Dani Rodrik points out an apparent inconsistency (which I completely missed) in Robert Zoellick's consideration of rising food prices in a speech delivered by the World Bank president earlier this week.
In the speech, Zoellick cited the huge global surge in grain prices as an urgent reason for pushing forward negotiations on the Doha round of world trade talks.
If ever there is a time to cut distorting agricultural subsidies and open markets for food imports, it must be now. If not now, when?
But Rodrik observes that the result of ending farm subsidies in the U.S. and European Union would be to send food prices even higher. Rodrik says he caught up to Zoellick later in the week and pointed this out, and Zoellick "doubted that the effect on world prices would be to raise them..." Such a position, says Rodrik, is directly counter to the conclusions of "decades" of academic research on the subject.
But it's worse than that. The whole point, from a development perspective, of ending farm subsidies in rich countries is precisely to raise prices for agricultural goods so that farmers in the developing world can find markets for their products. As it stands now, farmers in sub-Saharan Africa (not to mention campesinos in Mexico) cannot compete with subsidized Western agriculture. If prices for goods like cotton and sugar and other crops rose, poor, agriculture-dependent developing nations would have a better chance of escaping their poverty traps.
There is a nasty paradox living in this box, however. Even as the livelihoods of farmers in developing nations will be boosted by rising food prices, the standard of living for poverty-stricken non-farmers confronted with ballooning food budgets will decline. In the long run, a healthier overall economy propelled by a newly thriving agricultural sector is supposed to alleviate that problem, but in the short run, development specialists like the World Bank need to pay close attention to balancing the pros and cons. Denying that getting rid of "distorting agricultural subsidies" would end up boosting food prices is not a good way to start.
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