better-paying, jobs, and wealth for entrepreneurs most likely to re-invest (rather than old, competition-hating, elites who probably fancy the Kensington homes Mr. Agbodza rails about).

The private sector will only be interested in solving our food problem if there is higher normal or supernormal profit compared to other avenues and food (rice) imports.

In the free market, truly free, competitive system, the entrepreneur will put his/her money where he/she can make the most efficient use of it. Efficient use in the medium term benefits the society at large because scarce resources are put to the most rewarding use. Not where the personal biases of Mr. Agbodza determine.

The costs of solving our rice (and food) import problem will include long-term (50-100 years) strategic planning, development of irrigation systems, funding agricultural research institutions, development of pragmatic and goal-oriented agricultural practices and a deep interest in citizens of Ghana.

A lot of long phrases, but the sentiment is clear enough. In the absence of a pro-forma national budget that will determine the sources of funding for the initiatives listed above (assuming of course that those areas have been neglected and are being neglected in Ghana) and the opportunity costs for implementing these as opposed to building, say, more vocational schools, one can hardly debate the merits of such suggestions. We can attack it on principle though. A hundred year plan is misguided. Mr Agbodza proves by this suggestion that he is a consummate statist, central plan – loving technocrat. Sadly the pace of technological change and the turbulence of politics and socio-economic transformation means that even were you to assemble all Nobel Laureates, dead and alive, in all fields, to this task, you are likely to get it wrong than right. Knowledge is simply too scarce to be treated so inefficiently. As justification for our position, consider that, of the many pundits in the mid-century futurism industry, none predicted the growth of the internet. Then consider how the online distribution model has reshaped global economics. The typical leftist position of: "let the experts tell us all how to live" has proved damaging to economic growth wherever it has been tried.

Until a country such as Ghana is sufficient in food production, scarce agricultural land should never be used for the production of non-food crops.

As arguments against free markets go, Mr. Agbodza’s usually tend to belong to the category that was in fashion 2 decades ago. Self-sufficiency in the production of any good or service of national importance can not be a virtue in and of itself. Even the most vociferous statists concede that trade has a part to play in the self-sufficiency quest. Otherwise, why, one might as well argue for self-sufficiency at the homestead level. After all, one does not know when an apocalyptic eruption will force us all to lock our doors behind us and bunker in for years on end. Operation feed yourself, then! The truth though is that in places like Hong Kong, Singapore, and increasingly the Middle East, trade has proved sufficient in allowing citizens to maintain sound food security. Who is to determine what "scarce" agricultural land is? Mr. Agbodza? Another committee of experts paid with World Bank money? The free market has proved more skilled and farsighted in determining when land is scarce and when it is plentiful than any assembly of experts ever convened by any standing committee of any centralized state.

This is the anti-free market food policy that will ensure our strategic food security. If implemented, it will be sound economic governance.

But tons of data and mountains of evidence disprove that claim. According to reports produced by the UNDP (definitely not a bastion of free market economics) between 1997 and 2003, world poverty has fallen more in the past 50 years than it did during the preceding 500. In just under thirty years, poverty in Asia has fallen from 60% of the population to less than 20% today. According to the FAO (also not a bastion of the free market), malnourishment in the developing world has declined from nearly 40% to less than 20% today (even with significant population growth) in the past 30 years. Since 1980, food prices have dropped by more than 30% even after accommodating recent price rises. The green revolution has seen grain production increase by almost 50% across the developing world. There isn’t a single shred of evidence that those parts of the world that have gained the most have done so by progressively centralizing the state and undermining free markets. Indeed, throughout Asia, the contrary is true. Even Maoist China is deregulating its land tenure system. Nor is there any proof, whatsoever, that African countries, that have gained the least, have suffered as a result of a historic tendency to liberate their markets. Indeed, again, the contrary is true. It is barely two decades that Ghana begun its market reform program, and even then only grudgingly and at the instance of external forces.

As Mr. Agbodza has so blatantly shown, the problem in Ghana and Africa is not an excess of free market enthusiasm, but a dearth of it, particularly amongst the intellectual classes. We dare hope that this is a situation that will change rapidly, else another wave of global progress will pass us by, once again.

Bright B. Simons  i s Associate Editor of  and Director of Development of  IMANI: Centre for Education & Policy