Monday, June 30, 2008

The Food Chain: Hoarding Nations Drive Food Costs Ever Higher

June 30, 2008

The Food Chain: Hoarding Nations Drive Food Costs Ever Higher

New York Times

BANGKOK — At least 29 countries have sharply curbed food exports in recent months, to ensure that their own people have enough to eat, at affordable prices.

When it comes to rice, India, Vietnam, China and 11 other countries have limited or banned exports. Fifteen countries, including Pakistan and Bolivia, have capped or halted wheat exports. More than a dozen have limited corn exports. Kazakhstan has restricted exports of sunflower seeds.

The restrictions are making it harder for impoverished importing countries to afford the food they need. The export limits are forcing some of the most vulnerable people, those who rely on relief agencies, to go hungry.

“It’s obvious that these export restrictions fuel the fire of price increases,” said Pascal Lamy, the director general of the World Trade Organization.

And by increasing perceptions of shortages, the restrictions have led to hoarding around the world, by farmers, traders and consumers.

“People are in a panic, so they are buying more and more — at least, those who have money are buying,” said Conching Vasquez, a 56-year-old rice vendor who sat one recent morning among piles of rice at her large stall in Los BaƱos, in the Philippines, the world’s largest rice importer. Her customers buy 8,000 pounds of rice a day, up from 5,500 pounds a year ago.

The new restrictions are just an acute symptom of a chronic condition. Since 1980, even as trade in services and in manufactured goods has tripled, adjusting for inflation, trade in food has barely increased. Instead, for decades, food has been a convoluted tangle of restrictive rules, in the form of tariffs, quotas and subsidies.

Now, with Australia’s farm sector crippled by drought and Argentina suffering a series of strikes and other disruptions, the world is increasingly dependent on a handful of countries like Thailand, Brazil, Canada and the United States that are still exporting large quantities of food.

On a recent morning here in Bangkok, sweaty and heavily tattooed dock workers took turns grabbing 120-pound sacks of rice from a conveyor belt and carrying them on their heads to cranes that whisked the sacks deep into the hold of a freighter bound for the Philippines. Most of the one million tons of rice that leaves the dock here each year follows the same spine-crushing routine.

“I’ve been here 28 years,” said the assistant port manager, Suchart Wuthiwaropas. “This is the busiest ever.”

Powerful lobbies in affluent countries across the northern hemisphere, from Japan to Western Europe to the United States, have long protected farmers in ways factory workers in Detroit could only dream of.

The Japanese protect their rice industry by making it nearly impossible for imported rice to compete. The European Union severely limits beef and poultry imports, and Poland goes further, barring soybean imports as well.

Negotiators have been working for years to free trade in farm goods, but today’s crisis actually makes that more difficult for them. Food protests in places like Haiti and Indonesia that rely heavily on imported food have convinced many nations that it is more important than ever that they grow, and keep, the food their citizens need.

“Every country must first ensure its own food security,” said Kamal Nath, the minister of commerce and industry in India, which has barred exports of vegetable oils and all but the most expensive grades of rice.

But as the United States trade representative, Susan C. Schwab, noted in a telephone interview, “One country’s act to promote food security is another country’s food insecurity.”

International relief groups are trying to help people who can no longer afford food at today’s higher prices, but it is not easy. “We’re having trouble buying the stocks we need for emergency operations,” said Josette Sheeran, executive director of the World Food Program in Rome.

Restrictions have delayed efforts to ramp up feeding programs in Somalia and Afghanistan. The food program had long purchased grain from Pakistani traders or national stocks. When Pakistan imposed a ban on most wheat exports this spring, the food program was forced to find a new supplier, creating months-long delays.

“We had to slow down the scale-up of our operation as a result of having to redesign our supply lines,” said Ramiro Lopes da Silva, director of transport and procurement. “That means on the ground there were beneficiaries that went without rations or went without full rations for a portion of time. In the case of Afghanistan, some didn’t get into the program.”

The current dispute over food exports highlights choices that nations have confronted for centuries.

