The Locavore's Dilemma

by Pierre Desrochers

  Of course, such measures were on top of numerous preexisting regulations and programs. According to the Organization for Economic Co-operation and Development (OECD), in 2009 government policies in advanced economies transferred more than $253 billion worth of income to farmers and approximately 22% of all farm earnings in these countries could be directly traced back to these programs.6 Policies take various forms and are often at odds with each other. For instance, the agricultural economists E. C. Pasour and Randal R. Rucker observed that in 2002 spending by the U.S. Department of Agriculture on initiatives designed to increase the prices received by farmers amounted to $37.8 billion, while initiatives to reduce producer prices cost taxpayers $11.4 billion.7 To give but one illustration, the price of corn was artificially lowered by some policies (primarily income supports to corn farmers) and artificially raised by a set of import taxes, tax credits, fuel mandates, and import restrictions on cane sugar that creates an artificially high demand for corn-based sweeteners. (Because these measures largely counteract each other, the evidence on behalf of the argument that heavily subsidized and therefore artificially low corn prices are the prime reason for the American “obesity epidemic” is actually rather weak.8)

  Needless to say, the “creativity” of U.S. politicians and bureaucrats is more than matched by their “(Agricultural) Fortress Europe” counterparts whose Common Agricultural Policy (CAP) has long combined a maze of direct subsidy payments, guaranteed prices, and import quotas and tariffs. Among other wonders, the CAP has resulted in minimum prices for sugar beets which are processed into sugar costing twice that available from sugar cane. Surplus beet sugar is then dumped in foreign markets at only about a quarter of the real cost. Perhaps because defending the indefensible became increasingly challenging over time, the CAP is now justified in the name of “guarantee[ing] the survival of the countryside as a place to live, work, and visit.”9

  It is not only advanced economies that are knee-deep in counterproductive agricultural policies; many governments in less advanced economies are even worse in this respect, although unlike rich countries they tend to use trade barriers more than other means such as production subsidies and government-led supply management schemes and mandates. As the trade policy analyst Caroline Boin observes, barriers to trade in developing countries are on average four times higher than in richer countries while African farmers pay roughly 60% more in export taxes than other African businesses. While most activists rightly denounce the subsidies paid to large agribusinesses and the damage they inflict on poor countries, about 70% of the world trade barriers are actually between poor countries. Boin quotes a Nigerian presidential adviser as saying: “I can assure you that my pen is always ready to ban [importing] more items as long as they are available in Nigeria.” When in doubt, he “impose[s] high tariffs.” Not surprisingly, Nigeria’s import bans have drastically increased the prices of such staples as maize, rice, and vegetable oil.10

  The official rationale for government interventions has always been that international trade and market prices cannot be relied upon to provide enough food at reasonable costs, especially in times of need—a view widely shared by agri-intellectuals and local food activists. Because of this, and the fact that there would be even more pressure to implement similar measures to combat the inevitable shortages and higher prices that would result from a locavore-driven economy, we will now briefly outline the consequences of some popular government interventions.

  Public Food Reserves

  In his influential “Farmer in Chief” essay, Michael Pollan argues that a way of improving “the food security of billions of people around the world” would be through a government-run strategic grain reserve which would “prevent huge swings in commodity prices” and “provide some cushion for world food stocks.” By buying and storing grain “when it is cheap and sell[ing] it when it is dear,” he argues, public-minded bureaucrats would be “moderating price swings in both directions and discouraging speculation.”11 This is the same rationale that has motivated the building and maintaining of public granaries for thousands of years and, more recently, of a wide range of public interventions ranging from the large-scale national food reserves of India and China12 to NGO-, UN-, and World Bank–sponsored community cereal banks in sub-Saharan Africa.13

  Unfortunately, the historical and contemporary records are pretty clear on the pitfalls of these policies. A recent case in point is Sahelian community-managed cereal banks—essentially small subsidized warehouses located in subsistence farming communities whose managers are expected to buy grain when it is inexpensive and to sell it later at a discounted (but nonetheless profitable) price when it is more costly. In practice, however, as noted by the author of a news report published by the Integrated Regional Information Networks—a respected humanitarian news and analysis service—these operations often ran out of money, borrowers defaulted, managers price-gouged or simply stole money, and villagers were in the end left as hungry as before. As one former NGO employee quoted in the news report observed, people “stole, managers disappeared, or the bank was located too far for some villagers to get their food.” Not surprisingly, while supporters of such schemes acknowledge these challenges, they nonetheless justified these programs on the grounds that “even a flawed solution to fight hunger is better than no solution,” while an international bureaucrat opined that such cereal banks “are a microcosm of Africa [and of] Africa’s problems. There are management problems, transparency and corruption issues no matter who funds the start-up.”14

