Amber Waves of Ethanol
The world food crisis is highlighting tragic stories of multitudes on the brink of starvation. Nonetheless, this crisis is likely to encourage a surplus of another kind: market fundamentalism. Its advocates believe that if only markets are allowed to do their thing, economies can easily accommodate weather catastrophes or shortages of agricultural inputs. The U.S. is portrayed as the beneficent advocate of free and open markets while too many "underdeveloped" nations -- and those socialist Europeans -- subsidize their farmers to the detriment of market efficiency.
These narratives beg several important questions. In our recent history, have we ever had a free market for food? Could or should the market for basic foodstuffs ever be free of all regulations and economic incentives? Late last month, the Washington Post's Anthony Faiola summarized these ideas: "In recent years, there has been a ... push to liberalize food markets worldwide -- part of ... the 'Doha round' of world trade talks -- but resistance has come from both the developed and developing worlds. Perhaps more than any other sector, nations have a visceral desire to protect their farmers, and thusly, their food supply. The current food crisis is causing advocates on both sides to dig in."
U.S. trade negotiators are major advocates of what the Post calls liberalized food markets. But at the same time, U.S. negotiators push France, the European Union, and less developed economies to end agricultural tariffs and subsidies, Congress has been working on a multibillion dollar farm bill rife with subsidies to our biggest factory farms. Haitians are starving not because Haiti closed its market to cheaper imports but because it has opened those markets to competition with subsidized U.S. rice growers. Its predominantly agricultural work force has become impoverished and can't afford rice at the world price.
Rice is one of the United States' most heavily subsidized crops. The Cato Institute reports that it has benefited from three different subsidies together averaging over $1 billion a year since 1998. U.S. rice growers also enjoy a direct tariff barrier of 3 to 24 percent.
In addition to its rather selective encouragement of "open markets," U.S. policy encourages large-scale technologically "advanced" farming both here and abroad. The emphasis is on monocropping, production of a few foodstuffs for export in world markets. Government-funded agricultural research is skewed toward petrochemical agriculture, with the recent emphasis on genetically engineered seeds as the latest incarnation.
This agriculture depends on cheap oil both for its petrochemical inputs and for the transportation of its product.
It is purported to be efficient, but its economic success here in the U.S. has been directly dependent on massive government subsidies to the largest producers. Cheap oil, the linchpin of the system, has itself been sustained by government policies that do not tax oil and petrochemicals for the massive military costs needed to assure access to oil and the environmental costs of our current transportation mode.
The burdens of this agriculture-petrochemical-transportation mix are coming home to roost. Haiti could once feed itself, but it now depends on imports from the U.S. of crops the cost of which have been driven up by turmoil in the oil markets and a long-standing Australian drought, perhaps the result of climate change. In a final irony, food prices worldwide increase as more land is devoted to corn for subsidized ethanol production. Thus another layer of subsidies is now solidly entrenched in an effort to sustain the subsidized corporate petrochemical agriculture complex.
It is tempting to argue that governments should simply scrap all regulations and subsidies. Yet the workings of the world market in basic food stocks suggest the limits of that perspective. Cargill and Archer Daniels Midland dominate the grain trade. Having virtual monopoly control of the market (few buyers and many sellers), they reduce the price to producers even as they push prices up for consumers.
More broadly, agriculture confronts boom-and-bust cycles occasioned by weather and other unpredictable factors, leading to market-distorting forms of economic consolidation. These are then often translated into demands for political favoritism. In addition, agriculture inevitably entails huge ecological implications. The case for proactive policy is strong.
Attempts by free marketeers to convince the public to remove all subsidies often succeed only in harming those who need assistance the most while leaving in place corporate protectionism. The Nation columnist John Nichols correctly argues that family farmers "should be able to count on good prices for growing the food Americans need." Public policy could fashion "a strong safety net to survive disasters, economic incentives for crop rotation and conservation, production for local markets, and a strategic grain reserve similar to the strategic petroleum reserve to guard against food-price inflation."
Trade policies could also help developing countries regulate markets in ways that would assure some degree of self-sufficiency in food. At the state level, we could support university research on sustainable agriculture as well as consumer emphasis on farmers markets. Both our health and our local economy will benefit in the long run.
© 2008 John Buell