One relates directly to trade: Is it best to specialize in whatever food grows best in a country’s soil, and trade it for all other food needs — or even, perhaps, specialize in services or manufacturing, and trade those for food?

Or is it best to seek self-sufficiency in every type of food that will, weather permitting, grow within a country’s borders?

The usual answer from economists, and the United States’ position for decades, is that the world benefits most if every country specializes in growing (or servicing or making) what it can most efficiently, and trading for the rest.

Rainfall and other limits make it prohibitively difficult for some countries to grow all their own food. “If Egypt had to be self-sufficient in food, there would be no water left in the Nile,” Mr. Lamy said in a telephone interview.

“If every country in the world decided it wanted to produce its own food for consumption,” Ms. Schwab said, “there would be less food in the world, and more people would be hungry.”

But relying on food imports becomes much dicier if other countries are prepared to shut off the tap.

An obscure rule of the World Trade Organization requires members to notify the agency when they restrict food exports. But there are no penalties for ignoring the rule, and not one of the countries that has imposed restrictions in the past year has complied, according to the W.T.O.

Japan and Switzerland are leading a group of food-importing nations so alarmed by restrictions that they are seeking an international agreement preventing countries from unilaterally limiting food exports. The agreement would be part of the current, already-rocky Doha round of trade talks, named for the city in Qatar where negotiations began.

But the proposal ran into a procedural snag right off: food export restrictions are such a new issue that they are only tangentially mentioned as part of the Doha round agenda, which is not easily modified.

In some of the nations concerned about shortages now, past policies have discouraged farming. From Indonesia to West Africa to the Caribbean and Central America, poor countries have frequently cut farm assistance programs and lowered tariffs to balance budgets and avoid charging high prices to urban consumers. But they have found that their farmers cannot compete with imports from rich countries — imports that are heavily subsidized.

As a result, steps that could have taken place decades ago, resulting in more food for the world today, were abandoned. These included changes like irrigation schemes and new crop varieties.

“The subsidies given by developed countries to their farmers have led to lack of investment in agriculture in developing countries” in Africa and elsewhere, Mr. Nath said.

To make matters worse, the World Bank and the International Monetary Fund frequently pressured poor countries in the 1980s and 1990s to lower tariffs and to cut farm support programs, mostly to reduce budget deficits.

Indeed, the World Bank concluded in 2006 that not enough attention had been paid to the negative effects of its policy prescriptions on farmers in developing countries.

The current export restrictions, which mainly help urban consumers in poor countries, are the latest blow to farmers in the developing world.

Arfa Tantaway Mohamed, who grows rice on three-quarters of an acre outside the bustling town of Aga in northern Egypt, is frustrated at Egypt’s export ban, which is suppressing rice prices.

“For sure it has a negative impact,” said Mr. Mohamed, 50, as he smoked a Cleopatra brand cigarette during a break from working his fields, while 18 members of his extended family labored nearby.

Some countries reject the notion that restricting exports has pushed up prices on the world market, and point instead to higher prices for fertilizer, diesel and other farm expenses. India takes that position, but so does Thailand, in defending sharp markups in prices set by its Rice Exporters Association.

“The main cause of rising rice prices is the rising cost of rice planting,” said Surapong Suebwonglee, the finance minister of Thailand, the world’s largest rice exporter.

India and other countries, as well as some nonprofit groups, are quick to point out that economic arguments — that countries specialize in the production of whatever they can make most efficiently — are unconvincing, as long as rich countries heavily subsidize their farmers.

In fact, negotiators have a rough framework for a possible compromise on agriculture in the Doha round talks, including deep cuts in farm subsidies.

One possible compromise not being discussed in the Doha round may be for countries to continue relying on trade for most food imports, but hold bigger reserves in case of crises. World rice reserves, for example, have plunged to 9 weeks’ worth of consumption, from 19 as recently as 2001.

But United Nations officials are wary.

“I would not object to building up reserves,” said Supachai Panitchpakdi, the secretary general of the United Nations Conference on Trade and Development. “But like foreign exchange reserves, some countries go to huge extremes.”

Keith Bradsher reported from Thailand and the Philippines and Andrew Martin from Italy and Egypt.

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