  Similar problems have also been observed in the strategic grain reserves set up throughout Africa under the aegis of the Food and Agricultural Organization of the United Nations (FAO) after the first oil shock of the 1970s.15 As the geographer Evan Fraser and the journalist Andrew Rimas—two analysts not exactly friendly to market solutions—observed, the “seemingly limitless hoard” in silos proved “too tempting for local officials to ignore, and the program was plagued by politicking, mismanagement, and corruption. By the end of the 1980s, all that was left was the ink on a ledger sheet.” During the crop failure of 2001 in Malawi, local officials were “shocked, shocked, shocked” (our words, not theirs) to discover that when the silo doors were opened, the “strategic grain reserves held no grain.”16

  Yet, blaming African political culture for these failures is misguided, for major problems in similar schemes have been uncovered elsewhere. For instance, according to a 2010 internal note of the Food Corporation of India (FCI),17 about a third of the vast grain stock under its supervision was rotting in the open because of a lack of adequate storage space. Indeed, despite “full knowledge of the precarious condition of food grains, governments, both at the centre and in states, were unable to protect the country’s precious food reserves.” The FCI was also accused of being unable to move stocks after acquiring them and of having problems carrying out fumigation, “thus making preservation difficult.” According to a news report on the issue, the “apathy of the people and officials responsible for feeding millions may result in more losses in years to come. The big question which needs to be answered is whether anyone would be held responsible for this seemingly criminal negligence.”18

  Far from being aberrations, such recent reports are but the latest in a long line that might go back all the way to the first government-run food reserves. Recurring complaints throughout the ages were that public officials could rarely resist the temptation to dip into them for their personal gain; that these reserves crowded out or at the very least often resulted in a decline in private inventories; and that their costs were way out of line with their alleged benefits as the long-term storage of large quantities of grain has always been expensive and technically challenging (among other problems, their operator had to aerate and turn the grain; control moisture levels; sell and replace the grain frequently if it was to be used as seeds; and repair and maintain large structures).19 Other perennial issues raised by the Belgian historian Louis Torfs in 1839 were that
public granary managers who could rely on the public purse were never as careful in their purchases as private individuals who spent their own money; that massive state-sponsored purchases drove up prices for everyone; and that safeguarding large warehouses during turbulent times always proved nearly impossible. Besides, while the building and maintenance of massive structures entailed enormous sums of money, it paled in comparison to the amounts required to provision a decent sized city for even a short period of time. As such, Torfs stated, the very notion of effective public granaries had always been impractical. Efficient provisioning, he concluded, should be left in the hands of farmers and merchants, with government intervention limited to guaranteeing freedom to trade and private property rights, a prescription that has been validated by recent scholarship.20 Writing six decades before Torfs, the British agricultural writer William Harte had similarly concluded that the best public granaries were “vast tracts of country covered with corn,” wherever they may be.21

  Despite the sad historical record, numerous individuals working for organizations such as the prestigious International Food Policy Research Institute (IFPRI),22 NGOs such as the Institute for Agriculture and Trade Policy23 and Share the World’s Resources,24 several American consumer, environmental, religious and development groups,25 and producers’ cartels are still making the case for government-managed food reserves in the name of increased food security and reduced price volatility. Although recent proposals often take the form of special emergency reserves, international reserves, and “virtual reserves” controlled via commodity futures and options trading, their basic rationale and inherent shortcomings remain unchanged. It is beyond the scope of our book to discuss these new variants in any detail, but like more seasoned analysts, our intuition is that because they do not fundamentally differ from long-standing failed approaches, they will turn out to be ineffective and expensive while unable to outperform futures markets, which, through the buying and selling of commodities and their future delivery contracts, already smooth out long-term price volatility.26

  Food Export Restrictions and Bans

  In recent years, more than 20 countries including Russia, India, Tanzania, Ukraine, Macedonia, Moldova, Brazil, Argentina, and the Kyrgyz Republic have imposed complete or partial restrictions on the exportation of certain food commodities, such as wheat and rice.27 In doing so, they were following another practice that is thousands of years old.

  The main argument of critics of export restrictions has always been that the actual results of such measures are the exact opposite of their stated purpose. French economists such as Claude-Jacques Herbert and Anne-Robert-Jacques Turgot wrote in the mid-18th century that “a prohibition on exports made French grain prices too low and variable” and undermined the performance of the kingdom’s agricultural sector. By preventing food exports, political rulers ensured that farmers earned less on their investments than would have otherwise been the case and thus removed much incentive to improve production volume and productivity. On the charges of profiteering during hard times, the French economists replied, “free entry into a liberalized grain trade would arbitrage away any resultant excess profits,” competition would “eliminate excessive price differentials between different markets” and “minimize seasonal fluctuations,” as differences in climate and geography between regions were the best insurance against risk.28 In short, even though trade liberalization would shift the focus of public policy from consumer protection to greater incentives to increase production, consumers would nevertheless be made better off in the process.

  At about the same time in England, William Harte reached similar conclusions, fortified by his studies of the ancient world. The leaders of Rome never understood that “by prohibiting the exportation of grain on the one hand, and giving no encouragement to trade and commerce on the other,” they could only “procur[e] food for [their] subjects in a forced precarious manner.” Yet, other cities such as Carthage and Tyre, although located in much less fertile surroundings, had “enjoyed food of all useful kinds in great abundance” because of their free-trade policies. Much of the explanation, Harte argued, lay in the fact that the “liberty of exportation” had sharpened human industry “to such a degree” as “to render half-barren countries fertile” and able to feed cities in both Antiquity and in his time.29 (As the British agricultural writer Arthur Young famously observed in 1792: “Give a man the secure possession of a bleak rock, and he will turn it into a garden; give him a nine years’ lease of a garden, and he will convert it into a desert.”30)

  Benjamin Franklin observed that it was “common to raise a clamor” when higher prices in distant locations encouraged increased export of local grain on the “supposition that we shall thereby produce a domestic famine.” Typically what followed was a “prohibition, founded on the imaginary distress of the poor.” While Franklin was in favor of helping poor people in such circumstances, what was the justice, he asked, of compelling the farmer to accept a lower price for his wheat, “not of the poor only, but of everyone that eats bread, even the richest? The duty of relieving the poor is incumbent on the rich; but, by this operation, the whole burden of it is laid on the farmer, who is to relieve the rich at the same time.” In his opinion, most people could afford to pay more for bread by either working longer hours or reducing their consumption of other items until wheat prices came down to previous levels. As such, there would “remain comparatively only a few families in every district, who, from sickness or a great number of children, will be so distressed by a high price of corn as to need relief; and these should be taken care of, by particular benefactions, without restraining the farmer’s profit.” Those who further feared that food exports would result in local shortages, Franklin added, were concerned about something that had never and could never happen. “They may as well,” he wrote, “when they view the tide ebbing towards the sea, fear that all the water will leave the river.” His key point was that “the price of corn, like water, will find its own level.”31

  These basic arguments are still put forward by critics of recent food export restrictions.32 For instance, in 2010 Dr. Vicent Levalo, an economic lecturer at the University of Dar es Salaam, Tanzania, claimed that to lock farmers out of the international market would discourage the growth of the sector. He argued that this policy was “improper because exportation guaranteed farmers with a market for their produce,” which in turn “will entice many people to participate in the sector as they find it profitable, hence developing the sector. You lock farmers from the market yet you expect them to get a better life from farming, how will it be achieved?”33 The authors of a recent DEFRA report on the agricultural price spike of 2007–08 also highlighted that, to the extent that export bans are successful in curbing domestic food price inflation, “the necessary adjustment in global demand is concentrated amongst fewer countries and consumers. The more ‘residual’ the world market becomes as a result of such policies, the higher the degree of price volatility…” Furthermore, export restrictions also have the effect of undermining “confidence in the reliability of international markets” and will therefore encourage governments in some countries “to pursue policies that promote self-sufficiency and domestic production in ways that further fragment the international market.”34 As of this writing, Japan was leading the effort to secure a World Trade Organization (WTO) prohibition against export restrictions. Of course, Japan will be more likely to ease its import barriers and self-sufficiency goals if it has confidence it can always import the food it needs.35

  Another type of food export control that has discouraged local production is commodity boards, through which government bureaucrats attempt to stabilize agricultural income and prevent price fluctuations. Introduced in Africa in the 1930s by British colonial administrators (but soon emulated by French and Belgian officials in their colonies),36 their rationale was that while agricultural producers would be compelled to sell their crops for a fixed price to the bureaucrats who managed these institution
s, these bureaucrats would in turn have more leverage to command higher and more stable prices in light of their size and ability to reduce interseasonal variations in terms of quantities offered.37 As critics of these institutions observed, though, in practice the people who ran these boards typically gave producers a price that was below what could be obtained on world markets and then pocketed the differences for themselves. According to some analysts, these price control mechanisms destroyed flourishing export industries that had in most cases been created by and benefited primarily African producers who were then increasingly forced back into subsistence farming.38

  Price Floors

  The complaint that agricultural prices are too low to allow producers to earn an honest living is probably as old as commercial agriculture. Of course, while low prices are never good news to inefficient producers, to the extent that they are “market” prices means that they are still sufficiently high to allow the best farmers to earn enough profit to maintain and develop their businesses. This being said, no producer has ever complained about higher sale prices and reduced competition. Historically this has meant that wherever they carried enough political clout, inefficient domestic producers were able to keep cheaper nonlocal products at bay through import tariffs, outright bans, and government schemes which artificially restricted supplies (sometimes by killing millions of farm animals, which is what occurred in the USA during the 1930s) or created an artificial demand for some commodities (such as the ethanol program today).